E Book Current Affair 2012 Economy

Current Affairs

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Headway on Delhi-Mumbai IndustrialCorridor

The second node of the Delhi-MumbaiIndustrial Corridor in Rajasthan would be establishedin Jodhpur-Pali-Marwar following steady progress ofthe first node at Khushkhera-Bhiwadi-Neemrana.

The manufacturing units to be established onboth sides of the corridor would have a hugepotential for growth, while the work on a spice parkin the city would be completed shortly.

The manufacturing sector’s share in the grossdomestic product of the country was only 16 per cent,as against 26 per cent to 30 per cent in developednations. The expenses for construction of the roadbetween Neemrana and Bhiwadi would be borne bythe Union Government

One of the proposed seven mega-leatherclusters would be established in Rajasthan to give aboost to the leather industry in the State.

the foundation of the Footwear Design andDevelopment Institute (FDDI) in the city for stepsto upgrade the skills of youngsters to enable them tocompete successfully in the job market.. The StateGovernment has given land for the institute, whileexpenditure to the tune of Rs. 97 crore is being borneby the Centre.

the Union Government would shortly come outwith a national manufacturing policy, adding thatthe first national manufacturing and investment zonewould come up in Rajasthan.

MMTC Plans Major Expansion at NeelachalIspat

MMTC has decided to undertake a majorexpansion of its joint venture project, Neelachal IspatNigam Ltd. (NINL), in Orissa at a cost of Rs.1,855crore, to take advantage of its strong global reach in

trading business. NINL is a joint venture betweenMMTC and the Orissa Government. MMTC has49.78 per cent stake in NINL, while the OrissaGovernment owns 26.7 per cent in the joint venture.MMTC will market the products manufactured byNINL in the domestic and export markets.

integration of the plant would increase valueaddition and improve unit value realisation andprofitability of NINL. Higher sales value will resultin a projected revenue of about Rs.2,500-3,500 crorefor MMTC from NINL. There will also be share valueappreciation for MMTC after the expansion.

Special Scheme to Boost Tea ExportsA special scheme to boost India’s declining tea

exports, especially in markets like Russia, the CISand West Asia is likely. The scheme may be mountedthrough a joint effort of the tea industry and tradewho will partner the government.

Indicating this at the ongoing India Tea Festivalat Abu Dhabi, the Chairman of Indian TeaAssociation, C. S. Bedi, said that there wasconsiderable growth potential of these markets.Russia incidentally is the world’s largest tea importerand India is now trying to regain its lost share byincreasing its exports of orthodox teas in thiserstwhile CTC tea market.

India closed 2010 with a 2.4 per cent drop inexports over 2009. The event, the third in the series,is now considered ITA’s signature event and it offersan opportunity to understand the nuances of theconsumption and structure of these focussed markets,so that promotion programmes remain relevant andmatch the needs of the trade.

New Strategy to Double Exports UnveiledBuoyed by surge in demand for Indian

pharmaceutical, engineering and chemical goods in

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overseas markets, the Centre unveiled a new strategyto double exports to $500 billion in the next threeyears. “We must aim for more than a doubling ofexports in the next three years to $500 billion. Thisis achievable with a determined effort. We cannotafford any less than this,’’ stated the strategy paperreleased by Commerce and Industry Minister AnandSharma here. For achieving the $500-billion mark,exports should grow annually by 26.7 per cent.

Mr. Sharma said the strategy hinged onaggressive marketing of ‘Brand India’ and reducingexport transaction costs to make shipments morecompetitive and viable. The export drive would beled by sectors such as engineering, gems andjewellery, chemicals, pharmaceutical and textiles.

In a splendid performance, exports surpassedthe target of $200 billion and aggregated $246 billionin 2010-11 despite slow demand and financialproblems in some European markets. The surge inexports came mainly from the U.S., some westernEuropean markets and new destinations like LatinAmerica and Africa.

According to the strategy paper 2011-14,increased imports were unavoidable for feeding aneconomy which aspired to grow by 9-10 per cent.“We have, therefore, no option but to focus on higherexport growth and devise a strategy for rapidlyincreasing merchandise exports to ensure that thebalance of trade and the current account deficitremain within manageable limits,’’ it said.

The main focus of the strategy paper is on:product strategy, market strategy, technology andresearch and development and building Brand India.“At the product level, the potential sectors thatwould help double exports include engineeringgoods, chemicals and electronics. He said the targetwas to increase chemical exports to $12 billion andelectronic goods to $17 billion by 2013-14. “Inaddition, we are looking at labour intensive sectorssuch as gems and jewellery, leather and textiles. Forthe leather sector, the government has set a target of$9 billion and for textiles $42 billion in the nextthree years. For gems and jewellery exports, the targetis $70 billion from the current $33.54 billion,’’ hesaid. Under the marketing strategy, there is need tofocus on new markets like Asia, South America,Pacific and the Far East, the paper says. The

Commerce Ministry would also promote hightechnology exports which would coverbiotechnology, electronic hardware, automobiles,computer-based smart engineering, environmentalgoods and high-end areas of aerospace engineering.

Asian Economies Need to be CarefullySteered: FM

India cautioned that Asian economies, whichwere the lynchpin of global recovery, would needto be carefully steered. Asian economies are not onthe autopilot mode, Finance Minister PranabMukherjee said at a Governors’ Seminar on ‘ASIA2050’ at the annual meeting of the ADB. Agreeingwith the ADB’s report ‘Asia 2050 — realising theAsian century’, he said “...despite its blistering paceof growth, Asia is not on the autopilot mode and infact would require careful steering to realise the goalof a prosperous Asia which will not only make livesof Asians better but augur well for world economicgrowth.’’

Emphasising on “regional cooperation andintegration through transport and energyconnectivity,” Mr. Mukherjee said it could pave theway for the emergence of a vibrant regional market.

The ADB study has predicted that Asia’s grossdomestic product (GDP) would soar to $148 trillionand account for 51 per cent of global output in 2050.

DEPB Scheme Likely to be Phased OutThe popular Duty Entitlement Pass Book (DEPB)

scheme for exporters is likely to face the axe after itends on June 30 as the Finance Ministry has pitchedagainst its continuation.

The DEPB, under which exporters get sops tothe extent of 8-9 per cent of the value of shipments,has been extended year after year by the FinanceMinistry on the recommendation of the Commerceand Industry Ministry.

Officials said indications that the scheme willface the axe had been coming for the last few monthswhen during discussions the Finance Ministryofficials had given strong hints that the scheme wouldnot be continued beyond the June 30 deadline.Although, the Commerce Ministry has advocatedcontinuation of the scheme and come out in supportof exporters, the Finance Ministry has shown noinclination for continuing with the scheme.



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Piramal Healthcare to Enter Financial ServicesAjay Piramal-controlled Piramal Healthcare

Ltd. (PHL) on Friday said it had earmarked Rs.1,000-crore investment for making foray into the financialservices sector. It planned to start non-bankingfinance subsidiaries (NBFCs).

The company also announced the acquisitionof Indiareit Fund Advisors and Indiareit InvestmentManagement Company for Rs.225 crore.Essar Bags Mazagaon Dock Order

Essar Steel’s plate products manufactured at itsplate mill have been approved by the Indian Navyand the company has received a prestigious orderfrom Mazagaon Dock (MDL) to supply 13,000 tonnesof heavy plates to build state-of-the-art ships fordefence. The plate mill became the first primer plateproducer in the country to be recognised forindigenous development of steel for building shipsfor the Indian Navy. A stringent mill audit of EssarSteel’s recently commissioned wide-plate mill wasconducted by teams from the Directorate of NavalArchitecture (DNA), Defence Metallurgical ResearchLaboratory (DMRL) and the Director General ofQuality Assurance (DGQA) of the Ministry ofDefence. This is the first time that MDL has placedan order for such a large consignment of steel platesfrom a domestic steel mill. Set up at a cost of aroundRs.2,000 crore, the plate mill has an annualproduction capacity of 1.5 million tonnes. Equippedwith latest equipment and controls, the mill iscapable of producing 5-metre wide plates conformingto global standards.

Microsoft to Buy Skype for $8.5 bIn one of its biggest buyouts in over three

decades, Microsoft will snap up Skype for $8.5 billionin cash, a move that will bolster the software major’spresence in the highly competitive Internet market.

The deal, announced, would be a shot in thearm for cash-rich Microsoft in competing with strongrivals such as Google and Apple apart fromstrengthening its footprint in the consumer markets.“The companies have entered into a definitiveagreement under which Microsoft will acquire Skype,the leading Internet communications company, for$8.5 billion in cash from the investor group led bySilver Lake,” the two firms said in a joint statement.

The transaction has been approved by theboards of directors of the two companies.

Skype, a popular communications software,uses of voice over Internet protocol technology thatmakes international voice and video calls cheaper.Microsoft is estimated to have cash worth $48 billionand the Skype deal would become its largestacquisition in around 36 years. The software major’slast big-ticket deal was the $6 billion purchase ofadvertising firm aQuantive in 2007.

SEBI Cautions Bourses on Fund Flow fromIran, N Korea

The Securities and Exchange Board of India(SEBI) has cautioned the country’s bourses againstdealing with funds and entities from Iran and NorthKorea in view of the possible risk of black moneyflow and terror financing. In a circular to all membersof the bourse, the investigation department of theNational Stock Exchange (NSE) said that SEBI hadinformed it in a letter dated May 5 that Iran and NorthKorea did not have appropriate norms on ‘anti-moneylaundering and combating the financing of terrorism(AML/CFT)’ SEBI’s directive to the bourses was onthe basis of a global caution notice against the twocountries it received from the FATF (Financial ActionTask Force), which is an inter-governmental body thatformulates policies to combat money laundering andterror funding activities. A similar warning was sentby the Reserve Bank of India (RBI) to all banks andfinancial institutions in March. Since India becamea member of the FATF last year, all its regulatorybodies are required to ensure that the entities undertheir jurisdiction follow the global standardsprescribed by the global body to check moneylaundering and terror-financing activities.

Huawei to Modernise Bharti Airtel’s AfricaNetwork

Bharti Airtel said it had signed an agreementwith Chinese telecom solutions provider Huawei tomodernise and expand its 2G and 3G networkinfrastructure in Africa.

As per the agreement, Huawei will beresponsible for designing, planning, modernisationand expansion of Bharti Airtel’s networks, as wellas managing operations and maintenance. The sizeof the deal is reportedly around $400 million.



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Irani’s 43-year Tenure with Tata Steel EndsCredited with turning around Tata Steel in the

1990s, J. J. Irani has stepped down on turning 75from the company board, bringing to an end his 43years of association with the world’s seventh largeststeel making company. “Tata Steel has said that J. J.Irani has stepped down from the board of thecompany on June 2, on reaching the age of 75 years,”it said in a stock exchange filing.

Panel Suggests 4 Per cent Interestion PostOffice Savings Deposits

A government committee has suggested raisinginterest rates on Post Office savings bank depositsto 4 per cent, a suggestion that could benefit lakhsof small depositors. The Committee on Small Savingsalso recommended linking returns on other smallsavings schemes with interest rates on governmentsecurities. It has also suggested that Kisan Vikas Patra(KVP) be withdrawn and the annual investment limitfor the popular Public Provident Fund (PPF) be raisedto Rs.1 lakh from Rs.70,000 at present.

The committee recommended that interest ratesfor Post Office savings deposits be raised to 4 percent from 3.5 per cent at present, in line with theReserve Bank’s decision to hike rates on savings bankdeposits. Under the new formula, suggested by thecommittee headed by RBI Deputy GovernorShyamala Gopinath, small savings schemes wouldprovide better returns to investors. Interest rate forone-year deposit scheme would go up to 6.8 per centfrom 6.25 per cent, while returns for the PPF wouldimprove to 8.2 per cent from 8 per cent.Pranab Calls forGlobal Efforts to End Banking Secrecy

Calling for greater bilateral and multilateralcooperation to end the era of banking secrecy,Finance Minister Pranab Mukherjee on Mondaypitched for strong measures to reverse the ongoingtrend of illicit outflows from developing countriesand exploitation of natural resources through‘abusive’ transfer pricing schemes.

Inaugurating a two-day international seminaron taxation laws jointly organised by the FinanceMinistry and the Organisation for Economic Co-operation and Development (OECD), Mr. Mukherjee

said this abusive transfer pricing mechanism wasrobbing developing countries of their scarce resourcesthat were required for funding developmentalprogrammes. Mr. Mukherjee lamented that despitethe global efforts and statements issued by G-20leaders at the London summit in April, 2009, theglobal banking system had still remained opaque invarious non-tax and low tax jurisdictions. He pointedout that while the ‘Global Plan for Recovery andReform’ statement of G 20 leaders gave a call to takeaction against non-cooperative jurisdictions,including tax havens, “the spirit of this statement hasnot been respected.” Highlighting these issues at theseminar assumed significance as the OECD is a 34-member ‘rich club’ grouping of developed anddeveloping countries, which has been playing amajor role in bringing about reforms in theinternational taxation system, especially after theglobal financial crisis impacted all economies aroundthe world in varying degrees. Listing the steps thatIndia has taken so far, Mr. Mukherjee said the processof renegotiation of tax pacts with 65 countries hadbeen initiated to broaden the scope of provisionsgoverning the exchange of banking information andinformation without domestic interest. Till date, atotal of 14 tax exchange information agreements(TIEAs) had been completed and talks concluded ondouble taxation avoidance agreements (DTAAs) with36 countries in 2010-11.Reserve Bank nodMust for NBFCs to Open Subsidiaries Abroad

With an aim to regulate the credit system tothe advantage of the country, the Reserve Bank ofIndia (RBI) said non-banking finance companies(NBFCs) cannot open subsidiaries or enter into jointventures abroad without its permission.

“NBFC shall open subsidiaries/joint ventures/representative office abroad or shall make investmentin any foreign entities without obtaining priorapproval in writing from the Reserve Bank of India,”the central bank said in a notification. It saidinvestments will be permitted only in those entitieshaving their core activity regulated by a financialsector regulator in the host jurisdiction or country.Besides, the aggregate overseas investment by NBFCsshould not exceed 100 per cent of their net ownedfunds (NOF).



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“The overseas investment in a single entity,including its step-down subsidiaries, by way of equityor fund based commitment shall not be more than15 per cent of the NBFC’s owned funds,” the RBIsaid. However, NBFCs will not be allowed to makeinvestment in non-financial service sectors overseas.Besides as a general policy, NBFCs would not beallowed to open a branch abroad.

For opening of a subsidiary abroad by theNBFC or entering into joint venture overseas, theparent NBFC would not be permitted to extendimplicit or explicit guarantee to or on behalf of suchsubsidiaries.State to Host Partnership Summit -2012

After a long gap of nine years, the city willagain be hosting Partnership Summit -2012 here nextyear. The Centre has agreed to Chief minister N. KiranKumar Reddy’s request to choose Hyderabad as thevenue for the international event, it is learnt.

The Summit is a flagship internationalinvestment meet organised by the Ministry ofCommerce and Industry in partnership with theConfederation of India Industry. Partnership Summitis a unique platform which would bring togetherHeads of Governments, Trade Ministers, industryleaders and academicians from different parts of theworld. The 2011 Summit in Mumbai saw theparticipation of 10 Ministers from nine countries andover 1,200 delegates from 12 countries.GoAir Places $7.2 Billion order with Airbus

Low-fare domestic airline GoAir announcedthat it had ordered an additional 72 aircraft worthRs.32,000 crore ($7.2 billion) from Airbus, takingits total order with Airbus to 92 aircraft worthRs.43,200 crore ($9.6 billion).

The airline had placed an order for 20 AirbusA320s in 2006 of which ten have been delivered andthe company would take delivery of the remainingten aircraft in the next 24 months.Pranab to Unveil NewNorms for Accrual Accounting System

Finance Minister Pranab Mukherjee is slatedto inaugurate a day-long national conference of Statefinance ministers, organised by the Comptroller andAuditor General of India (CAG), to discuss

operational guidelines for conceptualising ‘Generalpurpose financial reporting’ under the accrual-basedaccounting system. Participating in the discussions,following release of the operational guidelines byMr. Mukherjee for shifting to the accrual-basedaccounting system for greater transparency andaccountability by departments, will be top officialsof Central ministries, State finance secretaries,financial advisors from key ministries and Stateaccountant generals.Gradual Shift

Following recommendation of a gradual shiftto accrual-based accounting by the Twelfth and theThirteenth Finance Commissions as also the SecondAdministrative Reforms Commission, the Centre hasentrusted the GASAB (Government AccountingStandards Advisory Board) under the office of theCAG to steer the process of transition. The boardincludes heads of six major accounting departmentsof the government, namely, the Indian Audit andAccounts Department, the Indian Civil AccountsDepartment, the Indian Defence AccountsDepartment, the Indian Railway AccountsDepartment and the Indian Postal Department.

According to a CAG statement, the presentcash-based accounting system lacks an adequateframework for accounting of assets and liabilities,depicting consumption of resources and presentingthe full picture of the government’s financial positionat any point of time. In this system, there is noeffective way of tracking assets created out of publicmoney which, in turn, dilutes accountability ofdepartments for management of government assets.The deficiencies in the present system result in lackof transparency, poor stewardship and impairedability to accurately predict the future cost of a currentfinancial commitment. “A move from cash toaccrual accounting will be a fundamental changewhich will help overcome the deficiencies of thepresent system,” a Finance Ministry statement saidhere. Under the accrual system, transactions will berecorded at the time when economic value is created,exchanged, transferred or impaired irrespective ofwhether cash is actually exchanged or not. Onlyaccrual accounting captures the full cost of servicesprovided by the government, thereby supportingeffective and efficient decision making.



Economy



The new system will also fully discloseinformation on the assets and liabilities of thegovernment. For instance, the true burden of pensionliabilities on the public exchequer will be reflectedwith the help of actuarial valuation. It would alsohelp in capturing both implicit and explicit subsidiesprovided by the government. The operationalguidelines have now been designed to provide ampleflexibility for governments to incorporate theirunique requirements without harming the need oflegislative reporting on a common and comparablebasis, the CAG said in its statement.India can becomeWorld Leader in Paper Sector

The consumption of paper and paperboard willincrease to 20 million tonnes by 2020 and 40million tonnes by 2030 with an annual 8 per centrate. This was stated by Madhukar Mishra, president,Indian Paper Manufacturers’ Association and MD,Star Paper Mills Ltd, while delivering the keynoteaddress at the inaugural session of Confederation ofIndian Industry (CII) fifth edition of Paper Tech 2011.Manmohan to ReviewPerformance of Infrastructure Ministries

Amid signs of economic growth slowing downand serious concerns over the poor performance ofsome key economic sectors such as power and coal,Prime Minister Manmohan Singh has convened a‘crucial meeting’ to review the functioning of majorinfrastructure ministries like power, coal, steel andmines.

e-payment Facility Introduced for TradersThe Commercial Taxes Department launched

a new facility through which traders, dealers andother tax-payers can make the tax remittances online.

The department had introduced an e-paymentsystem with the help of seven banks, including StateBank of India, State Bank of Hyderabad, Union Bankand IDBI but those who had no accounts in thesebanks could not benefit out of this.

Boeing 787 to Join Air India fleet by FourthQuarter

The wait for Boeing 787, also named as‘Dreamliner’, seems to be getting over gradually.Finally, after a delay of nearly three years, State-

owned Air India, battling financial hardships, is allset to receive the first ultra long haul passenger jetlinerin the fourth quarter of 2011.

Boeing expected India’s commercial airplanemarket to reach $150 billion in the next 20 yearsdriven by double digit growth and economicprosperity. In its outlook for India’s commercialairplane market through 2030, Boeing said Indiawould need 1,320 new passenger airplanes over thenext 20 years. India had 53.6 million domesticpassengers and 13.1 million international passengersduring the fiscal year ended March 31, 2011. Boeingsaid the passenger traffic in India was expected togrow at 8.1 percent annually over the long-term,while globally it was expected to grow at 5.1 percent. Globally, Boeing forecasts a market for 33,500new passenger airplanes and freighters worth $4trillion over the next 20 years.

New Series of Coins ReleasedUnion Finance Minister Pranab Mukherjee

released a new series of coins with improved designand revised size in the denominations of 50 paise,Re.1, Rs.2, Rs.5, and Rs.10.

Focus on MSME’s Role in EconomyThe last couple of years have seen banks in the

country, both nationalised and private, increasinglyfocus on Micro, Small and Medium Enterprises(MSME). The sector, with its significant contributionto the Gross Domestic Product of the country, hasbecome a critical part of the economy.

Currently, the MSME sector’s share of the GDPwas about eight per cent and it contributed about40 per cent of country’s exports and produced 45 percent of the manufactured goods. However, the mostimportant contribution of this sector was that itprovided jobs to about 60 million people in thecountry and hence requires great attention from boththe policy makers and the banking sector.

Regulating MicrofinanceThe Microfinance Institutions (Development

and Regulation) Bill, unveiled recently, envisions alarger regulatory role for the Reserve Bank of Indiaand proposes that all microfinance institutions withnet-owned funds of over Rs.5 lakh register with it.The RBI will define and fix what the Bill calls “an



Current Affairs



annual percentage rate”, to be charged by privateMFIs, and also set the range within which it canoperate. That rate will include interest, processingfees, service charges and any other charges or feesthat are payable by the borrowers. Although thesestipulations seek to remove a serious lacuna in theregulation of microfinance, they are extremelycumbersome and will be difficult to enforce. Inmainline financial sector regulation, the accent hasbeen on laying down broad rules for banks and othersto follow. Moreover, given the low threshold forregistration envisaged under the Bill, the number ofMFIs that will come under the regulatory scanner willbe too large for any meaningful supervision. Neitherself-regulation nor regulation by Nabard, which alsolends to the MFIs, has been found viable. Hence theonus has fallen squarely on the RBI.

Evidently, the context in which the newlegislation is proposed is as important as itssubstantive provisions. About a year ago, thegovernment of Andhra Pradesh — the State thataccounts for nearly a third of microfinance businessin the country — introduced tough rules to clampdown on such practices as overcharging customersand employing coercive methods to recover loans.These stringent rules came in the wake of allegationsthat some MFIs were indulging in such wrongful andhigh-handed practices. As a consequence of thegovernment’s action, some high-profile MFIs werebadly hit because banks pulled out their loans andthis, in turn, snapped those institutions’ loanrecovery circle. If enacted, the new Bill, whichempowers the central government to override existinglaws, might give the MFIs some relief, but there isvery little chance they will be allowed to go back totheir old ways. For its part, the Andhra Pradeshgovernment has voiced its opposition to several ofthe provisions and pointed out that, even if the RBIbecame the principal regulator, it would be wellwithin the State government’s jurisdiction to exercisecontrol over money lenders and check usuriouspractices.

India, China to Oppose Barriers toAffordable Drugs

India, China and other members of the BRICSgroup of countries have agreed to stand together tooppose any moves by developed nations to tighten

Intellectual Property Rights (IPR) rules that couldthreaten access to affordable drugs in developingcountries.

China had also agreed to look into India’srequests to expedite the registration process for Indianpharmaceutical companies seeking to enter the Chinamarket, officials said, with growing momentumamong the BRICS countries to expand trade inpharmaceuticals and reduce reliance on moreexpensive Western drugs.

New Mines Bill to be sent for CabinetApproval

The Union Mines Minister, Dinsha Patel, saidthe landmark new draft Mines and MineralDevelopment and Regulation Bill, 2011, whichprovides for profit sharing and royalty provision foraffected people, would be implement shortly.

The Group of Ministers (GoM) headed byFinance Minister Pranab Mukherjee had last weekapproved the draft bill which provides 26 per centprofit sharing by coal mining companies and 100 percent royalty sharing by others with project-affectedpeople. “It will take a few days to prepare theminutes of the meeting of GoM held last week. Aftergiving the final touches and incorporating theapproved articles of GoM, it will be sent to the UnionCabinet for seeking approval in the next 15 days,”Mr. Patel told reporters here.

FIMI (Federation of Indian Mineral Industry)President Siddharth Rungta claimed that it would costthe mining industry between Rs.12,000 crore andRs.15,000 crore. “We had suggested an amountequivalent to 26 per cent of royalty paid should beshared with the project affected people. The GoMincreased it to 100 per cent for non-coal companieswhich will impact the miners to the tune ofRs.12,000 crore to Rs.15,000 crore,” Mr. Rungta said.

Indian Agrochemical Industry Reaches outto China

For the first time, Indian pesticidemanufacturers, seeking to win a greater foothold inthe growing agrochemical market of Russia and otherformer Soviet States, have joined hands with Chinesebusinessmen.

The International Crop Science Conference andExhibition (ICSC-2011), held in Moscow also became



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the first trilateral business initiative on Russian soil.The event was organised by the PesticidesManufacturers & Formulators Association of India(PMFAI) with the cooperation of the IndianChemexcil, the China Crop Protection IndustryAssociation (CCPIA), and the Russian Union of CropProtection & Manufacturers and the Russian GrainUnion. The conference brought together 68 Indianand 19 Chinese companies involved in theproduction of plant protection substances.

Major Role of Technology in FinancialInclusion

Financial inclusion is a major agenda for theReserve Bank of India (RBI). Without financialinclusion, banks cannot reach the un-banked. It isalso a major step towards increasing savings andachieving balanced growth.

Of the 6.9 billion people on the planet, just30 per cent (2.1 billion) have bank accounts while75 per cent — 5.2 billion people — have mobilephones. “In India, only 200 million people haveaccess to a bank account while 811 million have amobile phone. For a population of 1.2 billion people,this translates into 68 per cent having a mobile phoneand only 17 per cent having a bank account. Thenumbers speak for themselves: when it comes toreaching the ‘un-banked’ and extending financialinclusion for the larger population, mobile phone isthe key. The first priority for banks is to adopt corebanking solution (CBS), including all regional ruralbanks (RRBs). Next, a multi-channel approach usinghandheld devices, mobiles, cards, micro-ATMs,branches and kiosks can be used. However, it shouldbe ensured that the transactions put through suchfront-end devices should be seamlessly integratedwith the banks’ CBS.

In rural areas, where accessibility is a problem,banks are using the microfinance network andbusiness correspondents and facilitators to bring morepeople under the ambit of banking services, said areport of PwC prepared for the CII’s banking summit.Capitalising on the huge untapped potential insmaller towns and cities and rendering financialservices to this segment of people poses a bigchallenge. “Few banks have explored technologysolutions to increase the scale of their microfinanceportfolios, with the use of smart cards and core

banking solutions”. Often a multitude of operationalissues are quoted as reasons for lagging behind infinancial inclusion targets. Till such time completetechnology integration takes place on all fronts, thereare bound to be areas where intermediate brick-and-mortar structures need to be in place. Even withBusiness Correspondents (BCs) issues arise regardingtheir supervision and customer grievance redressal.Certain accounting issues in this regard are also beingaddressed. All these operational issues and manymore can be resolved if banks begin to look atfinancial inclusion as a business opportunity ratherthan an obligation to fulfil their corporate socialresponsibility (CSR) objective.

Banks have to realise that for BusinessCorrespondent (BC) model to succeed the BCs whoare the first level of contact for customers have to becompensated adequately so that they too see this asa business opportunity. Similarly, as regards MSPs(mobile service providers) acting as BCs reportsreaching the central bank still suggest that the truespirit of cooperation is yet to stabilise with each stilltrying to destabilise the other.

Raising Public Funds needs RegulatoryApprovals

The Supreme Court order directing the Saharagroup companies to approach the SecuritiesAppellate Tribunal (SAT) against market regulatorSecurities and Exchange Board of India’s (SEBI) orderasking the entities to return the money they had raisedfrom investors through the Optionally FullyConvertible Debenture (OFCD) scheme is asignificant one as the issue is whether non-listedcompanies can raise funds from the public withoutfollowing appropriate regulatory norms.

The SEBI order was passed on June 23, incompliance with the order and directions of theSupreme Court on May 12 in the matter of issuanceof OFCDs by Sahara India Real Estate CorporationLtd (now known as Sahara Commodity ServicesCorporation Ltd) and Sahara Housing InvestmentCorporation Ltd.

“In this matter the questions as to what is anOFCD and the manner in which investments arecalled for are important questions. SEBI, being thecustodian of the investor’s interest and as an expertbody, should examine these questions apart from



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other issues. Before we pass further orders, we wantSEBI to decide the application(s) pending before itso that we could obtain the requisite input fordeciding these petitions. ........... We are taking thisroute as we want to protect the interest of theInvestor,” the Supreme Court said while directingSEBI to examine the case.

SEBI examined the issues and summarised that:The OFCDs in question here constitute an offer tothe public as they have been made to over 50 persons;the manner and the features of fund raising underthe bond issues by the two companies suggest theseissues are by no means ‘private’. What seems evidentis that the two companies have been running a masssubscription solicitation from the public and the twocompanies do not fall under the entities specifiedin the second proviso to Sec. 67(3) which is the onlyexemption granted to the ‘Rule of 50’ that definesoffer to the public under the Companies Act.

Further, it said OFCDs are neither shares nordebentures in its strict sense and are in the nature of‘hybrid’ as defined in the Companies Act, 1956.

Centre Plans 25 New Integrated TextileParks

The Central Government has drawn up plansto set up 25 new textile parks across the country,Union Commerce and Industry Minister AnandSharma said. “A decision on this issue is expectedto be taken in the next fortnight. We will take a finalview on the new schemes for integrated textiles park(SITPs) to be established in the country,’’ Mr. Sharmasaid. Mr. Sharma, who holds additional charge ofthe Textiles Ministry, said 25 new SITPs would beconstituted with each unit costing Rs.40 crore. Fourintegrated textile parks would be inaugurated inMaharashtra and Gujarat shortly, he added.

Sudan to Launch New CurrencyThe Central Bank of Sudan, on July 16,

announced that it would launch a new currency toavoid risks following the issue of currency of the newRepublic of South Sudan. “The replacement of theold currency will take two to three months,” saidMohamed Khair Al-Zubair, Governor of the Bank ofSudan, at a press conference. He said the bank wasready to negotiate with the government of SouthSudan to reach an agreement that guarantees

restoration of the old currency.

NAR–India Convention 2011The third National Association of Realtors

(NAR)–India Convention 2011 is being hosted byAndhra Pradesh Realtors Association in Hyderabad.Around 1,000 delegates of which most of themwould be brokers from all major cities of India andsome international brokers will be participating.

India Ranks 10th in Services ExportIndia achieved tenth rank in export of services

worldwide, while emerged as the 20th biggestmerchandise exporter in 2010, according to a latestWTO report. In 2009, the country stood at the 12thand 22nd position globally in services and goodsexports, respectively. In value terms last year, Indiaexported services and merchandise worth $110billion and $216 billion, respectively, the ‘WorldTrade Report 2011’ said. India’s goods exports wentup by 31 per cent in 2010, helping the country toexpand its market share to 1.4 per cent from 1.2 percent in 2009. According to industry experts,increasing demand for Indian goods in new marketslike Latin America and Africa are helping in boostingthe country’s exports. India’s services exports sharein the world exports increased to 3 per cent in 2010from 2.6 per cent in 2009. Further the report said,globally China ranked first in terms of merchandiseexports followed by the U.S. and Germany.

Bharti Ties up with Ericsson for AfricaOperations

Bharti Airtel announced a five-year managedservices agreement with Ericsson for managing andoptimising Airtel’s mobile networks in Africa in orderto provide a superior customer experience.

Ericsson will modernise and upgrade Airtel’smobile networks in Africa by deploying superior 2Gand HSPA 3G technology to ensure that Airtel’scustomers have an enhanced voice and dataexperience.

Ericsson’s first multi-country managed servicesdeal in Africa will enable Airtel focus on its coreoperations of innovating and launching new products,services and mobile applications for over 4.4-crorecustomers across the continent.



Economy



India, Sri Lanka MoU to Re-build PortIndia and Sri Lanka signed a memorandum of

understanding to develop the Kankesanthurai port,the first such deep-water facility to be re-built in thenorthern peninsula. The port has become useless afterit came under repeated attacks from the LTTE , whichcontrolled the surrounding areas. It is the key toconnecting the Jaffna peninsula with the rest of SriLanka and also with regional destinations, especiallyIndia.

The port will significantly reduce the transittime of goods from and to India, Bangladesh and theneighbourhood, and will give a fillip to economicactivities in the north, which is trying to find its feetafter three decades of civil war.

India can Emerge as Largest Portfolio forU.S. Exim Bank

India will emerg as the largest portfolio for U.S.Export Import Bank soon and the bank is committedto supporting Indian companies to make the U.S. thegateway to do business with the world, said bankChairman and President Fred Hochberg.

In the last decade Indo-U.S. relations haveemerged as the key driver to the stability of SoutheastAsia. Giving strength to a positive diplomaticrelationship is its business with bilateral tradebetween the two countries rising by 30 per cent in2010 from the previous year to $36.50 billion. Indiais U.S.’s 12 {+t} {+h} largest trading partner, upfrom the 25 {+t} {+h} position in 2000. To givefurther boost to Indo-U.S. business ties, a prioritymandated by U.S. President Barack Obama duringhis India visit last year, Mr. Hochberg wrapped up asuccessful round of business development missionin India with an interaction with the captains ofIndian industry, organised by the Confederation ofIndian Industry (CII).

Cloud Computing: Reshaping IT MarketCompanies in India will increase the adoption

of cloud competing technology over the next fiveyears. The total cloud market in India, currently at$400 million, will reach $4.5 billion by 2015. Ofwhich private cloud adoption will dominate andaccount for $3.5 billion in revenues, growing at over60 per cent, according to a study.

The study says that private cloud market willcreate one lakh jobs by 2015 against 10,000 now.Today, companies are under-skilled in addressingcloud computing implementations. It recommendscompanies to invest in competency buildinginternally to take advantage of cloud computingtechnologies. The study estimates that the skillingand re-skilling market in India will grow fast as cloudcomputing becomes critical to IT strategies. Leadingpublic and private educational institutions, alongwith IT enterprises are expected to play a key role inenhancing workforce skills to match the industrydemand for cloud computing.

Corporate Social Responsibility not aCharity, says Moily

The new Companies Bill, will make itmandatory for the corporate world to set aside 2 percent of the profits as part of Corporate SocialResponsibility (CSR) in backward districts.

Mr. Moily said: “We have about 300 districtswhere no investment has taken place and henceroping in the corporates to contribute 2 per cent oftheir profits will be a step to get them involved. Iam not seeing it as some kind of charity but I see itmore as Corporate Social Business, which willultimately benefit the corporate world. Though I amnot satisfied with 2 per cent and would like to gohigher, I am looking at the larger social impact ofsuch a move. While 2 per cent contribution will bemandatory, there will be some clauses to provide forexceptions.”

SAIL-led Consortium to bid for Mines inAfghanistan

The Steel Authority of India Limited (SAIL)Chairman, C. S. Verma, said three public sector unitsand an equal number of private sector companieswould form a consortium to submit the final bid forthe Hajigak iron ore mines in Afghansitan.

“A consortium led by SAIL will put its finalbid for the Hajigak mines that have reserves of around1.8 billion tonnes. There will be three companieseach from the public and the private sectors,” Mr.Verma said. The PSUs named included SAIL, NMDCand RINL. However, the names of the private sectorcompanies were not known. Mr. Verma said, if theSAIL-led consortium wins the race, state-run



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companies would have a majority 52 per cent stakein the mine and the remaining would be with theprivate sector firms, not necessarily in equalproportion.

India Slips to 14 {+t} {+h} Place in FDIInflows: UNCTAD

India slipped to the 14th place from eighthposition in the list of countries that attracted thehighest foreign direct investment (FDI) in 2010,indicating a serious crisis developing in the foreigninvestment climate. According to the ‘WorldInvestment Report 2011’, released by the UnitedNations Conference on Trade and Development(UNCTAD), inflows into India declined by about$10 billion to $25 billion in 2010 and in terms ofranking the country dropped to the 14 {+t} {+h}position from the eighth place it held in 2009, waybelow its competing neighbour China, which sawFDI inflows worth $106 billion. The U.S. saw themaximum FDI of $228 billion. Hong Kong wasplaced at the third position ($69 billion worth FDI)and Belgium at the fourth place ($62 billion), thereport said. Expressing concern over the continueddeclining trend in FDI into India, independenteconomic researcher Premila Nazareth Satyanand,who released the report here on Tuesday, said thecountry needed to have a good investment climate.

The report said FDI inflows worldwideclimbed up by 5 per cent to about $1.24 trillion in2010. “FDI to South Asia declined to $32 billion,reflecting a 31 per cent slide in inflows to India anda 14 per cent drop in flows to Pakistan. In contrast,inflows to Bangladesh, a rising low-cost productionlocation, increased by nearly 30 per cent to $913million,’’ the report said. In India, the FDI inflowswere $19.42 billion in 2010-11. At present, FDIflows into the country are sluggish due to uncertainglobal economic conditions. India ranked fourth inthe list of top ten recipients and sources of FDIinflows in developing Asia in 2009 and 2010 behindChina and Singapore. India was also the fifth largestsource of funds (FDI outflow) in developing Asia,helped by a string of major acquisitions in countriesacross the globe during 2007-11. Among majorbuyouts that figured in the UN report were TataSteel’s acquisition of U.K.-based Corus group for$11.8 billion and Hindalco Industries’ acquisition

of U.S. firm Novelis worth $5.8 billion. Tata Motorsalso acquired U.K.-based Jaguar Cars for $2.3 billion,Essar Steel Holdings bought Canada’s Algoma SteelInc for $1.6 billion and United Spirits acquiredWhyte & Mackay of U.K. for $1.17 billion.

Steel Capacity Set to Rise to 120m Tonnesby 2013

Union Steel Minister Beni Prasad Verma saidIndia was all set to become the second largestproducer of steel in the world by 2013, with aninstalled annual production capacity of 120 milliontonnes. “Currently, India has the fourth largest steelsector in the world, both in terms of capacity andproduction. By 2013, India will be the second largeststeel producer in the world. It is estimated that Indiawill have a production capacity of 120 milliontonnes,” Verma said. India’s production capacitycurrently stands at around 80 million tonnes and thiscapacity was expected to rise to over 150 milliontonnes by 2020. The steel-making capacity of thecountry was just 51 million tonnes in 2006.

SEBI Makes Mandatory for Promoters toDisclose Share Dealings

With an aim to rein in insider trading bypromoters without investors’ knowledge, SEBI(Securities and Exchange Board of India) has decidedto make it mandatory for all promoter entities todisclose any considerable purchase or sale of sharesby them. The proposed step was approved by themarket regulator’s board and would soon come intoeffect.

SEBI Proposes to Regulate AlternativeInvestment Funds

The Securities and Exchange Board of India(SEBI) proposed to create regulations for alternativeinvestment funds under the title SEBI (AlternativeInvestment Fund) Regulations. These funds raisecapital from a number of high networth investors(HNIs) with a view to investing in accordance witha defined investment policy for the benefit of thoseinvestors. The funds which would come under theproposed regulation include, Venture Capital Funds,PIPE Funds, Private Equity Fund, Debt Funds,Infrastructure Equity Fund, Real Estate Fund, SMEFund, Social Venture Funds, Strategy Fund (Residual



Economy



Category, including all varieties of funds such ashedge funds, if any).

It would be mandatory for all types of privatepools of capital or investment funds to seekregistration with SEBI. The funds could be formedas companies, trusts or body corporate including LLPstructure. SEBI said that there was a need to recogniseAlternative Investment Funds (AIF) such as PE or VCas a distinct asset class apart from promoter holdings,creditors and public investors.

Coal India to be Included in SensexCoal India Limited (CIL) is poised to join the

select band of corporates with its imminent inclusionin the Bombay Stock Exchange sensitive index,Sensex. CIL release said adding that the companyconsidered this to be a defining moment in itshistory. Being part of the Sensex also helps in gettingresponse from global funds. CIL Chairman N. C. Jhatold that the company was delighted at thisdevelopment and is now the No. 1 stock among PSUsand No. 2 in the general category.

20,000-crore Jindal Project to take off soonin Maoist Heartland

At a time when the Mamata Banerjeegovernment is locked in a bitter courtroom battlewith the Tatas over Singur land, a review of anothermajor project involving the Jindals and entailing aninvestment of Rs.20,000 crore ended on a positivenote setting the stage for the project to begin laterthis year. The project is hugely significant not onlyfor the investment it entails but also for its location– in the heart of the Maoist stronghold in PaschimMedinipur district 50 km from Lalgarh. Thegovernment, too, is eager that the project takes offas it would bring development in the area.

India will become one of top 10 BiotechMarkets

The industry is estimated to grow to $50 billionby 2020 and will be one of the top 10 markets inthe world. This growth will be spurred by severalfactors, T. Madhan Mohan, Adviser, Department ofBiotechnology, Ministry of Science and Technology,told. India was one of the world’s largest producersof paediatric vaccines and they were supplied to morethan 150 countries and also to the World Health

Organisation and UNICEF. “India remains a price-sensitive market. It is a ‘living laboratory’ in the sensethat innovative healthcare products that becomesuccessful in this market have an immense potentialto enter similarly placed economies such as Brazil,Argentina and rest of South America, most of AsiaPacific, and many countries in the Africancontinent,” Mr. Mohan said.

India was also becoming a global hub fordiscovery research and product development for“affordable, high quality medicines and deliverymodels” and the factors that contributed to this were“active Government focus to boost biotech R&D,entrepreneurial dynamism, and availability of skilledmanpower well versed in business and technical skillsrelated to chemistry, biology, and IT”.

Foreign Investors can Invest in MFsIn a further liberalisation of the portfolio

investment route incorporating the industry’ssuggestions for a more vibrant debt market for theinfrastructure sector, the Centre permitted a newcategory of qualified foreign investors (QFIs) to investup to $13 billion in equity and debt schemes ofmutual funds (MFs). Announcing this, for which theReserve Bank of India (RBI) and the Securities andExchange Board of India (SEBI) issued separatenotifications to set the investment norms as marketregulators, a Finance Ministry statement said: “It hasbeen decided that the aggregate investments byqualified foreign investors (QFIs) in equity schemesof the mutual funds under direct and indirect routesshall be subject to a ceiling of $10 billion.’’Residual Maturity

Similarly, QFIs can invest up to an additionalamount of $3 billion in the units of the mutual fundscheme, which invest in infrastructure debt ofminimal residual maturity of five years in corporatebonds issued by infrastructure companies, it said.

For the purpose, a QFI has been categorised asan individual, group or association, resident in aforeign country and is compliant with the FinancialAction Task Force (FATF) standard and a signatoryto the International Organisation of SecuritiesCommission’s multilateral memorandum ofunderstanding.. The Ministry made it clear that QFIs“do not include foreign institutional investors or sub-



Current Affairs



accounts as these are already permitted to invest inequity and debt markets in India as per the extantguidelines of SEBI and the RBI.’’ The move followsthe announcement of Mr. Mukherjee on the issue inthe last Budget. Significantly, the opening up of theinvestment window has come about at a time whenconcerns are being voiced over the flight of foreigncapital and just over a week of Finance MinisterPranab Mukherjee’s meeting with India Inc., whereinindustry captains sought a green signal for QFIinvestment of up to $ 3 billion in infrastructure debtschemes.Direct Access

According to the Ministry statement, while thepolicy announcement would enable QFIs to havedirect access to Indian mutual funds, it would alsowiden the class of investors participating in thecountry’s capital market, help increase depth andreduce market volatility. Setting the guidelines, theRBI said in its notification that dividend paymentson units held by QFIs would have to be directlyremitted to the overseas accounts of QFIs by thedomestic mutual funds and dividend payments toQFIs would not be allowed as an eligible credit tothe single rupee pool bank account. Alongside, in aseparate notification, SEBI said that while QFIs canbuy units of equity or debt funds in the primarymarket, they cannot trade in the secondary market.

Besides, it noted that when the cumulativeQFI investments reach $8 billion in equity schemes,SEBI would auction the remaining limit to foreigninvestors who could then buy the units from fundsof their choice. A similar process would be followedwhen the investment in debt touch $ 2.5 billion.

The QFI limit for debt would be within theoverall ceiling of $25 billion, including FIIs, set bythe RBI in corporate debt issued by infrastructurecompanies. The QFI scheme, the Ministry statementsaid, would make it easier for overseas investors toparticipate in the infrastructure sector projects in Indiaand thereby provide an additional source of overseaslong-term debt funding.

Set up Sovereign Fund to Buy Raw Material:FAI Chairman

Fertilizer Association of India (FAI) chairmanA. Vellayan has urged the Central Government to

set up a sovereign fund of three billion to four billionU.S. dollars to buy raw material assets abroad whichwill help reduce dependence on imports forproduction of fertilizers and ensure agriculturesecurity. Besides, pointing out that this was a sectorwhich had attracted no investment for the past almosttwo decades as it was a “highly controlled one,” Mr.Vellayan described 2010 as a “land mark year” thathad witnessed a number of reforms including“nutrient based subsidy.”

The ‘partial decontrol’ announced recently willpave the way for ‘total decontrol’ and ‘totaldecanalisation’ soon. Thus it would be possible toattract not only new investments but also freshtalent. He suggested that it would be ideal to set upa production capacity of at least seven million toeight million tonnes of urea at about Rs.40,000 crore.“This would reduce our imports considerably.”

Similarly, on the phosphatic side, four millionto five million tonnes of DAP and NPK productioncapacity should be set up at about Rs.30,000 crore.

Pointing out that the Indian consumption andalso productivity were well below the global level,he said there was enormous scope on both fronts.Among the challenges that he touched upon includemulti-nutrient deficiency in soil and restoring soilhealth.

GSI Finds Platinum Deposits in OrissaThe Geological Survey of India (GSI) has found

Platinum Group of Elements (PGE) in the Baula-Nuasahi ultramafic complex in Orissa.

“We, in collaboration with the Orissa MiningCorporation [OMC], are studying the feasibility ofmining of PGE in the area. There are someencouraging signs,” said GSI Director-General A.Sundaramoorthy. The PGE comprises a family of sixgreyish to silver white metals — platinum,palladium, iridium, rhodium, osmium andruthenium. They have attracted enormous interestfrom explorers all over the world due to their rarity,high economic value, growing demand in jewellery,pharmaceutical, telecommunication and hi-techapplication in fuel cell technology.

“The Baula-Nuasahi ultramafic complex is theonly proven PGE deposit in the country with anestimated resource of 14.2 million tonnes. This isconfined to the active chromite mines,” GSI sources



Economy



said. Sitampundi in Tamil Nadu is another placewhere the GSI has got proof of PGE presence. Effortsare on to intensify survey of heavy metals along theOrissa coast.

India, Australia review Progress of FTANegotiations

India and Australia agreed to give a strong pushto the ASEAN+6 process in an effort to take forwardthe economic integration in Asia. Both countries alsoreviewed the progress of the Indo-Australia Free TradeAgreement (FTA) negotiations.

Mr. Sharma met his Australian counterpartCraig Emerson at Manado in Indonesia on thesidelines of the ASEAN Economic Ministers+6summit to discuss the bilateral trade relationsbetween the two nations.

It was also decided that the first meeting ofthe Indo-Australia CEO’s Forum will be held in Indialater this year. Mr. Sharma and Dr. Emerson reviewedthe progress of Indo-Australia FTA negotiations. Thefirst round of the negotiations was held in May. Bothministers agreed to give a strong push to theASEAN+6 process and take forward economicintegration in Asia.

Emerging from the bilateral meeting, Mr.Sharma expressed optimism on the East AsiaSummit. “We consider the East Asia summit as anopportunity to establish a regional architecture forcooperation, connectivity and future integrationwhich will bring about a strong, sustainable andbalanced economic growth in the region. For this weneed to pursue the proposed ComprehensiveEconomic Partnership in East Asia (CEPEA)vigorously.’’

The Commerce Minister also took stock of theDoha round during the meeting with Dr. Emerson.“All of us have been active participants at the WTOwith the common goal of early conclusion of theDoha Round. India supports a balanced,comprehensive and development-centric outcome,’’he remarked. The Commerce Minister noted thesignificant increase in trade and investment betweenASEAN and India in 2010. Trade between India andASEAN increased by 24 per cent to $51.3 billion in2010. India’s exports grew at 33 per cent at $23.1billion while imports from ASEAN increased by 18per cent to $28.2 billion. Foreign direct investment

inflows from ASEAN reached $14.25 billion in Mayand accounted for 10.36 per cent of India’s total FDI.

Take up Export of Food-grains,Recommends Committee

The Parliamentary Standing Committee onCommerce has expressed “serious concern” over thecontinued wastage of “huge quantities of foodgrains”and strongly favoured taking up export to fetchfarmers remunerative prices for their produce.

Expressing concern that rice and wheat stockswere lying waste in godowns for over three years, itrecommended that such grains should be distributedat a nominal price, or even free of cost, to needy BPLfamilies, instead of being left to rot. It suggested thatthe government might also consider a proposal toissue food coupons, in addition to the PublicDistribution System.

The committee, headed by Shanta Kumar, MP,said the country was now faced with a new situation— of glut in foodgrains production, with all the majorwarehouses stocked to the brim.

Mobile Broadband could Fuel GrowthPointing out that broadband connectivity

could be a driver of socio-economic improvement,a global study has said a 10 per cent increase inbroadband penetration in India would contribute to$80 billion of net revenues across the country’stransport, healthcare and education sectors by 2015.

“A 10 per cent increase in broadbandpenetration will lead to net growth revenue increasesof 42 per cent in the healthcare sector (equating toan additional $27.4 billion), 36.8 per cent ineducation (extra $31.2 billion) and 18.8 per cent inthe transport sector (an additional $20 billion),” saidthe study on the economic impact of mobilebroadband growth that was commissioned by theGSM Association (GSMA).

At present, broadband penetration in India is1.7 per cent and by 2015 it is likely to rise to 12.5per cent. However, to achieve this it is essential thatadditional spectrum is released quickly so thatmobile operators can roll out next-generation mobilebroadband networks and services and meet demand.

“India is the second largest mobile market inthe world…it has an opportunity to shape the mobileindustry of the future,” he adde



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Google to Acquire Motorola MobilityBusiness for $12.5 b

In a bid to strengthen its mobile business,Google announced that it would acquire MotorolaMobility Holdings, the cell phone business that wassplit from Motorola, for $40 a share in cash, or $12.5billion. The offer by far Google’s largest ever for anacquisition is 63 per cent above the closing price ofMotorola Mobility shares on Friday last. Motorolamanufactures phones that run on Google’s Androidsoftware. Android has become an increasinglyimportant platform for Google, as global smartphoneadoption accelerates. The platform, launched in2007, is now used in more than 150 million devices,with 39 manufacturers. The acquisition would turnGoogle, which makes the Android mobile operatingsystem, into a full-fledged cell phone manufacturer,in direct competition with Apple.Legislation to Monitor Functioning of RegulatoryAuthorities under Study, says Prime Minister

The Union government is consideringlegislation to ‘monitor the work’ of independentregulatory authorities to make them ‘moreaccountable without compromising theirindependence.’ Addressing the nation from theramparts of the Red Fort on the occasion of 65thIndependence Day, Prime Minister ManmohanSingh said that at the moment there was nolegislation to scrutinise the functioning ofindependent regulatory bodies. He, however, did notname any regulatory body. Some of the authoritiesinclude the Telecom Regulatory Authority of Indiaand the Airports Economic Regulatory Authority .

However, reports and recommendations madeby most of the regulatory bodies are not binding onthe government. They are at best consideredsuggestions by experts in the respective fields.

The other categories of the authorities tooversee the functioning of the government are set upunder the provisions of the Constitution. Theyinclude the Comptroller and Auditor-General ofIndia (CAG), the Central Vigilance Commission(CVC) and the Election Commission. In recentmonths, some of the functionaries of the governmentand the ruling combine have raised questions on thejurisdiction and functioning of CAG.

NTPC to Add more Units of 660 MW EachNTPC Ramagundam General Manager Y.V.

Rao has said that the studies for the expansion of2600-MW Ramagundam power plant by adding 2 X660-MW unit power plants and its feasibility reportwas under preparation. He said that the study for theinstallation of 25-MW solar power plant at NTPC,Ramagundam, was complete. He said that the NTPCRamagundam was planning to achieve more than 96per cent of plant load factor (PLF) during r 2011-12.

The NTPC had tied up with the Mahanadi CoalFields Limited and South Eastern Coal Fields forsupply of 5 lakh tonnes of coal during this financialyear. It had also tied up with SCCL for supply of 20lakh tonnes of coal this year. The NTPC had alsodecided to ban the use of plastics in its township.

India needs 55 Million more Jobs by 2015:CRISIL

India needs at least 55 million additional jobsby 2015 to maintain the current ratio of employedpeople to total population at 39 per cent. This wouldbe nearly twice the jobs created during 2005-2010,according to a report from CRISIL Research, anindependent research house. “If we factor in thenumber of people retiring or losing their jobs by2015, new job hires will have to exceed 55 million.Achieving this will pose an overwhelming challengewithout appropriate policy support,” the report says.

The CRISIL Research study is based on recentlyreleased National Sample Survey Organisation(NSSO) data on employment in India. Totalemployment is the sum of people in jobs and self-employed. Between 2005 and 2010, the net additionin jobs was 27.7 million but the number of self-employed people decreased by 25.5 million. Thisrestricted the increase in number of employed peopleto two million. This increase has been misinterpretedby many as the number of jobs created. Even at 27.7million, the job creation leaves much to be desired.

The trends and pattern of employment offerstwo specific insights to policymakers for acceleratingjob creation in the Indian economy. First, higheconomic growth alone is not sufficient for creatingjobs as was evident in the last decade. Second,appropriate policies will have to complement highgrowth for facilitating the required job creation in



Economy



the manufacturing and services. The role of policyassumes greater importance now since the weakgrowth in advanced countries is likely to hurt jobgrowth in export oriented sectors in India. “Easingdemand constraints in manufacturing through labourreforms and supply constraints in services by fast fast-tracking reforms in higher education will lead to fasterjob growth,” Vidya Mahambare, Senior Economist,CRISIL said.

Regulatory Framework for Realty SectorSuggested

The Competition Commission of India (CCI)said the Centre and the State governments shouldcome out with a regulatory framework for the realtysector to protect consumers from unfair tradepractices. “The absence of any single sectoralregulator to regulate the real estate sector in totality,so as to ensure adoption of transparent and ethicalbusiness practices and protect the consumers, hasonly made the situation in the real estate sectorworse,” said CCI in an order against DLF. The CCIhas imposed a hefty penalty of Rs.630 crore on therealty major for abusing its dominant market positionon a complaint by ‘The Belaire’ association inGurgaon. The CCI, which became fully functionalin May, 2009, draws its power from the CompetitionAct, 2002, to check anti- competitive practices andabuse of dominant market positions.

IRCON-Sri Lanka PactAn agreement for supply and installation of an

$86.5-million signalling and telecommunicationsystem for railway network in Northern Province ofSri Lanka was signed between IRCON and Sri LankaRailways.Line of Credit

This project is a part of Indian Line of Creditof $800-million, which has been extended by Indiaat concessional terms. The credit line has beenextended at an interest rate of LIBOR plus 0.5 percent with LIBOR capped at 3 per cent. Therepayment period is 20 years with a five yearmoratorium. The proposed contract will cover theAnuradhapura – Kankasanthurai and Medawachchiya– Tallai Mannar sections, covering a route length of341 km and 28 stations

T-50 Stealth Fighter Makes Public DebutThe Sukhoi fifth-generation stealth fighter,

which Russia is jointly developing with India, madeits public debut at a Moscow airshow.

The T-50 has been making test flights sinceJanuary 2010, but it is the fighter’s first appearanceat an airshow. After the demonstration flight thefighter jets were whisked away as they are stillclassified and are not displayed on the ground. TheT-50 resembles Russia’s best-selling Su-30 fighter jetbut will have all its weapons hidden inside its bodyand wings to avoid radar detection and will fly atsupersonic cruising speeds. The aircraft will alsoboast ultra manoeuvrability and high-technologyavionics. The Russian Air Force will begin testingthe Perspective Frontline Aviation Complex, as theplane is called in Russia, in 2013 and will startinducting its mass-produced version from 2014, saidthe Russian Air Chief at the show. It is India’s biggest-ever defence project and its largest defence deal withRussia. India and Russia are jointly designing twoversions of the plane — a single-seater for the RussianAir Force and a two-seat version for the IAF. Indiawill contribute about 30 per cent of the total designin the project, including composite components withthe stealth function and some avionics, electronicwarfare systems and cockpit displays. The total costof the project is estimated at $10 billion. The Indo-Russian fighter jet is expected to rival the U.S. F-22Raptor and will cost just over half its price — lessthan $100 million apiece.BrahMos Agreement

Working on the hypersonic version of itssupersonic cruise missile, BrahMos Aerospacesingned MoU with Russian aviation institutions toestablish a centre of excellence for developingtechnology for high-speed aircraft and missiles.

The MoU was inked here with the MoscowAviation Institute (MAI) and NPO Mashinostroyeniya(NPOM) corporation on the first day of the MAKS,2011 (Moscow air show). The MoU was signed byBrahMos CEO A. Sivathanu Pillai, Rector of MAIA.N. Geraschenko and Chief of NPOM CorporationAlexander Leonov. Speaking on the occasion, Mr.Pillai said: “It is a remarkable step for BrahMos,NPOM and MAI to come together and work in thisfield.” BrahMos had earlier signed a similar MoUwith the Indian Institute of Science.

Gold Exchange Traded Fund from SBI MFAsset management firm SBI Mutual Fund has

launched a new fund offer, SBI Gold Exchange Traded



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Fund, under which customers can invest in goldwithout buying or storing physical gold.

“It is a convenient product and will give anopportunity to an investor to invest in the purest formof gold without the need of buying and storingphysical gold that too without a dematerialisedaccount unlike gold exchange traded funds,” SBI MFManaging Director and Chief Executive OfficerDeepak Chatterjee said. The minimum investmentin the fund would be Rs.5,000.

Technology to Improve Bio-safety of GMCrops

A research group in the Madurai KamarajUniversity here has successfully developed atechnology to improve the bio-safety of GeneticallyModified (GM) crops. The novel technology was firstdeveloped/deployed in rice plants and it can bereadily applied for all other crops also so that it wouldhave ‘enormous impact’ in improving the bio-safetyvalue.

The university’s research group has, through itsresearch initiatives, now developed ‘SelectableMarker Elimination’ technology and it was successfulin coming out with marker-free GM rice with sheathblight disease resistance. “Introduction of useful pestresistance and disease resistance genes in a cropalways requires the simultaneous introduction of anantibiotic resistance gene which enables the plantto grow on a medium containing antibiotic such as‘kanamycin’ or ‘hygromycin.’

Through our marker elimination technology,only the useful transgenic trait is retained in the GMcrop,” Dr. Veluthambi said. According to Dr.Veluthambi, the novel process has enabled the MKUgroup to develop the first example of marker-free GMrice with sheath blight disease resistance. It tookabout seven years for the MKU research group tocome out with this technology after conductinglaboratory studies and experiments.

MSME Ministry takes up Taxation Issueswith Finance Ministry

The Micro, Small and Medium Enterprise(MSME) Ministry has asked the finance ministry toresolve the double-taxation issue faced by privateequity investors, who want to invest in the sectorwhich contributes about 8 per cent to the economy.

The MSME Ministry has said that private equityplayers, like angel investors, were facing the problemof double-taxation in India. “We have taken up theissue of double-taxation faced by angel investors withMinistry of Finance...these investors pay taxes as anowner and also as a equity holder,” an official said.

Angel investors are affluent individuals whoprovide the capital for a business start-up in exchangeof convertible debt or ownership equity.

In general, these investors are usually reluctantto invest in MSMEs due to the high risks involved inthis sector. The MSME Ministry is also working withthe Planning Commission on the need to providedifferent routes of easy credit to these units duringthe XII Plan. These units face major challenges likelack of equity, risk capital and poor access to timelyand affordable loans.

SAIL to Invest Rs.10,264 cr to DevelopMines

In an effort aimed at meeting its future demandfor raw material, Steel Authority of India Ltd. (SAIL)on Monday announced that it would investRs.10,264 crore to develop mines to ensure adequateavailability of raw material after completion of theexpansion programme. The Maharatna company hasalready announced a Rs.70,000-crore ambitiouscapacity expansion plan to ramp up its domesticoutput to 23 million tonnes per annum (mtpa) by2012-13 from 14.35 mtpa at present. At that pointof time, the company’s iron ore requirement wouldincrease from 23.2 million tonnes (mt) at present toa post-expansion level of 39 mt, which will be metthrough captive sources, according to SAIL ChairmanC. S. Verma. The company at present runs sevenmajor iron ore mines, four of which are in Jharkhandand the remaining in Orissa.

He expressed satisfaction over the progressmade in installation of a new blast furnace at Bhilaiat an investment of Rs.1,579 crore and with an annualhot metal production capacity of 2.8 million tonnes.He also reviewed the progress of work on the ultra-modern Universal Rail Mill, being set up at the plantat a cost of Rs.1,200 crore.

Ministry against Cap on FDI in PharmaSector

Pitching in favour of any kind of cap on foreign



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direct investment (FDI) in the pharmaceutical sector,the Commerce Ministry has suggested that alternativemeans could be considered to address the issue ofMNCs acquiring dominating nature through thetakeover route in domestic firms.

At present, 100 per cent FDI through theautomatic route is allowed in the pharma sector.Concerns were raised in some quarters over the recenttakeover of domestic pharmaceutical companies byMNCs and some kind of measures were sought tocounter this position. In the recent past, the industryhas witnessed several high profile acquisitions,including that of Ranbaxy Laboratories and PiramalHealthcare by overseas companies. “To put any kindof cap would not be the right thing to stop suchtakeovers. The Government can consider other waysto do away with the concerns of acquisitions,” asenior Ministry official said.

Following these concerns over the impact ofthese takeovers on the Indian healthcare sector, theCommerce Ministry had commissioned a study byconsultancy firm Ernst & Young (E&Y). The E&Y’sreport is being examined by the Commerce Ministryand its recommendations would be forwarded to theDepartment of Industrial Policy and Promotion(DIPP) for appropriate consideration.

PAT Scheme to be Notified SoonThe government would notify in two to four

weeks the Perform Achieve and Trade (PAT) scheme,making it mandatory for 477 high energyconsumption units to reduce energy consumptionand meet the targets set in this regard by the Bureauof Energy Efficiency (BEE) by 2014-15.

The units which achieve more than the targetset would be given Energy Saving Certificates whichcould be traded by them with industries which failedto comply in meeting the targets. He said that allthe large industries in various sectors includingcement, fertilizers, and steel would be covered underPAT scheme. BEE introduced a voluntary programmefor laptops and mobile phones to have a BEEendorsement label for efficient use of energy. It wasalso planning to make it mandatory for TVs, waterheaters, and geysers to have BEE labelling when suchproducts account for more than 50 per cent of thosesold in the market.

Chairman, Energy Efficiency Council, NaushadForbes, L.S. Ganapati, Chairman National Award forExcellence in Energy Management, 2011 and D.V.Manohar, former Chairman

SEBI Allows Infra Finance Firms to FloatLong-term Bonds

The Securities and Exchange Board of Indiaallowed infrastructure finance companies to raisefunds overseas through long-term corporate bonds.

“It has been decided that non-bankingfinancial companies (NBFCs) categorised asinfrastructure finance companies (IFCs) by theReserve Bank of India (RBI) shall also now beconsidered eligible issuers for the purposes of FIIinvestment under the corporate debt long-term infracategory,” SEBI said in a circular.

This fund raising tool was so far limited tocompanies in the infrastructure sector. Investmentsin such bonds shall have a minimum lock-in periodof three years. However, during the lock-in period,FIIs will be allowed to trade among themselves.During the lock-in period, the investments cannot,however, be sold to domestic investors. In a bid tofacilitate fund flow in the infrastructure sector, thegovernment has recently enhanced the FII limit from$5 billion to $25 billion for corporate bonds issuedby companies in the infrastructure sector with aresidual maturity of over five years.

DuPont India Opens Innovation CentreDuPont announced the official opening of the

India Innovation Centre in Pune. DuPont IndiaInnovation Centre is an initiative by the globalscience-based company to expand its strategicfootprint to fuel local collaboration in support ofIndia’s fast growing automotive industry.

The India Innovation Centre’s primary focusis on the automotive segment; and it acts as acollaborative platform for automotive OEMs andcomponent as well as system manufacturers to cometogether to support the Indian automotive industry.

The centre’s goal is to partner for science-powered solutions that fuel innovation andapplication development together with customersand partners. The DuPont India Innovation Centreis one among four new global Innovation Centres inAsia Pacific, the other three in Asia Pacific being in



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South Korea, Taiwan and Thailand.

Crisil Research Launches Gold IndexCrisil Research announced the launch of Crisil

Gold Index to track the performance of gold pricesin the domestic market.

The objective of the index is to provide anindependent and relevant benchmark for performanceevaluation of investment products with gold asunderlying investment. This is Crisil’s first index inthe commodities space and the ninth overall.

According to the company, since the globalcredit crisis of 2008, gold has been consistentlyoutperforming the equity market and elicitingenhanced investor interest. Between August, 2008,and July, 2011, gold has given an annualised returnof 22.91 per cent compared to 9.3 per cent by S&PCNX Nifty.

Global Uncertainties Present NewEconomic Opportunities: Pranab

Confident that the negative global cues can betransformed to the country’s advantage, FinanceMinister Pranab Mukherjee maintained that theadverse global developments, including the impactof the U.S. sovereign rating downgrade, present neweconomic opportunities to India.

In his address at a function to mark the goldenjubilee celebrations of the Indian Economic Service(IES), Mr. Mukherjee noted that in the wake of theglobal economic uncertainties and the resultantslump in overall investor sentiment, India could bea source of stability for the world economy andprovide a safe haven for global capital inflows.

Global markets have been severely impactedby the U.S. rating downgrade by Standard & Poor’s(S&P) and the ongoing debt crisis in the eurozone.Mr. Mukherjee admitted that these economicdevelopments had impacted India too, and remaineda cause of concern. However, he argued that theydid open up new windows. “At the same time, theseshocks are markers of shifting balance in the globaleconomy, presenting new opportunities for us,” hesaid.

Mr. Mukherjee noted that the economicreforms undertaken more specifically since the 1990shad led to a rapid globalisation of the country’seconomy and, as a result, the nature and the domain

of public policy making was undergoing a majortransformation. While there was an urgent need tobuild and strengthen the public capacity to followand analyse international economic developments,process information from diverse sources andrespond to them quickly, in keeping with thenational interests, he said that on the other hand, itwas important to reorient government processestowards bringing about greater policy transparency,coherence and coordination across sectors andbetween different levels of government.

India-South Africa Trade to Touch $15 bbefore 2014

Stating that growth and investment relationsbetween India and South Africa were in the upwardtrajectory, Union Commerce and Industry MinisterAnand Sharma exuded confidence that trade betweenthe two countries would touch the $15 billion markmuch before the 2014 deadline.

Interacting with the South African Trade andIndustry Minister, Rob Davies, during the meetingof the India-South Africa CEO Forum, Mr. Sharmasaid: “We hope to achieve the target of $15 billionset for 2014 in trade much before than the proposeddeadline”. The CEOs Forum, the second meeting,of the two countries led by its two chairpersons RatanTata, Chairman, Tata Sons, and Patrice Motsepe,Executive Chairman, African Rainbow Minerals, methere. The first meeting of the Forum was held inJohannesburg last year. The CEOs met with theobjective to give a boost to the growing bilateraleconomic relations between the two nations and findways and means to promote bilateral trade andinvestment. The meeting also addressed thechallenges and constraints hampering the growingeconomic partnership.

New Zealand News Agency Closing after132 Years

When New Zealand’s homegrown news agencytransmits its last story, August 31, it will mark theend of a 132-year-old institution that has helped shapethe identity of this remote nation. The New ZealandPress Association (NZPA) is a victim of changingtechnology and media consolidation. Two Australianmedia empires have bought up most of NewZealand’s newspapers, and the papers in each chain



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share stories with each other, reducing their need foran outside news service.

News agencies such as NZPA typically sell theirnews services to newspapers, broadcasters and onlineproviders rather directly to readers. Like other suchagencies, NZPA has tried to adapt in recent years byseeking new broadcast and online customers outsideof its traditional base of the newspaper chains, whichare also the agency’s main owners under a cooperativemodel.

Panel for Assured Returns on New PensionSystem

A parliamentary panel has recommended thatsubscribers to the New Pension System (NPS) shouldget an assured return on their investments, that is, atleast equal to the interest rate given by the Employees’Provident Fund Scheme. The Standing Committee onFinance headed by Yashwant Sinha has alsosuggested imposing a 26 per cent cap on foreigndirect investment (FDI) in pension programmes.

“The committee notes that foreign investmentin the pension sector may be capped at 26 percent...,” the panel said in its recommendations onthe Pension Fund Regulatory and DevelopmentAuthority (PFRDA) Bill, 2011.

The Bill introduced in the Lok Sabha in March,2011, has no provisions pertaining to FDI as yet.

The panel said spelling out the FDI policy inthe provisions of the PFRDA Bill would have beenmore in the “fitness of things, as the pension fundmanagers holding the stake of the old age incomesecurity of their clients cannot be compared” withother agencies in the financial sector.

Currently, FDI is not allowed in pensionschemes. In India, no pension fund managementcompany offers a guaranteed pension product.

Subscribers to the Employees Provident FundOrganisation (EPFO) get annualised interest of 9.5per cent on their contribution. The NPS, launchedin January, 2004, has about 24 lakh subscribers,mostly those employed with the CentralGovernment. The committee further suggested thatthe government made concerted efforts to extend thecoverage of the scheme in both the public and privatesector. The committee said that a Pension AdvisoryCommittee be set up under the Bill which wouldlook into the interest of the subscribers.

At present, seven fund houses — LIC PensionFund, SBI Pension Funds, UTI Retirement Solutions,IDFC Pension Fund Management Company, ICICIPrudential Pension Fund Management, KotakMahindra Pension Fund and Reliance CapitalPensions Fund — manage the investment corpus.

India, Pakistan Students Launch DiaryCampaign

Students from India and Pakistan have launcheda first-of-its-kind initiative called “Ummeed-e-Milaap” to invite opinions on initiating peace. It willbe compiled into a 120- page diary and released nextyear.

The brainchild of Techfest, the annual scienceand technological festival of the Indian Institute ofTechnology (IIT), Mumbai, the venture is partneredby the Lahore University of Management Studies(LUMS) and the Association Internationale desÉtudiants en Sciences Économiques et Commerciales(AIESEC), world’s largest student-driven organisation.“Ummeed-e-Milaap” aims at uniting the students ofIndia and Pakistan. “We aim to set an example tothe world that students can lead the way inestablishing peaceful relations between countries anda hatred-free world,” according to Ronnie Philip ofTechfest.

Indian Bank Launches e-TreasuryIndian Bank inaugurated the integrated treasury,

combining the domestic and forex trading on acommon software package, which analysesprofitability, risk and costing aspects throughdifferent markets. The e-treasury platform has beenestablished and inaugurated at the bank’s newcorporate office at Royapettah, Chennai.

Evaluating the Macro-economyThe Reserve Bank of India’s latest annual

report, released recently, makes a candid assessmentof the macroeconomic performance during 2010-11and the prospects for the current year. Although theeconomy returned to its high growth path, it facedseveral challenges: investment activity slowed; fiscalconsolidation was led by cyclical and one-off factorscasting doubts on its sustainability; and inflationremained stubbornly high on the back of newpressures. The RBI responded to the challenge of



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inflation by raising policy rates by 4.75 percentagepoints on a cumulative basis from March 2010. Thereport points out that high inflation by itself wouldhave brought down growth. When inflation is high,the theoretical tradeoffs between inflation andunemployment or between inflation and growth donot work. Well into the current year, inflation hascontinued to be the number one concern forpolicymakers. The RBI is poised to raise interest ratesfurther even though it is well recognised that someof the growth momentum will be lost in the process.Indeed, the lower GDP growth at 7.7 per cent in thefirst quarter is partly attributed to the high interestrate environment.

The RBI’s GDP growth projections for thecurrent year have been more modest than those ofthe government. However, even with the expecteddeceleration, growth is likely to remain close to thetrend of about 8 per cent, the rate forecast by thecentral bank way back in May. Inflation is expectedto remain high for the rest of this year and moderateto about 7 per cent by 2012. In the absence of supplyside responses, monetary policy has its ownlimitations as an instrument for curbing inflation,although it can still play an important part incountering the second-round effects of supply-ledinflation. On current assessment, the fiscal deficitthis year is likely to overshoot the figure anticipatedin the budget. The deficit will widen further, if theeconomy slows down, as feared, and the revenuesdrop sharply from the anticipated levels as aconsequence. On the other hand, the current accountdeficit can be contained within a sustainable levelof 2.7-3 per cent of the GDP. However, the outlookfor the external sector during 2011-12 looks uncertain.The annual report lists six medium-term challengesfor the Indian economy. Predictably, bringinginflation and inflationary expectation down toacceptable levels tops the list. It is one thing to getthe diagnosis right; it is yet another to come up withthe remedy.

Ford Breaks Ground for Second FacilityFord India broke ground for its new, state-of-

the-art integrated manufacturing facility at Sanandin Gujarat.. Ford is investing about $1 billion tobuild new vehicle manufacturing and engine plantsin Gujarat.

Doha Round has to be Taken ForwardUnion Minister for Commerce, Industry and

Textiles Anand Sharma noted that protectionistmeasures would delay economic recovery and warnedagainst the collapse of the Doha Round of the WorldTrade Organisation talks. “We must not allow this[Doha] Round to collapse. The Doha Round has tobe taken forward as a single undertaking. We needto stay focussed on the development dimension ofthe Round, as the terms of the discourse cannot bechanged. Developing countries are being called uponto pay an unconscionably high price to conclude theRound. This certainly was not our expectation andour commitment when we agreed to participate inthe Doha Round,” he said. Mr. Sharma said it wasimportant to sustain people’s faith in the multilateralinstitutions. “Many sceptics feel that the WTO is atthe crossroads and that the lack of progress in theDoha Round raises questions on the relevance andefficacy of this institution. We do not share thispessimism.” A crisis might lead to inward-lookingand promote protectionism, but it would be counter-productive and delay the recovery and deepenrecession. Timely conclusion of the Doha Round oftalks, he argued, would not only have strengthenedthe WTO as a bulwark against protectionism andboosted the global economy but would also havesignalled the WTO’s firm commitment todevelopment.

Bids for Afghan Mines OpenThe bid submitted by a consortium of Indian

steel/mining companies led by Steel Authority ofIndia Limited (SAIL) for mining concessions of theHajigak iron ore mines located near Bamiyan inAfghanistan was among the six bids opened by theMinistry of Mines, Afghanistan. NMDC, RINL, JSW,JSPL, JSW Ispat and Monnet Ispat comprise the othermembers of the consortium. The five other bidssubmitted by parties from various countries includeACATAC, LLC, USA (3 blocks), Behin-Sanate Dibaof Iran (4 blocks), Gol-e-Gohar Iron Ore of Iran (1block), Kilo Goldmines Ltd. Canada (1 block) andCorporate Ispat Alloys Ltd. India (1 block).

NTPC, CEB to set up Power Plant in SriLanka

The Ceylon Electricity Board (CEB) and NTPCsigned a joint venture and shareholder agreement hereto set up a 500-MW (2 x 250 MW) coal-based power



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plant at Sampur in East Sri Lanka at an investment of$700 million. This will be NTPC’s first overseasventure.

Moser Baer Commissions 5 MWp SolarPower Project in U.K.

Moser Baer Clean Energy said it hadcommissioned a 5 MWp solar project in the U.K.The project developed by Moser Baer in partnershipwith HEP Capital is estimated to have seen aninvestment of 15 million pound (about Rs.110 crore).

Duty Free Import from Bangladesh to HitDomestic Garment Units

Duty free access for textile products fromBangladesh will adversely hit the domestic industry,according to sources. Tirupur Exporters’ AssociationPresident A. Sakthivel said garments fromBangladesh were likely to flood the domestic market,thereby causing undue hardship to garment makers.When there was a demand compression in the U.S.and the European Union, Bangladesh garmentexporters would supply more to the Indian market.Bangladesh had inherent advantages in the cost ofmanufacturing. It also had an additional advantagein the cost of manufacturing when it permits dutyfree import of cotton and yarn on a reciprocal basis.To be competitive, the Indian garment industryneeded a level-playing field, he said.

D. K. Nair, Secretary General of theConfederation of Indian Textile Industry, said dutyfree import of 46 textile items (mainly garments)from Bangladesh would affect the garment hubs inthe country. So far, garment imports from Bangladeshattracted 10 per cent ad valorem or specific duty,whichever is higher. About 10 million pieces ofgarments were allowed under zero duty import.

Use Technology to Scale up FinancialInclusion: Pranab

Exhorting banks to take bold initiatives whilemaintaining a strict watch on their asset quality inthese turbulent times of economic uncertainty andhigh inflation, Finance Minister Pranab Mukherjeereiterated the Centre’s commitment to inclusivegrowth and reminded lending agencies of their rolein bringing about financial inclusion. The inflationchallenge faced by India, he said, was partly an

offshoot of the policy response in developedcountries to global meltdown. “The commitment tomoderate levels of inflation has led to higher interestrates. In this environment, banks need to keep a strongvigil on their asset quality,” he said.PSBs Role

Mr. Mukherjee, however, stressed that keepinga strong vigil did not mean keeping away from boldmeasures. “The global economy is still trying to copewith the after-effects of the financial crisis … Theseare turbulent times and we should watch every stepthat we take. But this should not prevent us fromtaking bold and innovative steps,” he said.

Stressing the government’s firm belief thatfinancial inclusion is a necessary condition forinclusive growth, Mr. Mukherjee pointed to theimportant role that public sector banks (PSBs) haveto play in this regard “given the distribution platformthey enjoy and experience they have in serving therural hinterland for the past five decades”.

Mr. Mukherjee said that technology should beleveraged to scale up the financial inclusioninitiative. “Financial inclusion would make betterbusiness sense if banks make that extra effort indeveloping appropriate business models,” he saidwhile pointing out rural banking as a businessopportunity that was waiting to be tapped and which“should not be seen only as a social responsibilityto be met by the banks”.

Apart from the aspect of financial inclusion,the Finance Minister noted that banks should helpnurture entrepreneurial talent in rural areas throughlending and other necessary assistance. In thisregard, he maintained that banks could play a veryeffective role by way of funding the SME (small &medium enterprise) segment.

India to Cut Tariff Lines by 20 % underSAARC Pact

Union Commerce and Industry Minister AnandSharma said that India would meet its commitmentof reducing tariff lines under sensitive list by 20 percent for all by next month under the South Asian FreeTrade Area (SAFTA) agreement signed by South AsianAssociation for Regional Cooperation (SAARC)member countries. He said India had been bringingdown the peak tariffs under SAFTA in a transparent



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manner for imports from Pakistan and the peak rateswould be 8 per cent. As per the minutes of themeeting of India-Pakistan Joint Working Group onEconomic Commercial Cooperation and TradePromotion held on August 23-24 in New Delhi thepeak tariff rates would be 8 per cent by January1,2012 and 5 per cent by January 1, 2013.

The Pakistani side has assured India that theywould also work internally towards meeting itsSAFTA obligation. India has already allowed zeroduty access for the SAARC least developed countries(LDCs), for almost 97 per cent of the total tariff lines.“India is keen to engage more with Pakistan anddevelop deeper economic linkages. That will givemore depth and width to our relationship,” he said.

India’s trade with SAARC stands at a mere $13billion at a time when our global trade has expandedto cross $600 billion. Indian companies have steppedout and were engaged in foreign shores investing over$100 billion and more than 90 per cent of thisinvestment has been outside South Asia. Indiainvestment flows into SAARC have been around $10billion. “This clearly brings out the imperative ofcreating a more conducive investment climate a moreharmonious linkage between our industry bodies anda strong political commitment for an integratedSouthAsia,” Mr. Sharma said.

The Forum is driven by focussed discussionsand active sharing of experiences and best practicesamong South Asia’s diverse public and privatestakeholders, for charting out the future course ofSAARC and recommend if required, necessaryimprovements in the existing mechanisms.

Working Towards a Greener IndiaThe world’s largest solar photovoltaic plant will

start delivering up to 125 megawatt (MW) of clean,sustainable solar energy in Maharashtra in March2012. Germany is proud to play a role in thisimportant project by supporting the financialinvestment. Only recently, Germany’s state-ownedKfW Development Bank and India’s Ministry ofFinance signed a reduced-interest loan of €250 millionfor the construction of this solar plant at Shivajinagar,Sakri. This is just one example of the flourishingIndo-German partnership in the energy sector, aimingto strengthen energy efficiency and the use ofrenewable energies. The objective is to develop an

Indian energy system that is sustainable not only ineconomic but also in ecological terms.

Energy is a priority issue for India. Currently,the power situation in India is one of the majorbottlenecks in its growth story. Even though India’stotal installed power capacity rose to 170 gigawatt(GW) by December 2010, the challenges lying aheadare critical. About 400 million people are still withouta power connection. According to a rough estimate,the total demand for electricity in India is expectedto cross 950 GW by 2030.

This is a huge challenge, especially against thebackdrop of climate change. In absolute terms, Indiahas already become one of the largest emitters ofgreenhouse gases in the world. Between 1994 and2007 its annual greenhouse gas emissions increasedby 58 per cent as an effect of rapid economic growth,higher industrial activity and consequent increase inenergy production, consumption and transportation.

However, throughout its history, India hasshown that it is able to deal with challengingsituations. Likewise, one can sense a strong politicalwill in India today to reduce the ecological costs ofeconomic growth; for e.g., by employing a low-carbon strategy. Important steps in this direction havealready been taken. In June 2008, India launched theNational Action Plan for Climate Change (NAPCC),which envisions creating a self-sustaining economy.Under the NAPCC, India has outlined present andfuture policies to control the growth of emissions ineight different sectors. In the framework of theJawaharlal Nehru National Solar Mission, it has setan ambitious goal of achieving 20 GW of solarcapacity by 2022.

India offers a conducive atmosphere for thegrowth and application of renewable energies. Whenutilised in the right manner and with the righttechnology, India can become a world leader in thefield of renewable energy. For example, most partsof India have 300 to 330 sunny days in a year, whichis equivalent to over 5,000 trillion kilowatt hour(kWh) per year — much more than India’s totalenergy consumption per year.

India is also endowed with a large, viable andeconomically exploitable wind power potential. ByJune 2009, a wind power capacity of 10,386 MWhad been established in India, making it the fifthlargest wind power producer in the world. India’s



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hydro power potential is estimated to be 150,000MW, the current installed capacity being 35,000MW. Thus there are many opportunities and Germanyis happy to be one of India’s main partners inharnessing renewable energies and moving towardsa greener future.

Since 2009, Germany and India have beenorganising a ‘Carbon Bazaar’ every year. This eventprovides a platform for entrepreneurs to establishdirect contact with various stakeholders in the energysector, with the sole purpose of reducing the carbonfootprint of economic activities.

Ambitious Industrial ProjectThe Union Cabinet is likely to take up Thursday

the issue of granting approval to the $90-billionDelhi-Mumbai Industrial Corridor (DMIC) project.

The DMIC project, being implemented incollaboration with Japan, was conceived some fiveyears ago. It envisages setting up of industrial corridoralong the Delhi-Mumbai stretch. It will compriseseven new cities, nine industrial parks, three ports,six airports and a 1,483 km high-speed rail and roadline will be developed as a trading hub. The project,spanning six States, will seek to create a businessmodel out of urbanisation. The States covered by theproject include Uttar Pradesh, Haryana, Rajasthan,Gujarat, Maharashtra and Madhya Pradesh.

The new cities would come up along theproposed Delhi-Mumbai Dedicated Rail FreightCorridor. The Government has also completed theexercise for preparation of the perspective plan forthe overall DMIC region. The project aims to createa strong economic base with a globally competitiveenvironment and state-of-the-art infrastructure toactivate local commerce, enhance foreigninvestment, create employment opportunities,enhance exports and attain sustainable development.

The government has 49 per cent stake in theDMIC project, while Infrastructure Leasing andFinancial Services has 41 per cent and InfrastructureDevelopment Finance Company 10 per cent.

The industrial corridor has proposed a revolvingfund of Rs.18,500 crore to finance trunkinfrastructure such as sewage disposal and roads,with the government providing 35-40 per cent of thefinancing.

Coca-Cola Ties up with Jain IrrigationCoca-Cola India and Jain Irrigation launched

Project ‘Unnati’, a unique partnership with farmersto demonstrate and enable adoption of ultra-highdensity plantation (UHDP) practice for mangocultivation. The project will encourage sustainable,modern agricultural practices and help double mangoyields. UHDP is a farming practice that leads tomango orchards attaining their full potential in 3-4years and allows nearly 600 trees to be planted peracre instead of the conventional 40 trees.

Cabinet to Take up National ManufacturingPolicy Today

Notwithstanding the objections by theEnvironment and Forests Ministry and a tough standtaken by the Labour Ministry, the Union Cabinet islikely to take up the issue of granting approval to theNational Manufacturing Policy as well as the $90-billion Delhi-Mumbai Industrial Corridor (DMIC)project.

The National Manufacturing Policy aims atcreating 100 million jobs and take the share ofmanufacturing to 25 per cent of the country’s GDPby 2020 from the current 15-16 per cent. The sectorcontributes over 80 per cent to the country’s overallindustrial production. The draft policy which wasgiven an in-principle clearance by a high-levelcommittee chaired by Prime Minister ManmohanSingh in June had faced some opposition from theMinistries of Labour and Environment. However, itis understood that while some of the concerns of theLabour Ministry had been addressed, the EnvironmentMinistry is still adamant on certain issues that arepart of the policy. The Cabinet note moved by theUnion Commerce Ministry suggests that besidesfiscal sops, the units in the proposed NationalManufacturing Investment Zones (NMIZs) should beexempted from the labour and environment laws,something that could face stiff opposition in theCabinet, especially in view of the recent agitationsthat have been witnessed across the country over theland acquisition issue. The national manufacturingzones, which may come up in the private sector,would have facilities such as industrial towns andother infrastructure like the ones set up in China, aglobal manufacturing hub



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Curtains down on Popular DEPB SchemeBringing down curtains on the popular Duty

Entitlement Pass Book (DEPB) scheme, thegovernment announced that shipments of 1,100items will be entitled to lower tax refunds under anew transitory scheme from October 1, a virtualwithdrawal of the stimulus package doled out in2008-09.

Addressing a press conference, FinanceSecretary R. S. Gujral said on export of these items,the tax refunds would be reduced by 1-3 per cent.He also unveiled the transitory scheme for the DutyEntitlement Pass Book (DEPB) scheme. “As atransitory arrangement, these items will suffer amodest reduction in the existing DEPB rate to theextent of 1-3 per cent,” he said. Officials in theCommerce Ministry termed the new developmentas withdrawal of the stimulus package given in 2008-09 after the global financial crisis. The DEPB rateswere revised upward as part of the stimulus at thattime. Since tax incentives for these goods will nowbe available under the Duty Drawback Scheme(DDS), the total number of items under the DDSwould increase to about 4,000 from 2,835.

Three Institutions sign MoU for TakeoutFinance Scheme

A memorandum of understanding (MoU) wassigned between IIFCL, LIC and IDFC in the presenceof Union Finance Minister Pranab Mukherje toprovide Takeout Finance for infrastructure projects.

“There was felt need for higher take out. TheMoU between IIFCL and LIC and IDFC will providefor takeout up to 50 per cent of the total project costin the ratio of 20:20:10 by these institutionsrespectively. I expect this mechanism will helpfinancing to the tune of Rs.30,000 crore under thescheme. This will facilitate banks to take moreexposure in new projects, which in turn will help inbridging the gap in infrastructure financing to a greatextent,” said Mr. Mukherjee on the occasion. TakeoutFinance Scheme was launched on October 12, 2010,when an MoU between IIFCL and PNB, AllahabadBank, Union Bank, Indian Bank and UCO Bank wassigned. This scheme is aimed at removing thebottlenecks in infrastructure financing by addressingasset liability mismatch (ALM) and group exposure

issues. In this scheme, IIFCL can take out debt up to20 per cent of the total project cost after the CODof the project with certain limitations.

Underlining that ‘Swabhimaan’ was anambitious plan for financial inclusion launched bythe Central Government, Mr. Mukherjee said 73,000habitations were set to be covered by bankingservices. In the Western Zone, 15,547 habitationswere to be covered of which 5,940 (or 38 per cent)have been covered by March 2011. He urged theState governments and banks to speed up the processto cover the remaining 9,607 habitations by March2012.

Role and Relevance of PlanningCommission

After Independence, the government undertookthe responsibility for economic development. Theconcept of welfare state instead of merely a law andorder state took hold. More importantly, the primaryif not the sole responsibility for economicdevelopment was considered to be that of thegovernment. Socialistic State became the model. Asthe one-year horizon of the annual governmentbudget was considered too small as tool for long-term development, five-year plans were drawn up.

The Planning Commission is a separateorganisation in the Central Government with awhole-time Deputy Chairman and the PrimeMinister as the part-time Chairman. Its budget forthe current year is Rs.92.98 crore. The Ministry ofPlanning has a budget of Rs.1,676 crore with a staffof 1,833 (1,184 in 2009-10). This is the time toexamine the role of the Planning Commission in thelight of developments since the era of planning beganin 1950 and its current relevance.

The significant feature is the evolution of mixedeconomy with both government and private sectorparticipation. The latest venture is public-privateparticipation in major projects such as infrastructuredevelopment.Fiscal Management

The growing importance of prudent fiscalmanagement as a tool for economic development hasbeen recognised. The one-year span of the annualbudget was found to be inadequate to reflect reformsin government revenue and expenditure which take



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longer time to devise and execute. Bringing budgetdeficits to acceptable level and achieving fiscalstability needed a longer time span. At last, FiscalResponsibility and Budget Management Act, 2003,was enacted by the Central Government followedby State government Acts. This prescribed a MediumTerm Fiscal Policy statement to be submitted withthe annual budget. While the one-year budget isapproved, the projections for two following years areshown in the statement. After 2003, five-year plansare not the only long-term projections.

One more noteworthy development is thevolatility in the economies all over the world withrepercussions on Indian economy. Fiscal stimulus andlater its withdrawal when not needed requireplanning beyond the annual budget.

While the need for looking beyond the budgetis well accepted, there are many factors raisingdoubts on the efficacy and relevance of the five-yearplans as the instrument. The division of expenditurebetween Plan and non-Plan is artificial and createsproblems. Plan expenditure tends to get priorityespecially when austerity and expenditure reductionhas to be done periodically for fiscal consolidation.Non-Plan expenditure gets the cut even if it is vitallyneeded for economic development. An example isbudget provision for maintenance of assets such ashospitals, schools and irrigation dams already createdunder Plan but whose maintenance is treated as non-Plan.

The dichotomy results in dual and confusingresponsibility of the Ministry of Finance and thePlanning Commission and adversely affects the wholebudget process, formulation and implementation.The Ministry of Finance is responsible for fiscalconsolidation. Containing the budget deficit andimplementation of FRBM Act, 2003, is its task. Butin formulating the budget its role in Plan expenditurebudgeting is diluted by the discussions which theministries have with the Planning Commission. Thefinalisation of Plan allocations for the State budgetsalso suffers from this weakness. Ultimately, theCentral Government has to fix the market borrowingby the State governments taking the overallsustainable borrowing limits, including the needs ofthe Central Government. The Planning Commissiontends to have a more optimistic estimate of resourceslikely to be available for financing the Plan

expenditure as fiscal deficit management and controlis not its direct responsibility.Review of Schemes

Review and implementation of schemes isanother area of direct responsibility for the Ministryof Finance and the Ministry of Statistics andProgramme Implementation. The Finance Ministerhimself had, in the budget speech for 2005-06,promised to ensure that programmes and schemeswere not allowed to continue indefinitely from onePlan period to another without an independent andin-depth evaluation. The Planning Commission,serving as the focal point for Plan allocations, dilutesthe role of the Finance Ministry.

Output and outcome budgeting was introducedby the Central Government from the budget for 2005-06. Non-Plan expenditure seems to be out of itspurview. This means the outcome of expenditure onrunning schools and hospitals will not be evaluated.This again is another fallout of the artificial divisioninto Plan and non-Plan.

In sum, the distinction should be betweendevelopment and non-development expenditure. Itshould be recognised that the ultimate responsibilityfor achieving and maintaining fiscal health andimplementing the FRBM Act, 2003, is with theFinance Ministry which has to ensure compatibilityof fiscal policy with monetary policy of Reserve Bankof India to generate investor and consumerconfidence. It should, therefore, be the nodalministry for the budget formulation andimplementation covering development and non-development expenditure. The discussions andfinalisation of State government Plan allocationshave to be in consultation with the Finance Ministry.It has Budget, Plan Finance and Economic divisions.It can also have inputs from the Ministry of Statisticsand Programme Implementation. The rationale forcontinuing the Planning Commission as a separateorganisation outside the Finance Ministry isdoubtful. If considered necessary, technical inputscan be transferred to the Finance Ministry whereneeded. The Medium Term Fiscal Policy Statementunder the FRBM Act, 2003, can serve as theperspective beyond the annual budget. Itsformulation suffers from many weaknesses which canbe set right as dealt with in these columns earlier at



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length. This write-up and conclusions are noreflection on the technical competence of thePlanning Commission under its renowned DeputyChairman. These are made to rationalise theorganisation and methods of budget formulation andimplementation.

Green Signal for Rail Coach FactoryThe hurdles to the setting up of a rail coach

factory (RCF) announced for Palakkad four years agoin the Union Railway Budget have been cleared andthe foundation stone for the unit was laid on October22.

Board for Automotive Industry SoonThe Ministry of Heavy Industries is planning

to set up a National Automotive Board (NAB) as anodal agency for all policy and certification relatedissues of the automobile industry. The NAB willwork as a coordinating authority between alldepartments and bodies related to the automobileindustry and frame guidelines on various issues.

“We are preparing to set up the NationalAutomotive Board. It is in advanced stage…it willbe in place in the next 2-3 months,” Department ofHeavy Industry Joint Secretary Ambuj Sharma said.He was speaking after announcing the maiden ‘AsiaPacific Automotive Conference’ that was be held inChennai. The NAB would mainly be thecoordinating authority for the upcoming sevenautomotive centres of National Automotive Testingand R&D Infrastructure Project (NATRiP), he added.NAB would also look into other policy-related issuessuch as electric and hybrid mobility and replacementof vehicles, he said.

India-Zimbabwe Agree to Fast TrackBilateral Agreement

Seeking to put the trade relations and economiccooperation on fast track, India and Zimbabweagreed to accelerate the approval of a decade-old pactBilateral Investment Promotion and ProtectionAgreement (BIPA) that aims at boosting bilateralinvestments. The BIPA, which was signed in February1999, has not come into force yet. “When I look atthe potential of our bilateral trade and investmentrelations, I am quite convinced that we have onlytouched the tip of the iceberg,’’ Minister of State for

Commerce and Industry Jyotiraditya Scindia saidduring his ongoing visit to African nations along witha business delegation.

Mr. Scindia, who held talks with Zimbabwe’sIndustry Minister W. Nucbe, said there was hugescope to significantly diversify bilateral trade, whichstood at a paltry $125 million in 2010-11. He offeredIndia’s full support to Zimbabwe in areas such astelecom, highways and railways and extendedtechnical assistance in strengthening rail tracks,logistics and aviation sectors.

Mr. Scindia complimented the ZimbabweGovernment for their recently launched Mid-termPlan which aims to promote economic growth andsustainable development in the country. Apart frombilateral meeting with Mr. W Nucbe, bilateralmeetings were held with N. T. Goche Minister ofTransport and Infrastructure, Minister of Energy, andthe Minister of Agriculture.Mr. Scindia informed hisZimbabwe counterpart that it had been decided tofurther strengthen the India-Zimbabwe bilateral tiesby setting up Rural Technology Park and Food testinglaboratory in Zimbabwe.

SBI Doubles MTN Programme Size to $10Billion

State Bank of India informed the Bombay StockExchange that it had doubled its Medium Term Note(MTN) programme size to $10 billion to fundoverseas business.

India, S Africa to Strengthen Ties in MSMESector

India and South Africa agreed to strengthencooperation in the medium, small and mediumenterprises (MSME) sector through joint ventures,technology collaborations and marketing tie-ups.

At present, South Africa is India’s secondlargest trading partner. Trade between the twocountries was $10.6 billion in 2010-11. “There is,however, ample scope of diversifying the existingtrade basket by bringing in many more manufacturedgoods,’’ Minister of State for Commerce and IndustryJyotiradiya Scindia.

Million Jobs per Month Needed to SustainGrowth: World Bank

The World Bank has issued a stark warning to



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those who might gloat about how, under the so-called “decoupling hypothesis,” emerging economiessuch as India have avoided sinking into the quagmireof unemployment that post-recession Westerneconomies are now grappling with.

In a grim forecast the Bank commented on theupcoming release of a new book on More and BetterJobs in South Asia that a “million new jobs areneeded each month” to sustain growth and reducepoverty in South Asia. Yet South Asia created about8 lakh jobs a month between 2000 and 2010, thestudy said.

Given the rampant spread ofunderemployment, Kalpana Kochhar, ChiefEconomist for the World Bank’s South Asia Region,cautioned that it was “not only the quantity of jobsbut the quality of the jobs being created in the regionthat is relevant”.

India, Myanmar to Double Bilateral Tradeto $3 Billion

Seeking to expand their economic cooperationand broad-base their trade basket, India and Myanmaron Tuesday agreed to set a $3 billion trade target tobe achieved by 2015 from the existing $1.5 billion.

This was decided at fourth meeting of JointTrade Commission which was attended by the UnionCommerce Minister, Anand Sharma, and theMyanmar’s Minister of Commerce, U. Win Myint.

Speaking at the meeting, Mr. Sharma said thatIndia proposed that both countries work towardsdoubling bilateral trade by 2015. “We need to worktowards broad-basing our trade basket. Let usencourage businesses on both sides to utilise DutyFree Tariff Preference Scheme and ASEAN FTAchannels to diversify trade,” Mr. Sharma said. Mr.Sharma said construction of the Kaladan MultimodalTransit Transport Project comprising a waterwaycomponent and a roadway component by 2013would completely transform the trade betweenNorth-East India and the rest of the world. The costof the project is $120 million and it envisages adirect trade corridor between Indian ports on theEastern seaboard and Sittwe Port in Myanmar andthen through river transport and by road to Mizoram,providing an alternative route for transportation ofgoods to North-East India.

The two countries also recognised the need tostart collaborating to build a Land Customs Stationat India-Myanmar Border (Mizoram) to facilitate themovement of vehicles and goods entering and leavingMizoram. On the issue of border trade, it was notedthat the border trade point at Moreh on the Indianside and Tamu on the Myanmaar side was stabilisingand had immense potential for normal trade.

Mr. Sharma invited his counterpart toinaugurate the second border trade point at Zowkhatar(Mizoram) that would connect to Rhi in Myanmar.Both the Ministers stressed the need for working ontwo additional border trade points — Pangsau Pass(Arunachal Pradesh) and Avangkhung (Nagaland).India and Myanmar have also expanded the list ofitems for border trade from 22 to 40.

Mr. Sharma also informed India’s assistancefor capacity building in agricultural research andimproving the seed variety in Myanmar. India is keento participate in the gas sector of Myanmar. Indiancompanies have shown interest in setting up gas-based units and invest in LNG infrastructure. Hepushed for Indian participation in the allocation ofgas blocks in Myanmar. One third of India’s importsof pulses and one-fifth of India’s imports of timberare from Myanmar. With the implementation ofIndia-ASEAN FTA and the Duty Free Tariff PreferenceScheme, Mr. Sharma expressed confidence that Indiacould become one of the leading trade partners ofMyanmar. Currently, two items — pulses and woodproducts — accounted for 97.5 per cent of Myanmar’stotal exports to India. Similarly, buffalo meat andpharmaceuticals accounted for 45 per cent of India’stotal exports to Myanmar.

India, Pakistan Keen on more BilateralTrade

The private sector in India and Pakistan canhelp play a positive role in shaping policies in bothcountries as THE private sector can expand andflourish only in non-restrictive trade regimes,according to Makhdoom Muhammad Amin Fahim,Senior Minister for Commerce, Government ofPakistan. Speaking at the “India-Pakistan businessconclave” with the theme ‘Exploring businessbetween neighbours’, organised by the Federation ofIndian Chambers of Commerce and Industry (FICCI),Mr. Fahim said regional trade had been found to be



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most effective and efficient means of bringingprogress and prosperity to all countries in the region.“This is the reason for the emergence of regionaltrading blocks like the EU, NAFTA and ASEAN. It isabout time we, in the South Asian region, shouldbe contemplating strengthening of our regionaltrading block in South Asia.’’

Further, Mr. Fahim said, “the volume ofbilateral trade was at $1.85 billion last year and thisshould grow significantly in the years to come.Normalisation of trade relations between India andPakistan could thus be a vehicle to facilitateresolution of other political issues between the twocountries. This would create more chances for successof the composite dialogue between India andPakistan.’’

Gas Output from KG-D6 to Rise by 2014:BP Chief

Britain based BP said the output from the KG-D6 gas fields, in which it has a 30 per cent stake,could rise only in 2014 after the new fields in thearea were brought into production, echoing thesimilar views expressed by Mukesh Ambani-ownedReliance Industries Ltd. (RIL).

India, Pakistan to Double Trade to $6Billion

India and Pakistan agreed to jointly worktowards doubling the bilateral trade to $6 billionannually from the current level of $2.7 billion by2014. They also decided to put in place a liberalisedvisa regime from November 2011 for businesscommunities of both nations.

U.S. Harps on IAEA Role in IndiaThe United States signalled its intention to

continue to pressure India to get the InternationalAtomic Energy Agency adjudicate on whether thecivilian Nuclear Liability Bill passed in Parliamentwas consistent with the Convention onSupplementary Compensation for Nuclear Damage.

Reiterating the U.S.’ demand that the IAEA getinvolved, U.S. Deputy Secretary William Burns said:“We encourage India to engage with the IAEA toensure that India’s liability regime fully conformswith the international requirements under the [CSC].”

While Mr. Burns welcomed India’s

commitment to ratify the CSC later this year, he saidif international and Indian firms were to participatein India’s civil nuclear sector, “India needs a nuclearliability regime consistent with internationalstandards.”

His comments, which came during a U.S.-Indiadialogue organised by the Brookings Institution andthe Federation of Indian Chambers of Commerce andIndustry, underscore remarks made earlier by Secretaryof State Hillary Clinton.

Centre to Step up Market BorrowingsThe Central Government announced that it

would increase its market borrowings by Rs.52,800crore to Rs.4.70 lakh crore in 2011-12, but said thefiscal deficit target of 4.6 per cent remained intact.

“We are increasing the gross borrowings for thesecond half (of the fiscal) by Rs.52,800 crore. Thereason is...small savings collection has gonedown...,” Economic Affairs Secretary R Gopalan said.

With this, the gross market borrowings for2011-12 will rise to Rs.4.70 lakh crore, up from thebudgeted Rs.4.17 lakh crore. In the previous fiscal,the gross borrowings were Rs.4.37 lakh crore.

In the first half of this fiscal (April—September), the government has borrowed Rs.2.50lakh crore through dated securities.

Now, in the October-March period, thescheduled borrowings would be Rs.2.20 lakh crore.Net borrowings would work out to around Rs.4 lakhcrore for the entire fiscal.

Mr. Gopalan said the fiscal deficit target of 4.6per cent of GDP (Rs.4.12 lakh crore) will remainintact even as the borrowings increased.

Cap on FDI in Some Sectors to GUnion Minister for Commerce and Industry

Anand Sharma said the Government had decided toremove limitations of compulsory lock-in-period andminimum built-up area for foreign direct investment(FDI) in the construction industry for old age homesand all educational institutions with immediateeffect. Chairing the first meeting of the Government-Industry Task Force, Mr. Sharma said there was a hugedeficit of educational infrastructure and there was aneed to attract foreign investments for creating world-class infrastructure in the education sector. Themeeting also took up whole lots of issues being faced



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by the Indian industry and the government’s responseto that. Mr. Sharma informed the industry about thegovernment’s efforts to rationalise various proceduresfor the industry and the efforts to bring down thetransaction cost.

On the issue of FDI in pharmaceuticalindustry, he said the Prime Minister would beconvening an inter-ministerial meeting soon todeliberate on whether FDI in the pharmaceuticalsector should continue on the automatic route evenfor brownfield investments or it should be placedunder the government approval route.

Product Development is the Future of India “Though we are very rich in knowledge, it is

essential to convert this into a product patent regime.We do not have the pride of saying we are the firstin the world with respect to many products. But ourpeople go out and give that pride to other countries,”G.J. Samathanam, Advisor and Head, TechnologyDevelopment and Transfer, Department of Scienceand Technology (DST), said.

He was speaking at an event got up to transfertechnology for an infant ventilator, jointly developedby PSG College of Technology and Pricol MedicalSystems Limited, under the InstrumentationDevelopment Programme of the DST.

“For the last 35 years, India was focusing onlyon reverse engineering. This might be due to theneglect shown towards product development and thedifficulty in the patenting system. But now,innovation and product development are being givenfocus. There is a realisation that this is the future,”he said. The infant ventilator was an original product.

This would show the world that Indians hadthe capacity to develop products for the country’sneeds without infringing upon someone else’s rights.

The Technology Development and Transferdivision of DST works with Rs. 200 crore a year,which is 15 per cent of the total DST budget.

In the XII Five Year Plan it is expected toincrease to 35 per cent. This is to give an impetus totechnology development,” Mr. Samathanam said.

Centre Liberalises FDI norms furtherMoving further with liberalisation of the

foreign direct investment (FDI) regime, thegovernment allowed overseas investment in bee-keeping, share-pledging for raising external debt and

notified the revised FDI limit on FM radio at 26 percent against the earlier 20 per cent. Similarly,conditions for FDI in respect of construction of old-age homes and educational institutions have beeneased. These will not be subject to minimum andbuilt-up area, capitalisation and lock-in period normsas applicable for the construction activities,according to an official statement issued here.

For giving a boost to bio-technology,pharmaceutical and life sciences, research anddevelopment in these sectors would be covered underthe ‘industrial parks’ scheme, where 100 per cent FDIis permitted under the automatic route.

Options for raising overseas resources, thepolicy has been amended to provide for pledge ofshares of an Indian company which has raised ECBs,the statement said. The policy provides for openingand maintaining, without RBI approval, non-interestbearing rupee escrow accounts by non-residentstowards payment of share purchase consideration.This has been done to facilitate FDI, it said. Procedurefor conversion of imported capital goods andmachinery and pre-operative expenses into equity hasalso been made easier. About opening honey bee-keeping to FDI, it said the liberalisation will bringin international best practices to upgrade the product.The measure will help food firms, engaged in honey-processing. To attract foreign investment in theagriculture sector, the government today allowed 100per cent FDI in beekeeping, also known as‘apiculture’ “FDI has been allowed up to 100 percent under the automatic route in apiculture undercontrolled conditions,” according to the revisedConsolidated FDI Policy of 2011, released by theDepartment of Industrial Policy and Promotion(DIPP). The DIPP has imposed certain conditions tocompanies keen on taking the 100 per cent FDI routein beekeeping. Companies can undertake “productionof honey by beekeeping, except in forest/wild, indesignated spaces with control of temperatures andclimatic factors like humidity and artificial feedingduring lean seasons,” the policy paper said.

The government is bringing more farm areasunder the 100 per cent FDI route to encourageinvestment in the sector. It has already permitted 100per cent FDI in agricultural areas such as plantation,horticulture, seeds and cultivation of vegetables andmushrooms.



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Cabinet nod for HCL’s Malanjkhand mineproject

The Centre on Friday approved HindustanCopper’s proposal to develop an underground copperore mine at Malanjkhand in Madhya Pradesh withan investment of Rs.1,856 crore.

Centre to set up six National PharmaInstitutes

The Union Cabinet on Friday approved settingup of six new National Institutes of PharmaceuticalEducation and Research (NIPERs) to meet the shortageof skilled manpower in the pharmaceutical sector.

The new institutes will come up atGandhinagar, Hyderabad, Kolkata, Hajipur,Guwahati and Rae Bareli. The Union Cabinet, at ameeting chaired by Prime Minister Manmohan Singh,approved the establishment of the new institutes ata cost of Rs.633.15 crore, Information andBroadcasting Minister Ambika Soni told reportershere.Focus on R&D

The decision would facilitate the establishmentof full fledged NIPER campuses for imparting higherpost-graduate level education as well as undertakingR&D projects, she said. It would also help in meetingthe requirement of highly skilled manpower of thepharmaceutical industry and focus on R&D, Ms. Sonisaid.

The government had set up the NationalInstitute of Pharmaceutical Education and Researchat Mohali under the NIPER Act, 1998.

‘Tendulkar poverty line will remainreference point’

Though the methodology for determining thepoor would be based on the socio-economic castecensus being undertaken by the Rural DevelopmentMinistry, the (Suresh) Tendulkar poverty line wouldremain a relevant reference point “to see howdevelopment is helping to take more and moreindividuals above a fixed line over time and acrossStates,” Planning Commission Deputy ChairmanMontek Singh Ahluwalia said. As per the TendulkarCommittee report, the percentage of the populationbelow the poverty line in 2004-05 was 37.2 per cent.The percentage of poor in rural areas was estimated

at 41.8 per cent and 25.7 per cent in urban areas.Denying the allegation that the panel intended

to limit the benefits to those below the poverty line,, Mr. Ahluwahlia said the panel had accepted theTendulkar Committee recommendation thatincreased the percentage of the poor in 2004-05 from27.5 per cent of the total population to 37.2 per cent.

In response to the Supreme Court’s directionin the matter relating to the Department of Food andCivil Supplies, wherein the court asked the panel torevise the norms of per capita amount with referenceto the price index of May 2011, the poverty line wasset at Rs.4,824 per month for a family of five in urbanareas and Rs.3,905 per month in rural areas. Askedabout the panel’s validation for this spending on foodas well as health and education, Mr. Ahluwalia said:“Health and education should be provided free andif it is not, then obviously it leads to the poor beingunder stress. The solution to this is correction ofservice failure under the RTI and the Rural HealthMission. In the 12 {+t} {+h} Plan we are trying toaddress this.”

Food entitlement beneficiaries will bedetermined by parameters of new census

With the new methodology proposed by thePlanning Commission, beneficiaries under theNational Food Security Bill will be determinedthrough the parameters set under the socio-economiccaste census, and not the State governmentmachinery. According to sources in the Commission,if the rural population to be covered for mandatoryfood entitlements is at least 46 per cent, then thegovernment will decide on the parameters that willbe used to identify the beneficiaries.

Even though food entitlements have been de-linked from the poverty line, there will be nouniversalisation of the public distribution system.Only necessary parameters

Under the new criterion, if the governmentdecides to go by the 46 per cent coverage of the ruralpoor as provided in the draft Food Security Bill, thenonly those of the seven parameters would be assignedas needed to make the concerned householdseligible for the subsidised food grains. For instance,only 2.5 points may be needed and, therefore,assigned, to determine the eligible beneficiaries.



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‘Annexed’The percentage of beneficiaries in the draft Bill

— 75 per cent of the rural population with at least46 per cent as “priority” — does not form a part ofthe Bill, but are “annexed” to be notified under theRules. The targeted population will, therefore,remain.The ‘who’

If the Tendulkar Committee report provides thepercentage of “how much” poverty, the census willprovide information on the “who” of the populationliving below the poverty line.

India and Indonesia launch CECAnegotiations

India and Indonesia formally launched thenegotiations for a Comprehensive EconomicCooperation Agreement (CECA) that would covereconomic cooperation, trade in goods and servicesand investment.

Speaking at the Indonesia-India Biennial TradeMinisters’ Forum (BTMF) in Jakarta, UnionCommerce and Industry Minister Anand Sharma,said: “we have launched our bilateral CECAnegotiations. I am glad to note that the negotiationshave got off to a good start. As agreed by ournegotiators, the CECA would build on what hasalready been achieved under the ASEAN-India FTAand would be a comprehensive agreement, coveringeconomic cooperation, trade in goods and servicesand investment.’’ He said successful conclusion ofthe CECA would lead to a higher-level and mutuallybeneficial economic cooperation between the twocountries. India would be holding the prestigious“India Show’’ in Jakarta during March 6-8 next year.Indonesia is the only country in ASEAN where theevent is being held this year. Earlier, Mr. Sharmahad separate meetings with Mari Elka Pangestu, TradeMinister of Indonesia, where he discussed ASEANrelations and global issues such as the WTOnegotiations and G-20. The Indian Minister also metHatta Rajasa, Coordinating Minister for Economy,and discussed the issues of mutual interest.

Two Americans share Economics NobelAmerican economists Thomas Sargent and

Christopher Sims, both 68, were awarded the Nobel

Prize for their path-breaking work on developing toolsthat policymakers are probably using freneticallytoday in their bid to extricate the economy from thepersistent global economic downturn.

Recognising the two economists’ “empiricalresearch on cause and effect in the macroeconomy,”the Royal Swedish Academy of Sciences said that itdecided to award the so-called Economics Nobel toProfessors Sargent and Sims for their seminal researchduring the 1970s and 1980s that resulted in “essentialtools in macroeconomic analysis.” Though ProfessorSargent, from New York University, and ProfessorSims, from Princeton University, carried out theirresearch independently, their contributions werecomplementary in several ways, the Academy said,in presenting them with the Sveriges Riksbank Prizein Economic Sciences in Memory of Alfred Nobelfor 2011.

Professor Sargent demonstrated how structuralmacroeconometrics could be used to analysepermanent changes in economic policy — includingthe complex modelling of reactive changes in thebehaviour and expectations of households and firms.He examined, for example, the post-World War IIera of high-inflation policies and the eventualintroduction of systematic changes in economicpolicy that allowed a reversion to a lower inflationrate. Professor Sims on the other hand used theadvanced econometric technique of vectorautoregression to study the impact of temporarychanges in economic policy on the economy. Acommon application of this scenario, and one thatis likely used across the developed and developingworld today, is the study of effects of an interest ratehike by a central bank.

Rs. 32 a day poverty line not all that“ridiculous”: Montek

Even as a controversy rages over the Rs. 32 percapita per day poverty line, Planning CommissionDeputy Chairman Montek Singh Ahluwalia has said“it is not all that ridiculous” in Indian conditions.

“The fact is that Rs. 4,824 per month for afamily [of five] to define poverty is not comfortablebut it is not all that ridiculous in Indian conditions,”Mr. Ahluwalia said in a letter to Attorney-GeneralGoolam Vahanvati. Mr. Vahanvati has agreed toappear in the Supreme Court on behalf of the



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Planning Commission in connection with a publicinterest litigation petition filed by the Right to FoodCampaign. The Commission has drawn flak fromseveral quarters, including civil society, for peggingpoverty in urban areas at Rs. 32 per capita per day.The figure in rural areas is Rs. 26 a day. Referring tothe criticism on the poverty line, Mr. Ahluwalia said:“Social activists have vociferously criticised the latestpoverty line of Rs. 3,905 for rural areas and Rs. 4,824in urban areas as a ‘cruel joke’ by converting thefigure into per person per day i.e. Rs. 26 and Rs. 32respectively. “Many people are persuaded by thisbecause they sometimes think of daily allowance asmeant for family budget...it does not need to beemphasised that the poverty line is not a comfort lineof acceptable living for the aam aadmi . It is a povertyline which by definition implies considerable stress.”

On States’ criticism that the PlanningCommission was understating poverty, leaving outdeserving individuals, Mr. Ahluwalia said: “Thefact...is that the States gave many more below povertyline [BPL] cards than their entitlement and what isworse is, they often did not give the cards to deservingpeople.”

Trade Policy: ‘Niryat Bandhu’ conceptintroduced

The Director General of Foreign Trade (DGFT)announced that it had become India’s first digitalsignature enabled department. It also announcedintroduction of a new ‘Niryat Bandhu’ scheme forinternational business mentoring for young turks ininternational business enterprises.

According to the new Foreign Trade Policy(FTP) unveiled, the DGFT said it had introduced ahigher level of encrypted 2048 bit Digital Signature.

Digital certificate provides a high level ofsecurity for online communication such that onlyintended recipient can read it. It providesauthentication, privacy, non-repudiation and integrityin the virtual world. The new policy also announcedintroduction of a new ‘Niryat Bandhu’ scheme formentoring first generation entrepreneurs. The officer(Niryat Bandhu) would function in the mentoring’arena and would be a ‘handholding’ experiment forthe young turks in international business enterprises.Under the scheme, officers of DGFT will be investingtime and knowledge to mentor the interested

individuals who want to conduct the business in alegal way.

CPSEs can acquire mineral assets abroadAll central public sector enterprises (CPSEs) in

the black for three years have been delegated withmore powers for acquisition of raw material assetsabroad. The Union Cabinet approved a new policyfor acquisition of overseas raw material assets whichwould be applicable to CPSEs in agriculture, mining,manufacturing and power sectors with a three yeartrack record of making net profits.Enhanced power

Seeking to address the issue before global rawmaterial assets were no longer available or wereavailable at exorbitant prices, the government hasvested the CPSEs with the responsibility to acquireraw material assets abroad.

Maharatna and Navratna entities have beenvested with enhanced power to acquire raw materialassets worth Rs.5,000 crore and Rs.3,000 crorerespectively from Rs.1,000 crore without having toconsult the government, the Heavy IndustriesSecretary S. Sundareshan said.

The government also set up a CoordinatingCommittee of Secretaries (CCoS) under the CabinetSecretary to expedite proposals which requireapproval of various ministries and involvegovernment funds. The government maintained thatit would consider constituting a dedicated SovereignWealth Fund to go with the new policy to protectthe long-term economic interests of the country.

Exporters can retain $3,000 per transactionabroad: RBI

The Reserve Bank of India enhanced the limitfor retaining foreign currency abroad to $3,000 pertransaction for exporters against the existing $500.

It has now been decided to increase the valueper transaction from $500 to $3,000 for export-relatedremittances received through Online PaymentGateway Service Providers (OPGSPS), the RBI saidin a statement. The present instructions have beenreviewed in the context of requests received fromexporters for suitable enhancement of the value ofthe transaction from $500, it said. This facility is onlyavailable in case of transaction carried online. The



Economy



revised directions will come into force withimmediate effect, it added.

It was observed that a few OPGSPs have notonly facilitated conclusion of the transactions, butalso allowed exporters to retain the export proceedsabroad without repatriation resulting in violation ofthe provisions of Foreign Exchange Management Act,1999.

R&D mandatory for Central Public SectorEnterprises

The Union government has made research anddevelopment (R&D) mandatory for all profit-makingCentral Public Sector Enterprises (CPSEs) withimmediate effect. The Department of PublicEnterprises (DPE), under the Ministry of HeavyIndustries and Public Enterprises, has, in amemorandum, directed that Maharatna companiesset aside at least 1 per cent of their profit after tax(PAT) for expenditure on R&D and other Navratnastatus undertakings earmark 0.5 per cent of their PATfor the purpose. Loss-making, sick and those onrevival package have been exempted from this.

To make their operations R&D-driven andbrace up to compete with low-cost products ofemerging markets, the Maharatna PSUs have beenassigned to take up at least five R&D projects whilethe Navratna companies will necessarily undertakethree R&D jobs.

SAT orders Sahara to refund money toinvestors

Rejecting the appeals of Sahara Groupcompanies, the Securities Appellate Tribunal (SAT)asked them to refund the money raised through theoptionally fully convertible debentures (OFCDs) toinvestors within six weeks.

“...both the appeals are dismissed...Theappellants in both the appeals shall now repay withinsix weeks from Tuesday the amount collected frominvestors on the terms as set out by the whole timemembers (of the Securities and Exchange Board ofIndia) in the impugned order,” SAT said in its order.

While dismissing the appeal filed by SaharaGroup companies against the SEBI order, it held thatthe market regulator had jurisdiction over such fundraising schemes.

“...We may mention that in view of ourfindings that OFCDs issued by the company aresecurities and that the issue is a public issue requiringmandatory listing and that SEBI has the jurisdictionunder the SEBI Act to deal with all kinds of securitiesand companies, whether listed or not...”, the ordersaid. It could not be immediately ascertained howmuch money the Sahara Group companies wouldhave to refund to investors who had parked theirfunds as OFCDs.

SAT has given the two companies — SaharaIndia Real Estate Corporation (now known as SaharaCommodity Services Corporation Ltd.) and SaharaHousing Investment Corporation — six weeks toreturn the money.

SEBI had asked the two Sahara Group entitiesto return the money collected from millions ofinvestors through the financial instrument OFCD,citing violation of regulatory norms.

The Sahara Group had challenged the SEBIorder in SAT. It contended that SEBI had nojurisdiction over the issue as the companies involvedwere not listed. It maintained that the entitiesinvolved were privately held companies and wereunder the jurisdiction of the Ministry of CorporateAffairs (MCA). A similar issue was raised by Saharain the Supreme Court, which had asked it toapproach SAT in the matter.

Dismissing the contention of Sahara which wasrepresented by senior advocate Fali S. Nariman, theSAT order said: “This argument has no merit... Aplain reading of Regulation...leaves no room fordoubt that the regulations apply to all public issues.”

Earlier in June, SEBI had asked the twocompanies to refund the money raised from hybridinstrument OFCD to investors along with 15 per centinterest. The two companies and their promoterSubrata Roy Sahara, and directors — VandanaBhargava, Ravi Shankar Dubey and Ashok RoyChoudhary — jointly and severally were told to refundthe money collected. Besides, the regulator hadrestrained the entities from accessing the securitiesmarket for raising funds, till the time payments weremade to the satisfaction of SEBI. The companies hadfailed to apply for and obtain listing permission fromrecognised stock exchanges, the market regulator hadsaid in its earlier order.



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Global mineral conference begins todayThe 12th international mineral processing

technology conference (MPT-2011) starting inUdaipur will discuss the whole gamut of explorationof minerals and innovative methods in wastemanagement. The three-day conference has “Recentadvances in processing of non-ferrous and industrialminerals” as its central theme.

MPT–2011, organised jointly by HindustanZinc and Indian Institute of Mineral Engineers (IIME),will be attended by 500 participants including expertsfrom South Africa and Russia. The event will beinaugurated by S. Vijay Kumar, Secretary, UnionMinistry of Mines.

India ranks 132 on business-friendlyreforms: World Bank report

Even as the U.S. has continued to press Indiato undertake more investor-friendly reforms under thebilateral Strategic Dialogue, the World Bank virtuallycongratulated India and 29 other countries forsignificant strides in making their regulatoryenvironments more business-friendly.

In a report titled Doing Business 2012: DoingBusiness in a More Transparent World the WorldBank and the International Finance Corporation saidthat between June 2010 and May 2011, there were245 business regulatory reforms worldwide, whichwas 13 per cent more reforms than in the previousyear.

Among these “China, India, and the RussianFederation are among the 30 economies thatimproved the most over time,” the report said, addingthat Singapore led on the overall ease of doingbusiness, followed by Hong Kong, New Zealand, theU.S. and Denmark. The Republic of Korea was saidto be a new entrant to the top ten.

However, India still ranks low overall in theDoing Business assessment, with its rank improvingmarginally from 139 to 132 between the 2011 and2012 reports. On the reform undertaken in India, the2012 report said, “When India dismantled a strictlicensing regime controlling business entry andproduction the benefits were greater in states that hadmore flexible labour regulations”.

Specifically the report noted that the progressiveelimination of the “licence raj” led to a 6 per cent

increase in new firm registrations in India, and highlyproductive firms entering the market saw largerincreases in real output than less productive firms.

Yet a country such as Nigeria appeared to havemade more progress towards the frontier of maximumbusiness-friendly reforms than India has between2005 and 2011, according to data in the 2012 report.

Manufacturing to contribute 25 % of GDPwithin a decade

The Union Cabinet gave its approval to thelong-awaited ambitious National ManufacturingPolicy (NMP), which seeks to set up mega industrialzones, create 100 million jobs by 2022 and put Indiaon a par with manufacturing powers such as Chinaand Japan. “The NMP seeks to enhance the share ofmanufacturing in the GDP to 25 per cent within adecade and create 100 million jobs in manufacturingas part of the inclusive growth agenda of the UPAGovernment,’’ Commerce and Industry MinisterAnand Sharma said after the Cabinet meeting chairedby Prime Minister Manmohan Singh.

Ruling out any kind of subsidies for unitsoperating in these manufacturing zones, the newlyapproved policy states that the government willprovide fiscal incentives to industry, particularly tosmall and medium enterprises (SMEs) to encouragethe manufacturing sector.

The NMP had faced hiccups in the Cabinet onSeptember 15 when Labour and Environmentministries had raised objections to certain clausesbeing waived pertaining to their ministries. The PrimeMinister later referred the matter to the Group ofMinisters (GoM), headed by Agriculture MinisterSharad Pawar. The major objectives of the NMP areto increase the sectoral share of manufacturing inGDP to at least 25 per cent, create 100 million jobsby 2022 and enhance global competitiveness of thesector. Besides, it focusses on domestic valueaddition, technological depth and environmentalsustainability of growth.

The policy envisages specific interventionsbroadly in the areas of industrial infrastructuredevelopment and improvement of the businessenvironment through rationalisation andsimplification of business regulations. Besides,development of appropriate technologies, especiallygreen technologies, for sustainable development and



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skill development of the younger population areenvisaged. The NMP aims at creating large integratedindustrial townships — National Investment andManufacturing Zones (NIMZs). “The land for thesezones will preferably be waste infertile land whichis not suitable for cultivation; not in the vicinity ofany ecologically fragile area and with reasonableaccess to basic resources,’’ Mr. Sharma said. Atpresent, the contribution of the manufacturing sectoris just over 16 per cent of India’s GDP. With a viewto accelerating the growth of the manufacturingsector, Mr. Sharma said the manufacturing policyproposed to create an enabling environment suitablefor the sector to flourish.

Cabinet approves hike in India’s IMF quotaThe Union Cabinet approved a proposal to

increase India’s contribution to the InternationalMonetary Fund (IMF) to make it the eighth largestshareholder in the multilateral lending agency.

Briefing the media on Cabinet approval for hikein the country’s quota in the IMF following its‘Fourteenth General Review of Quotas’, Informationand Broadcasting Minister Ambika Soni said: “India’squota share at the IMF will increase from 2.44 percent to 2.75 per cent, making it the eighth largestquota holding country at the IMF”. Significantly,while India’s gain in terms of quota share is theseventh largest in the 14th round of quota review,in absolute terms it will mean an increase from SDR(special drawing rights) 5,821.5 million to SDR13,114.4 million. Ms. Soni said that when the 14thround of quota review came into force it would resultin a major realignment of quota shares amongmembers and thereby reflect the global realitiesbetter. In keeping with the demand of emergingnations, including India, for a greater say in the IMFfollowing their increased economic clout after theglobal meltdown in 2008, all the BRIC (Brazil,Russia, India and China) nations will now figureamong the 10 largest quota shareholders in the IMF.

Banks need to be recapitalised to meetBasel III norms

The Reserve Bank of India said banks wouldhave to be recapitalised to help them achieve BaselIII capital adequacy norms and would issue a detailedguideline on the matter by December-end.

“While at present, at the system level, banksin India are adequately capitalised, and transition toBasel III is expected to be smooth, careful capitalplanning would be required by banks in view ofsubstantially higher equity requirement in capital,”RBI said in its policy review.Draft Guidelines

The draft guidelines for banks for implementingthe Basel III framework would be issued byDecember-end. Basel III is the new internationalregulatory framework designed to correct thedeficiencies in regulation that led to the globalfinancial crisis of 2008. It seeks higher capitaladequacy ratio to meet any financial exigency.Implementation

As per the norms, banks are required to shoreup their capital adequacy ratios and maintain equitycapital at 7 per cent of risk-weighted assets. “Thedraft guidelines would form the basis of preliminaryestimation of capital requirements over theimplementation phase of Basel III,” RBI said.

There are 26 public sector banks, including SBIand its subsidiaries, at present. Implementation ofthe Basel III norms is scheduled to commence fromJanuary 1, 2013, and has to be completed by January1, 2019. Although banks in India have higher capitaladequacy ratio than the minimum total capitalrequirement under Basel III, their Tier-I or equitycapital needs to be shored up to meet the norm.

World Bank to provide loan for EasternDedicated Freight Corridor

The World Bank committed to finance theEastern Dedicated Freight Corridor by signing a $975million loan agreement with Ministry of Financeand Dedicated Freight Corridor Corporation of IndiaLimited (DFCCIL).Three phases

The World Bank has decided to finance 1,130km out of the 1,839 km length of the EDFC in threephases and Thursday’s agreement covers theconstruction of 343 km of the section betweenKhurja and Kanpur, which would not only raise theaxle load limit but also enable the freight trains togain speeds upto 100 km an hour. The agreementwas signed by World Bank Country Director Roberto



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Zagha and Department of Economic Affairs JointSecretary Venu Rajamony and DFCCIL ProjectDirector Anshuman Sharma. The loan from theInternational Bank for Reconstruction andDevelopment (IBRD) has a maturity period of 22years, including a seven-year grace period. The EDFCalong with the Western DFC, when completed, willdecongest the present routes allowing for fastermovement of passenger trains, besides speeding upgoods trains in these regions which account for thecountry’s 50 per cent of rail freight. The DFCs arenot only expected to increase the railway’s freightmarket share but also help the country inprogressively extending the network to cover otherimportant freight routes.

Since the DFC is expected to be operatedentirely through electric locomotives, a reduction ingreen house gas emission is expected, according tostudies conducted by the DFCCIL.

Now, Moody’s blues forIndian banks

Global ratings firm Moody’s downgraded theentire Indian banking system’s rating outlook from“stable” to “negative,” citing the likely deteriorationin asset quality in the months ahead. Only inSeptember, Standard & Poor’s (S&P) downgraded thecountry’s largest lender, the State Bank of India, byone notch. Understandably, the Moody’s decision— at a time when the Eurozone financial system isin turmoil and a large number of European banks arein dire straits — evoked sharp reactions from thegovernment and bankers alike. While the governmentpooh-poohed the step as of “no significance,” sayingthe country’s lending institutions are much healthierthan their global counterparts, Indian bankers termedthe move “unwarranted” and “premature” at thispoint of time. Arguing its case for the outlookdowngrade in the wake of the economic growthslowdown that could impact the asset quality andprofitability of the Indian banking sector, theMoody’s said: “with asset quality, given thetightening environment, we anticipate that it willdeteriorate over the next 12-18 months, therebycausing an increase in provisioning needs for thebanks in FY’12 and FY’13.”

Loan Growth will be ‘Strain’ on theBanking System: Moody’s

While downgrading the country’s entire

banking system rating outlook to ‘negative’ from‘stable’, Moody’s also sought to provide the reasonsfor its action, as far as individual banks areconcerned. “For those banks with weaker capitalratios on average and higher asset quality pressuresrelative to their individual rating levels, theirstandalone ratings are likely to come under pressure.’’

What appears to have prompted such a step isthat the non-performing assets (NPAs) of publicsector banks have gone up to 2.31 per cent at theend of March, 2011, from 2.27 per cent in the sameperiod a year ago. More significantly, SBI’s gross NPAas at the end of the July-September quarter went upto 4.19 per cent from 3.38 per cent in the samequarter in the previous fiscal. However, even whilepointing to the positives in India’s banking system,Moody’s has sought to forewarn the authorities ofthe adverse effect of certain external factors. It hasnoted that the stable customer base of Indian banksand their high level of holding in governmentsecurities holdings offer a ‘resilient funding andliquidity profile’ that buffers them againstdestabilising shocks. Moody’s does the rating for 15commercial banks in India, which togetheraccounted for about 66 per cent of the system’s totalassets as of March, 2011. The country’s bankingsystem is dominated by state-owned banks whichaccount for around 75 per cent of the market in assetterms.

PFC to Launch $1 bPrivate Equity Fund

The Power Finance Corporation (PFC), one ofthe Navratna PSUs that lends funds to power unitsin public and private sectors, has decided to launcha private equity fund with $1 billion.

The proposal was approved at a meeting of thecorporation’s board of directors held for the first timein Ahmedabad on Wednesday. After selecting thepartner, PFC would constitute a trust and an AssetManagement Company (AMC) in the next sixmonths and PFC would contribute to the proposedtrust about 5 per cent of the funds.

Goa moots non-occupancy taxIn a bid to curb the skyrocketing prices of land

and real estate in the tiny coastal tourist State of Goa,the government has proposed to levy a high non-occupancy tax on houses/flats owned but keptunoccupied by non-Goans. Talking to presspersons



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while announcing the notification of the GoaRegional Plan 2021 (RP 2021), Chief MinisterDigambar Kamat said the task force of experts, whichformulated the plan, recommended the tax to thegovernment with the idea of bringing back somesanity into real estate prices in the State.

National Competition Policy Coming Soon:Moily

India is likely to have a National CompetitionPolicy, according to Minister for Corporate AffairsVeerappa Moily. Mr. Moily and his colleaguesemphasised that the aim of the new policy wouldbe to unleash “a second wave of reforms,” followingthe first wave in 1991 that led to the liberalisationof numerous sectors of the economy. Chairman ofthe Committee on the National Competition PolicyDhanendra Kumar indicated that once the new policyand its recommendations were adopted by thegovernment, then all Ministries would be asked toundertake “a close hard look at all the laws,legislation in their charge to see if there are any anti-competitive outcomes as a result thereof.”

Mr. Kumar said the new policy would includea process called the Competition Impact Assessment,which entails the use of a number of parameters toexamine whether government policies were imposingany restrictions in terms of the number of players,entry restrictions, exit restrictions or any other suchqualifying prerequisites.

There would be a sharp focus on opening upsectors in which the Government of India heldsignificant assets under sole ownership viasubsidiaries or under public-private partnerships. Inthis context, the basic aim was to increasecompetition, officials said adding, “All the policiesof the government should result in enhancedcompetition... increased entrepreneurship and allowas many players as the economy can sustain.”

S&P Differs with Moody’s RatingDiffering with the downgrade accorded by

Moody’s, leading ratings agency Standard & Poor’shas upgraded the Indian banking sector saying itsdomestic regulations are in line with internationalstandards. “In our view, banking regulations in Indiaare in line with international standards and theregulator (Reserve Bank of India) has a moderatelysuccessful track record,” S&P said while upgradingthe risk profile (BICRA) a notch higher to ‘Group 5’.

The latest BICRA (Banking Industry Country RiskAssessments) of S&P comes a day after U.S.-basedMoody’s changed the outlook for the sector tonegative from stable, a move which evoked sharpcriticism from Indian government and bankers. Thenew economic risk score of ‘Group 5’ by S&P reflectsthat India has “high risk” in “economic resilience,”“low risk” in “economic imbalances,” and “high risk”in “credit risk in the economy,” S&P said.

In the ‘Group 6’, score on India’s economicimbalance was “intermediate risk” which has nowbeen upgraded to “low risk”. S&P, however, notedthat India’s economic resilience is constrained by itsweak economic structure. “We note that a large andpersistent fiscal deficit limits the government’sability to stimulate growth through fiscal policies,”it said. It said the Indian banking system has levelof “stable, core customer deposit”, which limitdependence on external borrowing.

“We consider governance standards as generallyadequate, though disclosures are somewhatinadequate,” S&P Analyst Geeta Chugh and DeepaliSeth said in the BICRA report. Other countries inBICRA ‘Group 5’ are: China, Portugal, Thailand andTurkey.

Mumbai Host India Economic SummitMumbai hosting the World Economic Forum’s

(WEF’s) India Economic Summit for the first time in26 years of the summit’s history.

With over 800 participants from 40 countries,comprising industry captains, representatives andpolitical leaders participating in the summit whichhas the theme ‘Linking leadership with livelihood.’

Interest Rates on Post Office SavingsSchemes go up

In a bid to lure millions of small savers acrossthe country who had exited the National SmallSavings (NSS) schemes in pursuit of higher returns,the Union Government raised the interest rates onPost Office Savings Account (POSA), Time DepositSchemes of various tenures, Monthly Income Scheme(MIS) and Public Provident Fund (PPF).

According to a Union Finance Ministrystatement, the interest rate on POSA stands increasedto 4 per cent from 3.5 per cent for the current fiscalwhile deposits in schemes such as MIS and PPF willfetch attractive returns of 8.2 per cent and 8.6 percent respectively, as compared to the existing rates



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of 8 per cent.While all time maturities will fetchsignificantly better returns by way of higher interestrates than hitherto, the biggest gainer is set to be theone-year fixed deposit scheme with its interest ratepegged at 7.7 per cent as compared to the prevailing6.25 per cent. The move to make the small savingsschemes more attractive and align them with currentmarket rates is in line with the recommendations ofthe Shyamala Gopinath Committee which was setup to look into the matter at the advice of the 13thFinance Commission. Alongside, however, theGovernment has decided to discontinue the KisanVikas Patra (KVP) scheme. It has also reduced thematurity period for the MIS and National SavingsCertificate (NSC) schemes to five years from theexisting six years and has introduced a new 10-yearNSC instrument with its interest rate pegged at 8.7%.

Another bonanza for small savers is that theannual investment ceiling in PPF savings accountshas been raised to Rs. 1 lakh from the current limitof Rs. 70,000. At the same time, what may irkinvestors is that loans against such savings would beat a higher interest rate of 2 per cent as against 1 percent at present. The Government has also scrappedthe 5 per cent bonus on maturity of MIS schemesand abolished the commission for agents on PPF andSenior Citizens Savings Schemes.

MFs can Participate in Repos in Corporatedebt Securities

The Securities and Exchange Board of Indiaallowed mutual funds to invest in repo, or short-termrepurchase of forward contract, of corporate debtsecurities with a ceiling of 10 per cent of the netassets of the scheme concerned.

“The gross exposure of any mutual fund schemeto repo transactions in corporate debt securities shallnot be more than 10 per cent of the net assets of theconcerned scheme,” SEBI said in its guidelines onparticipation of MFs in repo in corporate debtsecurities. In repo transactions, also known as a repoor sale repurchase agreement, securities are sold withthe seller agreeing to buy them back at a later date.The instrument is used for raising short-term capital.

The repurchase price should be greater than theoriginal sale price, the difference effectivelyrepresenting interest. “The cumulative gross exposurethrough repo transactions in corporate debt securitiesalong with equity, debt and derivatives shall notexceed 100 per cent of the net assets of the concerned

scheme,” SEBI said, adding that MFs are allowed toparticipate in repo transactions only in ‘AAA’ ratedcorporate debt securities.

Besides, they can borrow through repotransactions only if the tenor of the transaction doesnot exceed a period of six months.

India Remains a Key Market for AirbusFrom selling its first passenger aircraft to India

way back in 1974, leading European aircraftmanufacturer Airbus has come a long way with nearly200 of its aircraft being in service today in Indiawhich has also emerged as the seventh biggestoperator of Airbus planes worldwide. Leading thepack is the best seller single-aisle aircraft from Airbus— the A320 for which the erstwhile state-ownedIndian Airlines was the launch customer in 1989 andnow low-cost private operators — IndiGo and GoAir— have become the largest fleet operators of A320airliners. Confident of its future potential, Airbus isalso launching a fuel-efficient, advanced version ofA-320, called the NEO (New Engine Option)equipped with bigger wingtips ‘sharklets’. Airbus hasalready received nearly 1100 firm orders from 22customers worldwide for the newer A320 version.Among the Indian operators, IndiGo and GoAir, haveplaced orders for A320 (NEO) which will result in15 per cent fuel burn reduction translating into fuelsavings of nearly $2 million a year for airlines.

The A320 has turned out to be the flagshipaircraft from the European consortium and is theworld’s best-selling aircraft with 7,926 firm orders,4,700 deliveries and a backlog of 2,900 aircraft.

NMDC and Russia’s Severstal signImplementation Protocol

State-owned NMDC and Russia’s second-biggest steel-maker Severstal have signed anImplementation Protocol with respect to thememorandum of understanding they entered into inDecember 2010, for a joint venture steel plant inKarnataka.

According to NMDC, the protocol defines theinitial capacity of the proposed joint venture plant,which would be 3 million tonnes annually offinished steel.

GI Tag Likely for Mangalagiri CottonsHandloom garments made by the nearly 5,000-

strong weaver community of this temple town are



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most likely to get the Geographical Indication (GI)certificate by the end of March 2012.

An apex society has been formed by masterweavers and some cooperative societies and a logowas designed in compliance with the normsstipulated under the Geographical Indications ofGoods (Registration & Protection) Act. These arepending registration with the Department ofHandlooms and Textiles and other authoritiesconcerned.

What the GI will do is facilitate expansion oftheir horizon at a time when the handloom garmentsare facing intense competition from power looms.The rich quality of cotton textiles made here had wondue appreciation and the weavers are now lookingat the bright prospect of making their mark in theinternational market. Mangalagiri cotton textiles areknown in some foreign countries, the GI will providethem the much needed visibility overseas. Theintricate designs and quality raw material procuredfrom within and outside the State are the secret ofsuccess of the products that take shape.

Growth can be Destabilising withoutEquity: Subbarao

Reserve Bank of India Governor D. Subbaraosaid that “growth itself can be destabilising if it hasno equity dimension.” “Is the financial sectorinherently equity promoting, or at least equityneutral? Our experience in India has been that leftto itself, the financial sector does not have a pro-equity bias. The extent of financial exclusion isstaggering. Out of the six lakh habitations in India,less than 30,000 have a commercial bank branch.Just about 40 per cent of the population across thecountry have bank accounts, and this ratio is muchlower in the Northeast of the country. The proportionof people having any kind of life insurance cover isas low as 10 per cent and proportion having non-life insurance is an abysmally low 0.6 per cent.

Over the last few years, the RBI has launchedseveral initiatives to deepen financial inclusion.“Our goal is not just that poor households must havea bank account, but that the account must beeffectively used by them for savings, remittances andcredit. Our most ambitious initiative has been the‘Business Correspondent’ model or branchlessbanking which, leveraging on technology, helps reachbanking services to remote villages at a low overheadcost.”

Cabinet nod for 26 % FDI in PensionSector

The Union Cabinet agreed to partially openthe gates to foreign direct investment (FDI) in thepension sector to the extent of 26 per cent, as is nowavailable in the area of insurance, but decided notto mention any sectoral cap in the proposedlegislation.

In its approval to amendments in the PFRDABill, 2011, the Cabinet, however, turned down theParliamentary Standing Committee’s suggestion ofproviding a guarantee on assured returns on pensionfund schemes. The provision with regard to the FDIcap for the pension sector is proposed to beincorporated in the regulations once the Pension FundRegulatory and Development Authority Bill, 2011,is enacted. Explaining the need for the options keptopen, an official spokesperson said: “The governmentis of the view that the FDI cap in the pension (sector)should be at 26 per cent, on a par with the insurancesector. However, it would like to retain the flexibilityof changing the cap of FDI as and when required andthat is why it has not been kept as part of the bill.”Essentially, the PFRDA Bill provides for the settingup of a statutory authority to undertake promotional,developmental and regulatory functions with regardto pension funds.

As to why the government has decided not tomention the FDI cap in the legislation is the fact thatit has not been able to raise the FDI ceiling ininsurance from the existing 26 per cent to 49 per centas the changes require fresh amendments. As a result,the Insurance (Amendment) Bill has been pendingapproval since 2008. On the other hand, once theFDI caps are mentioned in the regulations, thegovernment would find it easier to modify theceilings through an executive order, as and whenrequired.

Ministry Proposes 24% FDI in IndianCarriers by Foreign Airlines

At a time when domestic airlines are incurringsubstantial losses, the Civil Aviation Ministry hasproposed that the government allow 24 per centinvestment by foreign airlines in Indian carriers.

Asked about the 26 per cent cap proposed bythe Department of Industrial Policy and Promotion,the sources said the government would take a final



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call on it. The current rules allow 49 per cent ForeignDirect Investment (FDI) in the Indian aviationcompanies, but do not allow foreign airlines to ownstake. While a majority of the Indian airlines areopposed to FDI, fearing that foreign partners wouldeventually take over the carriers, liquor baron VijayMallya, whose Kingfisher Airlines has sunk into adeep financial crisis, has raised the pitch for allowingforeign airlines to invest in the domestic carriers.

A 26 per cent cap would allow a foreigninvestor to have voting rights on the board of an Indiancarrier, but this would not be possible if the cap waspegged at 24 per cent, the sources said.

Finance Ministry Approves Changes in FoodSecurity Bill

A key change proposed was that instead ofproviding 3 kg of subsidised grains a household amonth in the ‘general’ category, “a minimum of 3kg’’ shall be provided. This means that if food stocksallowed, higher allocations could be made for thesebeneficiaries. The provision was made as it wasassessed that the requirement of grains to meet theobligations under the proposed Bill was around 65to 70 million tonnes. For this, farm production andproductivity had to increase.

Alongside, we required proposed thestreamlining of the public distribution system, betterstorage facilities, plugging of leakages, moreinvestment in agriculture and higher production andproductivity. Another proposed change was provisionof free meal to eligible pregnant women, lactatingmothers, needy children, destitutes and migrantsthrough anganwadis at an additional cost of Rs.12,000 crore. In addition, a maternity benefit of Rs.1,000 a month would be provided for six months topregnant women and lactating mothers.

Nutritional support had been suggested forchildren in the age group of six months to six yearsand for children between six and 14 years.

The cost to the exchequer for provision ofmandatory subsidised grains to eligible beneficiariesunder the proposed Bill was estimated at over Rs. 1lakh crore. At present, food subsidy stood at Rs.63,000 crore. The Bill proposed coverage withsubsidised grains of up to 75 per cent rural populationwith at least 46 per cent priority households and upto 50 per cent of urban population with at least 28per cent priority families. The identification of thebeneficiaries would be on the basis of the ongoing

Socio-Economic Caste Census.

Centre Preparing for Oil IndiaDisinvestment

The Disinvestment Ministry is gearing up forsale of government equity in Oil India Ltd. (OIL)following clearance from the Oil and Natural GasMinistry. “Correspondence was going on for the lastsix months...We got (the) Petroleum Ministry in-principle approval on Thursday for disinvestment inOIL,” said Disinvestment Secretary MohammadHaleem Khan. In September, 2009, OIL’s initialpublic offer (IPO) had helped the government garnerover Rs.4,900 crore. As part of the IPO, thegovernment offloaded its 10 per cent equity, whilecompany issued 11 per cent fresh equity.

The Centre has plans to raise Rs.40,000 crorethrough the sale of stake in public sector undertakingsin the current fiscal, but it has so far been able tomop up only Rs.1,145 crore due to weak marketconditions.

No Cause for Over-reaction: KhullarCautioning against panic reaction on the

currency front, Commerce Secretary Rahul Khullarsaid there was no cause for over-reaction to theweakening of rupee, which has touched an all timelow of 52.73 to a dollar.

Mr. Khullar said preferences of global investorshave changed in the face of recent events in Europeand the U.S. “Asset preferences drive investors intotaking decisions which affect not only exchange ratesbut also prices of commodities. Shuffling ofinvestment portfolio has led to increased demand forthe dollar and other commodities worldwide.However, in a fast-changing scenario change couldbe equally fast,” he said.

On the other hand, Mr. Khullar said severalcountries were creating market barriers denying theirconsumers taste and fragrance of the Indian rice.“Basmati is a premium product and there is no doubtthat in some markets it is being singled out quiteprecisely because there is a market for it,” he said.

DIPP Proposes 26 % FDI in DomesticAirlines

The Department of Industrial Policy andPromotion (DIPP) moved a Cabinet note, proposing26 per cent foreign direct investment (FDI) indomestic airlines, which are in crisis and need



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immediate infusion of funds. The note is contraryto the proposed move by the Civil Aviation Ministry,which has stuck to 24 per cent FDI in domesticcarriers. The move comes at a time when severaldomestic airlines, including Kingfisher, are incomplete financial mess and struggling to maintaintheir day-to-day operations. “Investor with 26 per centor more holding is considered strategic, as he canhave a say in the policy decision of a corporate entityunder the Indian company laws.

An investor with 26 per cent support can blocka special resolution in the board policy change,’’ thenote states. At present, FDI in domestic passengerairlines is allowed up to 49 per cent by overseasentities, other than foreign airlines. Non-residentIndians (NRIs) can invest 100 per cent.

Food Processing Hitch has nothing to dowith Scant Resources: Experts

In a country that produces 15 billion coconutsand offers over half of that to propitiate a single deity,tops the global production of milk and yet value-addsto barely 6 per cent of products, the food processinghitch has nothing to do with scant resources, expertsparticipating in a conclave have said. What rathermakes India the food processing sector’s sleepinggiant is its failure to develop agriculture into a goodbusiness model, improve productivity or developcold integrated chains, according to the panellistsat the fourth edition of ‘Farm to Fork-DestinationTamil Nadu’ hosted by the Federation of IndianChambers of Commerce and Industry (FICCI). AjitKumar, Joint Secretary, Ministry of Food ProcessingIndustries, said the Government of India’s 12th Planincorporated several measures to boost the foodprocessing sector. Building on the previous Plan, theCentre would double the number of Mega Food Parksby adding 15 more of these ‘hub-and-spoke’ supplychain mechanisms, he said.

By providing primary processing facilities atthe farm gate (spokes) and controlled temperaturestorage and packaging at the hubs, the parks wouldliberate farmers from the dictate of middlemen, theofficial said.

The 12th Plan also envisaged setting up aventure capital fund to provide soft loans, scalingup food testing laboratories by adding 200 more tothe existing chain of 84 units as a quality assurancemeasure, establishing 300 modern abattoirs andadding 49 more cold chains to the existing 40 units,

Mr. Ajit Kumar said.Mr. Ajit Kumar pointed to the several positives

India’s food processing sector held for entrepreneursand investors — a 1.2 billion consumer base, 300million upper and middle class segment, projectionsthat 200 million more consumers would shift toprocessed food by 2015 and rising per capita income.India’s plan to raise food productivity levels by 8-10 per cent would require $ 28 billion and open upseveral opportunities, he said.

India can do Better, Suggests OECDA recent report by the Organisation for

Economic Cooperation and Development hassuggested that while India’s growth record in recentyears was unprecedented, a focus on labour marketsand agricultural growth could spur the country to abetter poverty alleviation record.

The report, “Perspectives on GlobalDevelopment in 2012: Social Cohesion in ShiftingWorld” noted that China stands out for its remarkablerise in its private and public savings rate, from 33.3and 5.7 per cent of GDP in 1992 respectively, to 44.7and 6.2 per cent in 2008.

However the report also said “China is notalone,” in particular adding that “India possesses highand rising levels of national savings, which includerapidly growing corporate savings.” Suggesting thatthese funds could be channelled into areas such aspoverty alleviation the OECD report added, “Highersavings endow converging countries with a greatercapacity to confront the major challenges ofinvestment in human and physical infrastructure.”

The study delved deep not only into theeconomic dimensions of development but socialaspects too. For example, touching upon therelevance of India’s caste system on developmentoutcomes, the study quoted samples from severalIndian rural villages showing that “Low-castehouseholds living in low-caste dominated villageshave a higher income than those in villagesdominated by a high caste.”

The OECD also praised India’s overalldevelopment model and drew attention to thestructural factors underlying its recent decades of rapideconomic growth. In its report the OECD said, “Withsustained high growth over several decades the depthof structural change in large Asian economies suchas India is remarkable and without historicalprecedent.” Citing the rapid rise in labour productivity



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as a key factor driving this growth the study notedthat in the case of India structural transformation inlabour markets had made the services sector a keysource of employment unlike China, wheremanufacturing appeared to dominate.

NHAI to Float Bonds forRs.10,000 cr

Union Minister for Road Transport andHighways C. P. Joshi said that National HighwayAuthority of India (NHAI) would raise Rs.10,000crore through bonds within a month for thedevelopment of highways in the country.

Stressing the need to boost road infrastructure,he said it was imperative to attract foreign investmentin infrastructure. Among the proposals consideredinclude 100 per cent foreign direct investment (FDI)in infrastructure, tax concessions and duty-freeimports for construction equipment.

Admitting that only 4,600 km was awardedthis fiscal, much lesser than the 7,300 km per yearneeded to achieve the Prime Minister’s target of 20km of highways per day, Mr. Joshi said: “We havenot been able to achieve 20 km per day, but we areconfident of doing it before the next generalelections.”

RBI Asks Corporates to Park ECB Funds inIndia Amidst

Amid falling value of the rupee, the ReserveBank of India asked corporates to park funds raisedthrough external commercial borrowings (ECBs) fordomestic expenditure with local banks, a move thatwill increase the inflow of foreign currency.

“The proceeds of the ECB raised abroad forrupee expenditure in India... should be broughtimmediately for credit to rupee accounts with ADCategory I banks,” the RBI said in a notification.

Such funds could be used for local sourcingof capital goods, on-lending to self-help groups orfor micro credit and payment for spectrum allocation,among other purposes.

The modifications in the norms for ECBs weredone after a review of the developments in the globalfinancial markets and the current macro-economicconditions. The directives have been made effectivefrom Wednesday, the RBI said.

It, however, said that ECBs meant for foreigncurrency expenditure can be retained abroad pendingutilisation. The central bank said “as hitherto,

however, the rupee funds will not be permitted tobe used for investment in capital markets, real estateor for inter-corporate lending.”

As the cost of credit is significantly less inoverseas markets, Indian companies have borrowedclose to $29 billion in foreign currencies, throughECBs and FCCBs, so far in 2011, as against $18billion in 2010. Meanwhile, the RBI also enhancedthe ‘all-in-costs ceiling’, which include rate ofinterest, fees and expenses, for raising funds throughECBs. The ceiling with an average maturity periodof ECBs between 3 and 5 years have been revisedupwards to 350 basis points from 300 basis points.However, the rate remains same for those withaverage maturity of above 5 years.

Cabinet Approves 51 per cent FDI in Multi-brand R

In a bid to remove the impression that UPA-IIis suffering from a “decision making paralysis” andkicking off the second generation reforms, the UnionCabinet gave its approval for 51 per cent foreigndirect investment (FDI) in multi-brand retail and 100per cent FDI in single-brand retail.

The decision is likely to clear the decks for theentry of foreign retail giants such as Teso, WalMartand Carrefour, which have been waiting in the wingsfor long to have a taste of the $450-billion retailIndian market. The proposal for 51 per cent FDI inretail has come with certain riders, including approvalto be taken from the Foreign Investment PromotionBoard (FIPB), a minimum investment of $100million by the foreign investor, putting 50 per centof the total FDI in back-end infrastructure andprocurement of 30 per cent of the products fromsmall scale industries.

Fresh agricultural produce, including fruits,vegetables, flowers, grain, pulses, fresh poultry,fishery and meat products, may be unbranded.

For the purpose of FDI in multi-brand retail,the Cabinet note describes small industries as unitswhich have a total plant and machinery investmentnot exceeding $250,000 (around Rs.1.25 crore). Thisinvestment refers to the value at the time ofinstallation, without providing for depreciation. Theforeign retail chains will be required to comply withself-certification. They have to keep all records andthe government will have the first right to procureagricultural produce.

The Cabinet note clearly states that investment



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made in processing, manufacturing, distribution,design improvement, quality control, cold chain,warehouses and packaging, amongst others, willconstitute back-end investment. The retail chains willbe allowed only in cities with a population of morethan 10 lakh as per the 2011 census. There are 51cities with a population of more than one million,based on the 2011 census.

Some of the key conditions for allowing 100per cent FDI in single-brand retail are: selling productsunder the same brand name internationally; productretailing will cover only those products that arebranded during manufacturing and the foreigninvestor should be the owner of the brand.

Cabinet Approves Companies Bill, 2011The Union Cabinet approved the Companies

Bill, 2011, a move that will help improve efficiencyand increase accountability of the corporate sector.Once passed, the new Act will update the companylaw in line with the best global practices andintroduce new ideas such as corporate socialresponsibility (CSR), class action suits and a fixedterm for independent directors. The Bill also proposesto tighten laws for raising money from the publicbesides prohibiting any insider trading by companydirectors or key managerial personnel by treatingsuch activities as a criminal offence. It will also makemandatory for companies to earmark 2 per cent oftheir average profit of the preceding three years forCSR activities and make a disclosure to shareholdersabout the policy adopted in the process.

The Bill, which will replace the decades oldAct, has already been vetted by the ParliamentaryStanding Committee of Finance and also by variousministries concerned. The Bill was originallyintroduced in Lok Sabha in 2008, but lapsed becauseof change of government. It was reintroduced inAugust 2009.

CSE Launches NSE PlatformThe 103-year-old Calcutta Stock Exchange

(CSE) launched operations on the National StockExchange (NSE) platform, becoming the only stockexchange in India to offer facility to trade on threetrading platforms — Bombay Stock Exchange (BSE),National Stock Exchange (NSE) and CSE — with asingle membership.

Karnataka now Third in Sugar Production

Karnataka has now emerged as one of the topsugar producing States in the country, afterMaharashtra and Uttar Pradesh.

House Panel for 26 % cap on Voting Rightsin Private Banks

The Parliamentary Standing Committee onFinance has differed with the government’s proposalto extend voting rights to investors in private sectorbanks to the extent of their shareholding. Instead, ithas recommended a hike in investors’ voting rightswith a cap of 26 per cent to maintain a balancebetween economic control and promotion ofcorporate democracy.

Introduced in the Lok Sabha in March this year,the Banking Laws (Amendment) Bill, 2011, hadproposed raising the voting rights of investors, nowcapped at 10 per cent, to levels commensurate withtheir shareholding in private sector banks. In its reporton the Bill tabled in the Lok Sabha, the standing panelheaded by BJP leader Yashwant Sinha said: “The[Finance] Ministry may consider increasing the limitonly to 26 per cent to keep a balance betweenconflicting factors underpinning the decision, namelyconcentration of economic power/control andpromotion of corporate democracy.’’

In this regard, the panel also suggested that theReserve Bank of India should ensure that theregulatory mechanism is adequate and strictlycomplied with to prevent any misuse of the provisionof increasing the limit.

The panel agreed with the government’sproposal to keep bank mergers outside the purviewof the Competition Commission of India (CCI)temporarily but with certain caveats in that whilesupporting the proposal to keep bank mergers outsideCCI’s purview, it recommended that “this exceptionshould be considered as a special case.”

The committee also made it clear that its reporton the Bill referred to it did not convey its views onmergers and acquisition policy in the banking sectoras such as “the issue merits a separate discourse”.

On the proposed Depositor Education andAwareness Fund as provided in the Bill, the panelsuggested that such a fund should be created withoutcompromising the rights and claims of depositors ortheir legal heirs who should be able to secure theirclaims without difficulty. Legal heirs of depositors,it said, should be informed before transfer of money



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to the proposed fund.

Move to Increase FDI cap in Insurance to49 % Rejected

In yet another jolt to the UPA Government,coming soon after the fiasco on foreign directinvestment (FDI) in multi-brand retail, theParliamentary Standing Committee on Finance hasshot down a major reform proposal to raise the FDIcap in insurance to 49 per cent.

Rejecting the proposal in its report on theInsurance Laws (Amendment) Bill tabled in the LokSabha, the panel headed by BJP leader and formerFinance Minister (during NDA regime) YashwantSinha maintained that the move to hike the FDI capmay not have the desired effect and could exposethe economy to global vulnerability.

However, while agreeing that there is a needto put in place comprehensive changes in the archaiclaws pertaining to the insurance sector, it said:“Increased role of foreign capital may lead to thepossibility of exposing the economy to thevulnerabilities of the global market...flight of capitaloutside the country and also endangering the interestof the policy holders.’’

The report noted that since the FinanceMinistry could not convincingly justify the proposalto hike the cap to 49 per cent from the existing 26per cent, “the Committee considers that any furtherhike in FDI cap in the present global economicscenario may not be in the interest of the Indianinsurance industry. Also, “the common man too,would not stand to gain through insurance,particularly as a means of social security,” it said.

The Panel pointed out that while opening upthe insurance sector to foreign investment in 1999,Parliament was given an assurance that the statutoryprescriptions as also the foreign investmentregulations would ensure that the cap of 26 per centon foreign equity participation in insurancecompanies would not, in any way, be breached.

In this regard, the panel urged the governmentto consider formulation of ‘appropriate regulations’.

Sovereign fund Mooted for Buying MineralAssets Abroad

The Fertilizer Association of India (FAI) hasasked the government to create a $20-billionSovereign Wealth Fund to acquire mineral assetsabroad. The Working Group on Mineral Exploration

and Development (other than coal and lignite) forXII Plan (2012-17) has emphasised on public-privatepartnership for the acquisition of fertilizer assetsabroad.

The Planning Commission has also suggestedsetting up of a sovereign wealth fund with an initialcorpus of $10 billion , mainly to invest in energyand mining assets abroad.

Did Anil Ambani Play Overseas Investor?Revelations from an ongoing case against two

bankers of UBS in a London tribunal could provepotentially damaging to billionaire industrialist AnilAmbani, chief of the Anil Dhirubhai Ambani Group(ADAG). Mr. Ambani has been named as theultimate owner of a Mauritius-based investment fundcalled Pleuri that was set up to invest in Indianstocks. As per law, it is illegal for Indian citizensand companies to invest in Indian shares throughforeign institutional investors.

The allegation was that the group companieshad invested funds raised abroad through externalcommercial borrowings (ECB) and Foreign CurrencyConvertible Bonds (FCCB) in the Indian market,specifically in the shares of RelianceCommunications Ltd., through investment vehiclesbased abroad.

SEBI had issued show-cause notices in June2010 to the group and its executives for violationsof various securities trading laws due to the abovetransactions. The two companies and the executivespromptly approached SEBI to settle the proceedingsthrough a consent order. SEBI considered the caseand agreed to a consent order with a fine of Rs.25crore each against the two companies and prohibitingthem from investing in the stock market untilDecember 2012. The ban on the individuals was untilDecember 2011.

The two companies and the executives agreedto the terms without admitting or denying thecharges. Interestingly, the consent order clearly statesthat SEBI can reopen proceedings if any representationmade by the applicants in this consent proceedingis subsequently discovered to be untrue.

It is not clear whether the latest revelation fromthe London tribunal will fall under the above. SEBIdid not disclose details of the proceedings of itsdiscussions with the executives.

India and Russia to Discuss Comprehensive



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Economic PactIndia and Russia will add another facet to their

bilateral relationship by holding talks on aComprehensive Economic Partnership Agreement(CEPA), an omnibus free trade agreement, duringPrime Minister Manmohan Singh’s confabulationswith the top Russian leadership.

For India, tailoring the CEPA to fit in withRussia’s customs union with Kazakhstan, by far thelargest Central Asian country, and Byelorussia willhelp enlarge the market for Indian entrepreneurs.

Other ReasonThe sources said one of India’s major defence

acquisition in terms of technology and ability to strikefear in the adversary – the Nerpa nuclear-poweredsubmarine – will be leased by the end of next month.Unlike a diesel submarine, the nuclear poweredversion does not have to intermittently come up forair to recharge its batteries, and can thus lurk beneaththe waves for indefinite periods giving no clue aboutits location.

Hydrocarbons will be another focus area whereIndia has been trying to close several explorationdeals without much success. After demurring for yearswhen the offer was made on a platter, India has nowevinced interest in the blocks off Yamal Peninsula.It is also keen on a stake in Sakhalin-III and the Trebsand Titov gas fields.

No Re-booking of Cancelled forwardContracts: RBI

In the wake of steady weakening of the rupeeagainst the dollar, the Reserve Bank of India hasstepped in to announce certain non-directintervention measures.

As a consequence, re-booking cancelledforward contracts, whatever the type and tenor of theunderlying exposure, by resident and foreigninstitutional investors is disallowed.

Hitherto, forward contracts booked to hedgecurrent account transactions regardless of the tenorwere allowed to be cancelled and rebooked. Suchfacility was also available to hedge capital accounttransactions that were falling due within one year.

The apex bank has now made it clear thatforward contracts once cancelled cannot berebooked.

The RBI has also modified the currency risk

hedging norms for importers and exporters. Importerswere hitherto allowed to hedge currency risk on thebasis of a declaration of an exposure based on pastperformance up to the average of the previous threefinancial years’ actual import/export turnover or theprevious year’s import/export turnover, whichever ishigher. Contracts booked in excess of 75 per cent ofthe eligible limit were to be on a deliverable basisand, hence, could not be cancelled. The apex bankhas now revised these norms. As a result, this facilitystands reduced to 25 per cent of the limit ascompounded by above for importers who availthemselves of the past performance facility. Ifimporters have already used up in excess of therevised or reduced facility, they will not be allowedfurther bookings. Further, the RBI has made it clearthat this facility will be available on fully deliverablebasis only.

The RBI has also reduced the net overnightopen position limit (NOOPL) of authorised dealersacross the board. The move ostensibly is intendedto prevent speculations in the foreign exchangemarket. Simultaneously, it has asserted that the intra-day open position/ daylight limit of authorised dealersshould not exceed the RBI-approved NOOPL. Theapex bank has also indicated that these arrangementswould be reviewed periodically in line with theevolving market conditions.

IIFCL to Float $1 b debt fund by FebruaryIndia Infrastructure Finance Company Ltd.

(IIFCL), seeking to turn a new chapter in the fundingof the clogged and inadequate infrastructure sector,will float a $1-billion (Rs.5,000 crore) infrastructuredebt fund with the participation of private players.

With a targeted $1 trilion needed by India tooverhaul its infrastructure sector in the next five years,IIFCL has been given the go ahead by the FinanceMinistry to facilitate new funding sources.

The Infrastructure Debt Fund was proposed byFinance Minister Pranab Mukherjee in the budget.The fund is aimed at removing bottlenecks ininfrastructure growth, which are having an adverseimpact on the economic progression of the country.

HSBC, Asian Development Bank, LifeInsurance Corporation of India and IDBI Bank willbe the co-sponsors of the fund. Under the mutualfund route, IDF would invest 90 per cent of its assetsin debt securities of the sector companies.

IIFCL, being the lead player, will have 26 per



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cent stake. IDBI Bank and the Life InsuranceCorporation will have 14 per cent and 10 per centstake, respectively. Foreign partners — AsianDevelopment Bank and HSBC — are expected to have25 per cent each.

MFIs can tap ECBThe Reserve Bank of India (RBI) allowed micro

finance institutions (MFIs) to raise funds via externalcommercial borrowings (ECBs) up to $10 million orequivalent during a financial year for permitted end-uses under the automatic route. The MFIs eligiblefor the same will be: those registered under theSocieties Registration Act, 1860; those registeredunder Indian Trust Act, 1882; MFIs registered eitherunder the conventional state-level cooperative acts,the national level multi-state cooperative legislationor under the new state-level mutually aidedcooperative acts and not being a co-operative bank;non-banking finance companies (NBFCs) categorisedas ‘non-banking finance company-micro financeinstitutions’ (NBFC-MFIs) and companies registeredunder Sec. 25 of the Companies Act, 1956, andinvolved in micro finance activity. Further, the MFIsregistered as societies, trusts and co-operatives andengaged in micro finance activities should have asatisfactory borrowing relationship for at least threeyears with a scheduled commercial bank authorisedto deal in foreign exchange; and would require acertificate of due diligence on ‘fit and proper’ statusof the board/committee of management of theborrowing entity from the designated authorizeddealer (AD) bank.

ECB funds should be routed through normalbanking channels. NBFC-MFIs will be permittedto avail themselves of ECBs from multilateralinstitutions such as IFC and ADB/ regional financialinstitutions/international banks / foreign equityholders and overseas organisations.

Companies registered under Sec. 25 of theCompanies Act and engaged in micro financeactivities will be permitted to avail themselves ofECBs from international banks, multilateral financialinstitutions, export credit agencies, foreign equityholders, overseas organisations and individuals.Other MFIs will be permitted to raise funds via ECBsfrom international banks, multilateral financialinstitutions, export credit agencies, overseasorganisations and individuals.

However, overseas organisations and

individuals complying with specific safeguards maylend.The RBI has also stipulated that the designatedAD must ensure that the ECB proceeds are utilisedfor lending to self-help groups or for micro-credit orfor bona fide micro finance activity, includingcapacity building. It has also been decided that non-government organisations engaged in micro financeactivities can avail themselves of ECB up to $10million or equivalent under the automatic route asagainst the present limit of $5 million or equivalentper financial year. The RBI has also said that theseamendments to ECB policy would come into forcewith immediate effect and the framework withrespect to MFIs would be reviewed after one year.

MCX among top 5 Commodity Exchanges India’s leading commodity bourse, MCX Ltd,

has become the world’s fifth largest commodityfutures exchange, becoming the first Indian entity tojoin the top-five league in terms of the number ofcontracts.

In a statement issued, MCX Ltd said that it hadbecome the world’s fifth largest in terms of thenumber of futures contracts traded during the periodJanuary to June 2011, based on Futures IndustryAssociation (FIA) volume survey and market data.

MCX has replaced China-based DalianCommodity Futures Exchange at the fifth position,after occupying the 6th slot among global commodityfutures exchanges for two consecutive years since2009. At that time, it had replaced the U.K.-basedLondon Metal Exchange to occupy the sixth position.

Moody’s upgrades Indian BondsIn a move that could again attract Foreign

Institutional Investors (FIIs) to the Indian bond marketand boost the gloomy economic outlook, the globalrating agency Moody’s upgraded the credit rating ofthe Indian government’s bonds from the speculativeto investment grade. This could help companies raisefunds abroad at competitive rates.

According to a release issued by the FinanceMinistry, Moody’s unified India’s local and foreigncurrency bond ratings at Baa3.

India’s foreign currency bond ceiling isunchanged at Baa2, and the foreign currency bankdeposit ceiling is Baa3. The local currency bond andbank deposit ceilings are unified at A1. In addition,the government’s local currency short-term rating hasbeen changed to P-3 from NP, indicating the



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government’s ability to repay short-term debts.Giving the rationale for the upgrade, Moody’s

said: “Diverse sources of Indian growth haveenhanced its resilience to global shocks. The presentslowdown could reverse some time in 2012-13, asinflation cools from the current 9 per cent levels.”

The last time Moody’s upgraded any Indianlong-term sovereign debt instrument from thespeculative to investment grade was in 2004.

U.S. Call Centre Bill, a Protectionist MoveThe U.S. Bill that tries to make American

companies move their call centre jobs overseasineligible for grants or guaranteed loans is clearly aprotectionist move and politically timed, feels theIndian offshore industry.

“It is disappointing to see the U.S. adopting‘protectionist’ measures like these that restrict freetrade and establish discriminatory trade practices,”asserts National Association of Software and ServicesCompany (Nasscom) in a statement. “The U.S. law-makers seem to have developed the practice ofunfairly taxing companies working overseas, to payfor domestic issues. In case this Bill is passed, notonly will it see objection from India but also fromLatin America, Ireland, the Philippines and Canada,”it added. “Operating on a global sourcing modelbuilds efficiencies, benefits of which get passed tothe common citizen. Laws such as these will increasethe cost of service and will see a rejection fromcommon citizens,” it went on to add.

3G Roaming Illegal: DoTIn a move that would hurt mobile operators

providing 3G services, the Department ofTelecommunications (DoT) has asked these operatorsto terminate their roaming agreements, which werein violation of licence norms. Backed by similarobservations made by the Telecom RegulatoryAuthority of India (TRAI) and the Law Ministry,Communications and IT Minister Kapil Sibal hasasked Telecom Secretary R. Chandrasekhar to sendnotices to all 3G operators, who have entered intosuch ‘illegal’ roaming agreements. The DoT is alsolikely to impose penalty on these operators forviolating 3G licence norms.

In the 3G spectrum auction held earlier thisyear, where the government fetched over Rs.67,700crore, no private operator managed to bag pan-Indialicence, thus barring them from offering nationwide

services. Reliance Communications, Bharti Airtel andAircel bagged the highest number 13 circles in the3G auction. Subsequently, Bharti Airtel, VodafoneEssar and Idea Cellular entered into a roamingagreement to use each others’ networks for providingpan-India 3G coverage. Similar agreements were alsoentered into by Tata Teleservices and Aircel, whichthey later terminated. After receiving complaints, theDoT looked into the matter and also took legalopinion. Now, the DoT will issue notices to thesefirm to terminate their contracts with immediateeffect or face action.

GST, Direct Taxes Code unlikely in 2012In a setback to the efforts of the Manmohan

Singh Government to unleash the next generationreforms, the two major big ticket reforms — Goodsand Services Tax (GST) and Direct Taxes Code (DTC)— are unlikely to happen during 2012.

“The Parliamentary Committee has lot of workto do before it finalises the report. It will not bepossible to present the report in the winter sessionand now it will only happen in the budget session,”a senior official said. The Bill, which seeks to replacethe archaic Income-tax Act, 1961, was tabled inParliament in 2010, with an aim to rationalise thetax rates, expand the tax base and minimiseexemptions. DTC is all set to miss the April 2012deadline for its introduction despite the fact thatFinance Ministry officials have done the groundwork,including preparing the basic rules and guidelinesfor its implementation. The DTC Bill proposed totax yearly incomes of Rs.2-5 lakh at the rate of 10per cent, from Rs.5 lakh to Rs.10 lakh at 20 per centand beyond Rs.10 lakh at 30 per cent.

3G Players move TribunalFollowing notices from the Department of

Telecommunications (DoT) regarding ‘illegal’ 3Gintra-circle roaming agreements, the three mobileoperators — Bharti Airtel, Vodafone and Idea Cellular—moved the Telecom Disputes Settlement andAppellate Tribunal (TDSAT), challenging the notices.A two-member TDSAT bench will hold a specialhearing on Saturday.

Tighter Norms for NBFCsFor one, the apex bank has made it clear that

the NBFCs could participate in the credit defaultswap market only as users.



Current Affairs



“As users, they (NBFCs) would be permittedonly to hedge their credit risk on corporate bondsthey hold,’’ the RBI said. However, they are notpermitted to sell protection. Hence, “they are notpermitted to enter into short positions in the creditdefault contracts,’’ it made it clear. But they “arepermitted to exit their bought CDS positions byunwinding them with the original counter-party orby assigning them in favour of buyer of theunderlying bond,’’ the apex bank said.

For another, the RBI also has tightened thecapital adequacy norms for all NBFCs. The ruletightening exercise comes in the wake of theirstepped-up exposure to off- balance sheet items. TheRBI has tightened the off-balance sheet regulatoryframework by prescribing that the total risk weightedoff-balance sheet credit exposure be calculated as thesum of the risk weighted amount of the market-relatedand non-market related off-balance sheet items. Forthe off-balance sheet items already contracted byNBFCs, the risk weight shall be applicable witheffect from the financial year beginning April 1,2012.

Telecom Panel for Uniform Licence Fee of8 %

In a move that would put more financialpressure on telecom operators, Telecom Commission,the decision-making body of the Department ofTelecommunications, has recommended a uniformlicence fee of 8 per cent of adjusted gross revenues(AGR) as against the prevalent rate of 6-8 per centdepending upon the type of service and circle a firmis operating. It is also learnt that the TelecomCommission is likely to impose one-time charges onextra 2G spectrum that operators have been holdingbeyond the contractual limit of 6.2 MHz.

“The universal licence fee will beimplemented in two phases over a period of twoyears,” Telecom Secretary R. Chandrasekhar toldjournalists here. The Telecom Regulatory Authorityof India (TRAI) had also recommended a charge of8 per cent of AGR for deciding the license fee. Themove comes as a setback for the telecom players whohave been urging the DoT to lower licence fee.

Replying to queries on one-time charge of extraspectrum being held by mobile operators, Mr.Chandrasekhar said the levy of the charge could notbe ruled out. The TRAI has recommended that eachMHz of additional spectrum (beyond 6.2 MHz of

contractual radio waves) held by operators shouldhave one-time cost of Rs.4,571.87 crore (pan-India).Without disclosing what would be the actual price,he said the Telecom Commission had recommendedthat in future additional spectrum would be allottedthrough the auction route.

The Telecom Commission has also acceptedthe TRAI’s recommendations on spectrum sharingthat would be permitted between any two licenseesholding spectrum, subject to the condition that thetotal bandwidth would not cross the permissiblelimit under mergers. The permission would be forfive years, subject to renewal for one more term offive years. All these recommendations will now besent to Communications and IT Minister Kapil Sibalfor clearance and subsequently to the Cabinet for itsnod.

SEBI Moots New Rules for InvestmentAdvisors

The Securities and Exchange Board of India(SEBI) has proposed new rules for investment advisorsthat will require them to be registered with a self-regulatory organisation (SRO) before undertaking sucha role. The proposed framework intends to regulateinvestment advisory services in various forms,including independent financial advisors, banks,distributors and fund managers.

The proposal has been mooted by the marketregulatorin September.

“While the activity of giving investment advicewill be regulated under the proposed frameworkthrough an SRO, issues relating to financial productsother than securities shall come under thejurisdiction of the respective sector regulators suchas action for mis-selling, violation of code ofconduct, conflict of interest, etc,” the SEBI said inthe concept paper. Persons or entities seekingregistration as investment advisors shall have toobtain it from the SRO. “The SRO formed to regulateinvestment advisors will be registered under the SEBI(Self Regulatory Organisation) Regulations, 2004.

Tax-free Bonds from NHAIThe National Highways Authority of India

(NHAI) has come out with a tax-free securedredeemable and non-convertible bonds issue of thevalue of Rs.1,000 each to raise Rs.10,000 crore tofinance implementation of various projects. Thebonds, with a tenor of 10 years and 15 years and



Economy



offering 8.2 per cent and 8.3 per cent respectively,opened for subscription on December 28.

The bonds enjoy tax benefits under Sec.10(15)(iv)(h) of the Income-tax Act, 1961, but if soldin the secondary market the capital gains wouldinvite taxes as per rule. The bonds will be listed onthe Bombay Stock Exchange and the National StockExchange.

Basel III norms will Kick-start from January1, 2013

The implementation of Basel III capitalregulation will kick-start from January 1, 2013. It willbe fully implemented by March 31, 2017. TheReserve Bank of India indicated this while releasingthe draft guidelines outlining the proposedimplementation of Basel III capital regulation inIndia. These guidelines are in response to thecomprehensive reform package entitled ‘Basel III: Aglobal regulatory framework for more resilient banksand banking systems’ of the Basel Committee onBanking Supervision (BCBS), issued in December,2010.

The apex bank has said that the common equityTier-1 (CET1) capital must be at least 5.5 per cent ofthe risk-weighted assets (RWAs). While stating thatthe Tier-1 capital must be at least 7 per cent of RWAs,it has proposed the total capital to be at least 9 percent of RWAs. The implementation period ofminimum capital requirements and deductions fromcommon equity will begin from January 1, 2013, andbe fully implemented as on March 31, 2017. Underthe Basel III norms, Tier-I capital shouldpredominantly consist of common equity.

The draft guidelines have also proposed acapital conservation buffer in the form of commonequity of 2.5 per cent of RWAs. The capitalconservation buffer is designed to ensure that banksbuild up capital buffers during normal times (thatis, outside periods of stress), which can be drawndown as losses incurred during the stressed period.The requirement is based on simple capitalconservation rules designed to avoid breaches ofminimum capital requirements. The capitalconservation buffer in the form of a common equitywill be phased in over four years in a uniformmanner. The capital conservation buffer requirementis proposed to be implemented between March 31,2014, and March 31, 2017.

The draft guidelines have also indicated that a

counter-cyclical buffer within a range of 0-2.5 percent of common equity or other fully loss absorbingcapital will be implemented according to nationalcircumstances. “The purpose of counter-cyclicalbuffer is to achieve the broader macro-prudential goalof protecting the banking sector from periods ofexcessive aggregate credit growth,’’ the Reserve Banksays. The counter-cyclical capital buffer would beintroduced as an extension of the capital conservationbuffer range.

Hallmarking of Gold made MandatoryIn a move aimed at protecting the interests of

consumers and prevent frauds in sale of goldjewellery, the Union Cabinet approved the proposalto make hallmarking of gold mandatory. At present,hallmarking of gold is voluntary in nature. TheBureau of Indian Standards (BIS), under the ConsumerAffairs Ministry, is the administrative authority ofhallmarking. The Union Cabinet, headed by PrimeMinister Manmohan Singh, cleared the proposal byapproving amendments to the Bureau of IndianStandards (BIS) Act, 1986, that aims to expand theambit of mandatory hallmarking to include moreproducts, including gold.

No Floating Interest Ron Small SavingsSchemes: FinMin

The Centre on Wednesday clarified that, barringthe Public Provident Fund (PPF), the rates of intereston all small savings schemes will remain fixedthroughout the tenure of investment.

In an official statement, the Finance Ministrysaid that the interest rates applicable on small savingsinstruments schemes would be announced on April1 each year and that the rate would remain valid tillthe maturity of the scheme.

In the case of the 15-year PPF scheme,however, the rate of interest would not remain fixedfor the entire period as the interest accruals in thePPF account each year would vary, depending on theinterest rate announced for that particular year.

100 % FDI in Single Brand Retail NotifiedThe Centre notified 100 per cent foreign direct

investment (FDI) in single brand retail, opening thedecks for setting up shop by global retail chains suchas Adidas, Louis Vuitton, Armani and Gucci to havefull ownership of their India operations. However,the notification comes with some riders to protect



Current Affairs



the interests of domestic small and medium scaleunits.

“FDI up to 100 per cent under the governmentapproval route would be permitted in single brandproduct retail trading,’’ according to an official noteissued by the Department of Industrial Policy andPromotion (DIPP).

The notification states that in respect ofproposals involving FDI beyond 51 per cent, themandatory sourcing of at least 30 per cent would haveto be done from the domestic small and cottageindustries, which have a maximum investment inplant and machinery of $1 million (about Rs.5 crore).

Telecom department violated Cabinetdecision on 2G: Finance Ministry official

In a further embarrassment to the UPAgovernment, a top official of the Finance Ministrytold the Joint Parliamentary Committee (JPC) thatthe Department of Telecommunications (DoT) hadclearly violated a Cabinet decision in awarding 2Gspectrum licences in early 2008.

The Cabinet had stipulated in 2003 that theprice of 2G spectrum be fixed in consultationbetween the Telecom department and the FinanceMinistry. The decision was also part of the terms ofreference of a Group of Ministers (GOM) constitutedin February 2006 by Prime Minister Manmohan Singhto consider release and pricing of additionalspectrum.

Economic Affairs Secretary R. Gopalan, whoappeared before the Committee, was questionedclosely how and why the DoT was allowed to havethe sole say in the fixing of prices.

Telecom Tribunal Sets Aside Penalties onNew Operators

In a major development, Telecom DisputesSettlement and Appellate Tribunal (TDSAT) set asideall penalties imposed by the government on newtelecom operators for delay in meeting roll outobligations of services.

The TDSAT bench headed by Justice S. B. Sinhasaid that the Department of Telecommunications(DoT) did not follow ‘principals of natural justice’and did not give any opportunity to the telecomoperators before imposing penalty or liquidateddamages. The tribunal further directed thegovernment to refund the amount collected from theoperators with 12 per cent interest within four weeks.

According to estimates available, the DoT hascollected so far over Rs.300 crore against claims ofabout Rs.400 crore from the new telecom operatorsas liquidated damages in the last one year.

Penalties have been imposed on new telecomoperators, including Etisalat DB, Videocon, Loop,Aircel and Uninor. The ruling came on a batch of70 petitions filed by various telecom operators,challenging the liquidated damages imposed onthem by the DoT for various circles.

Underperforming PSUs Stand to Lose MiniRatna Status Following Assessment

The move of the Department of PublicEnterprises (DPE) calling for re-examining existingMini Ratna status of Central Public Sector Enterprises(CPSEs) is seen as a “sword of Damocles” for thosewhich had floundered on the performance frontduring the past three years. Sources fear that the DPEcalling for a status report could affect the status ofPublic Sector Units (PSU) such as BSNL, HMT,Hindustan Paper and Hindustan Newsprint, whichhave not come good on the criteria laid down formeriting Mini Ratna status. The DPE has directed alladministrative Ministries and departments to makethe assessment and re-examine the status of the PSUsunder them, which number as many as 67.

GI tag to Boost Darjeeling Tea ExportsDarjeeling tea exports are set to increase by

volume and value, following its registration as aprotected geographical indication (PGI) product fromIndia. S. S. Bagaria, Chairman of Darjeeling TeaAssociation (DTA) told The Hindu that the industryclosed 2011 by registering a 10 per cent increase intotal Darjeeling tea exports.

“In value terms, the rise has been 20 per cent.This will rise further following the GI registration,”he said. Exports of Darjeeling tea stood at around6.9 million kg in 2011, when production was around9.2 million kg.

Cairn-Vedanta Deal Comes under a CloudThe successfully concluded $8.48-billion

Cairn-Vedanta deal has come “under cloud”following instances of serious human rightsviolations, default of payment, environmentaldamage in its mining and metal projects in India, aspointed by the Internal Security section of the HomeMinistry against Vedanta and its group of companies.



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Following the serious issues raised by the HomeMinistry, officials in the Petroleum and Natural GasMinistry said the deal is likely to be put up beforethe Cabinet Committee on Economic Affairs (CCEA)for a review in light of these facts brought out in theofficial note.

UN Predicts 7.7 % Growth in IndiaA United Nations report on global economic

prospects has projected India’s economy to grow ata pace a tad lower than 8 per cent in 2012 and 2013in view of the sharp increase in downside risksstemming from the problems in Europe and the U.S.

In its report on ‘World Economic Situation andProspects 2012,’ released, it said: “India’s economyis forecast to expand at a pace similar to 2011 in thefollowing two years ... at 7.7 per cent in 2012 and7.9 per cent in 2013.” The UN report, while notingthat South Asia’s economies — India, Pakistan,Nepal, Iran, Bangladesh and Sri Lanka — are expectedto grow by 6.7 per cent in 2012 and 6.9 per cent in2013, accelerating slightly from 6.5 per cent in 2011,seeks to apportion blame on India’s economicsituation for a low regional average. “Robustdomestic demand will sustain this increase, but theeconomic slowdown in India, where growth declinedfrom 9 per cent in 2010 to about 7.6 per cent in 2011,brings down the regional average, it said.

IMF Seeks up to $500 b in New FundsThe International Monetary Fund said that it’

was aiming to increase its financial firepower byaround $500 billion so it could give out new loansto help mitigate a worsening financial crisis.

Responding to widespread speculationsurrounding its funding requirements, theWashington-based institution said its staff estimatedthat countries around the world would need about$1 trillion in loans over the coming years. Most ofthe concerns centred on the 17-nation eurozone. “Atthis preliminary stage, we are exploring options onfunding and will have no further comment until thenecessary consultations with the Fund’s membershiphave been completed,” a Fund spokesman said in astatement.

Thanks to some $200 billion that Europeancountries have recently promised to the IMF, it isalready more than one third on its way to reachingits fund-raising goal.

Tax Policy Certainty Crucial for FDI flows:Court

The Supreme Court had asked Vodafone todeposit the initially assessed tax amount by way ofa Rs. 2,500 crore deposit with the Registry and Rs.8,500 crore as a bank guarantee. Hearing thecompany’s appeal against the tax demand, the courtcontended that if there was tax liability, it would bepaid by the seller and not the buyer. However, therevenue authorities said “if transfer of a capital assetsituated in India happens in consequence ofsomething which has taken place overseas [includingtransfer of a capital asset], then all income derivedeven indirectly from such transfer, even thoughabroad, becomes taxable in India. Even if control overHutch-Essar were to get transferred in consequenceof transfer of the CGP share outside India, it wouldbe covered by Section 9 of the IT Act.”

Allowing the appeals in two separatejudgments, the Bench rejected the Centre’scontentions and said: “FDI flows towards locationwith a strong governance infrastructure whichincludes enactment of laws and how well the legalsystem works. Certainty is integral to rule of law.Certainty and stability form the basic foundation ofany fiscal system.”

Supreme Court Ruling, a Leg-up for TaxPlanning

It is a thin line that divides tax planning fromevasion and the weight of the Supreme Courtjudgment in the Vodafone case is that the latter’sdeal with Hutchison Whampoa falls on the right sideof that line.

The most significant aspect of the verdict thatsees Vodafone victorious is not that the governmentwill lose Rs.11,200 crore in tax revenue. It is alsonot that the government will have to refund Rs.2,500crore to Vodafone with 4 per cent interest.

What is significant is that the judgment nowconfers acceptability and even respect to genuinedeals between offshore entities where the underlyingasset is in India. Hitherto, such structuring of dealswas viewed largely as an attempt to evade tax. Post-Vodafone case, such transactions will be seen asgenuine tax planning rather than evasion. Thejudgment also is clear that the taxman has nojurisdiction over deals executed abroad. This is likelyto benefit other similarly structured deals such as



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between SABMiller and Foster, Sanofi Aventis andShanta Biotech and Cairn and Vedanta.

The judgment could give a leg up to cross-border mergers and acquisitions as it clears the airon taxability issues. But the joy is likely to be short-lived as the government could plug the hole in thenew Direct Taxes Code to ensure that such deals infuture yield revenues.

An extremely positive signal that thejudgement sends out is that our legal system isindependent and fair and is not swayed even wherethe government is a contesting party. Of course, someof the sheen could come off if the Income-taxDepartment decides to file a review petition in theSupreme Court on the judgment.

RBI cuts CRR to spur growthThe Reserve Bank of India (RBI) on Tuesday

cut the cash reserve ratio (CRR) by 50 basis pointsfrom 6 per cent to 5.5 per cent with effect fromJanuary 28, which would release Rs.32,000 croreinto the financial system.

CRR is the percentage of deposits thatcommercial banks must keep with the central bank.Repo rate is the rate at which banks borrow from thecentral bank. The RBI’s action is seen as an attemptto strike a balance between risks to growth andinflation. The declining growth is a worry for the RBIand its projection of GDP growth for this financialyear is revised downwards from 7.6 per cent to 7 percent.

Apex Bank Moots De-regulation of DieselPrices

The Reserve Bank of India (RBI) has favoureda de-regulation of diesel prices. In its third quarterreview of Monetary Policy 2011-12, the apex banksuggested diesel price de-regulation “to containaggregate demand and trade deficit.” Since the foodsubsidy bill “is expected to rise,” the apex bank said,“it is prudent to fully de-regulate diesel prices.”

Ministry for Petroleum Products underGST

Seeking an end to the discriminatory taxationregime adopted for petroleum products, thePetroleum and Natural Gas Ministry has asked theFinance Ministry to bring petroleum products,including crude oil, petrol, diesel, ATF and gas, underthe new Goods and Services Tax (GST) regime in line

with the recommendations of the XIII FinanceCommission. In a communication to the FinanceMinistry, the Petroleum Ministry has pointed out thatthe XIII Finance Commission had recommended thatpetrol, diesel, aviation turbine fuel (ATF), crude oiland natural gas should form part of the Goods andServices Tax legislation. It has also recommendedthat revenue concerns of the States and the Centrecould be addressed by levying, if necessary, anadditional tax (excise tax) on these commodities inaddition to GST, while bringing them within theambit of GST.

It has argued that the move to keep theseproducts outside the GST could permanently deprivethis sector of the advantages of GST. “To address theconcerns of the State governments of revenue lossdue to inclusion of this sector in the GST regime,levy of an additional tax, if necessary (without anyinput tax credit) as recommended by the XIII FinanceCommission on these commodities in addition toGST, while retaining them in the ambit of GST maybeconsidered,” the communication states.

Rangarajan Heads Expert Panel on SugarSector

Prime Minister Manmohan Singh hasconstituted an Expert Committee to look into all theissues relating to ‘de-regulation’ of the sugar sector.Headed by C. Rangarajan, Chairman of the EconomicAdvisory Council to the Prime Minister, theCommittee has been requested to complete its taskas early as possible and give its recommendationsto the Prime Minister.

The sugar industry has been demanding de-control of the sector on the plea that the mandatoryrequirement of selling 10 per cent of production atbelow-cost rates for supply to the ration shops iscrippling it.

Another key demand is to do away with thesystem under which the Food Ministry decides onthe quantity of the sugar that can be sold in the openmarket every month. According to industryestimates, mills incur a loss of about Rs. 2,500-3,000crore on account of the levy obligation.

India Signs International Tax TreatyIn yet another move to get information about

black money stashed away abroad, India has signedthe Multilateral Convention on MutualAdministrative Assistance in Tax Matters, a



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multilateral agreement that promotes internationalcooperation while respecting the rights of taxpayers.

This will send a strong signal that India andthe other 31 signatory countries have joined handsto ensure that individuals and multinationalenterprises pay the right amount of tax, at the righttime and in the right place. The Convention providesfor administrative cooperation among the parties inthe assessment and collection of taxes, with a viewto combating tax avoidance and evasion, accordingto a statement by the Organisation for EconomicCooperation and Development (OECD).

The Convention was amended to respond tothe 2009 G20 Summit call for developing a broadermultilateral approach to improve the effectivenessof exchange of information, cooperation among thecountries in the assessment and collection of taxes,with a view to combating tax avoidance and evasion.Many more countries are expected to sign theConvention. This provides for a wider network ofcountries cooperating in exchange of information,assistance in tax collection. The convention is basedon international standard of transparency andexchange of information. This instrument ismultilateral and a single legal basis for multi-countrycooperation as against the DTAAs/TIEAs which arebilateral. It provides for an extensive network andthere will be consistent application of provisions,leaving limited scope for deviation. It providesextensive forms of cooperation among the signatorieson all taxes. It not only facilitates the exchange ofinformation, but also provides for assistance in therecovery of taxes. This will give a fillip to the effortsof the government to bring back Indian moneyillegally stashed away abroad.

Finance Ministry, RBI against RestructuringTextile Loans

With the fiscal deficit threatening to go out ofcontrol, putting adverse pressure on the exchequerand inflation still a matter of concern, the FinanceMinistry and the Reserve Bank of India areunderstood to have “politely turned down” theTextiles Ministry proposal to restructure textilessector loans worth Rs. 1 lakh crore, mostly from PSUlenders. With public sector banks already raisingdoubts about servicing of loans on time by the textilesector, the RBI has opined that such a proposal wouldnot be the best international practice. In a recentreport, Fitch Ratings noted that while the

government’s debt restructuring proposal for thetextile sector would provide temporary relief fromliquidity pressure, it would not stem deteriorationin the capital structure of cotton textile companies,most of which are heavily geared. The textile industryhas been clamouring for relief from the governmenton the plea that high interest rates have hit the silk,spinning and powerloom units hard.

Mr. Sharma had also urged Finance MinisterPranab Mukherjee to extend a 2 per cent interestsubvention for SMEs and bigger garment and knit-wear units on the plea that it would help textile millshit by high raw material costs and slowing globaleconomy, affecting the order books.

Rangarajan for Reducing Subsidies to PareDeficit

The Centre hinted at the possibility of reducingthe overall level of subsidies in a bid to contain fiscaldeficit even as apprehensions mounted over thepossibility of missing the target this financial year.

Prime Minister’s Economic Advisory Council(PMEAC) Chairman C. Rangarajan stressed on theneed to focus on reducing the overall level ofsubsidies as a proportion to gross domestic product(GDP) through an appropriate road map to reach theFiscal Responsibility and Budget Management(FRBM) target of 3 per cent of GDP.

Put Cap on Public Debt, RBI TellsGovernment

Cautioning the government that excessiveborrowing is bad, Reserve Bank of India GovernorD. Subbarao urged the government to put a cap onthe public debt as it would hurt growth. “There isan inflexion point beyond which fiscal deficitsmilitate against growth. Government borrowing isnot bad per se, but excessive borrowing is. There is,therefore, a need to cap total public debt as aproportion of gross domestic product (GDP),” Dr.Subbarao said in an address at the InternationalResearch Conference. Stressing on the need forimproving the quality of public expenditure, Dr.Subbarao said, “If the government borrows andsquanders that money away on unproductive currentexpenditure, both fiscal sustainability and growthwould be jeopardised.” “Governments need to spendon merit goods and public goods, in particular onimproving human and social capital and on physicalinfrastructure,” he added.



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SEBI Guidelines Set Stage for DisinvestmentThe Securities and Exchange Board of India

(SEBI) permitted promoters of top 100 companies toquickly dilute their shares through a separate windowon the BSE and the National Stock Exchange, whichhad to be completed within a day. The guidelines,SEBI said in a circular, will help promoters dilute oroffload their holding in listed companies in atransparent manner with wider participation. Thenorms, which follow the decision taken by the SEBIboard earlier, will help the companies in complyingwith the minimum public shareholding stipulation.The decision will also help the governmentexpeditiously offload its stake in public sectorcompanies and raise funds for achieving thedisinvestment target of Rs.40,000 crore for the currentfiscal.

All listed companies are required to have atleast 25 per cent public holding while in case ofstate-owned company the limit is 10 per cent. Underthis window, the promoter will have to sell equityof minimum one per cent subject to a minimum ofRs.25 crore. “However, in respect of companies,where one per cent of the paid-up capital at closingprice on the specified date is less than Rs.25 crore,dilution would be at least 10 per cent of the paid-up capital or such lesser percentage so as to achievethe minimum public shareholding in a singletranche,” it said.

The duration of the offer for sale shall notexceed one trading day, it said, adding that theplacing of orders by trading members should takeplace during trading hours. As per the guideline, thepromoters should not have purchased shares of thecompany during the 12 weeks period prior and afterthe offer of sale.

Don’t Worry, TRAI Tells ConsumersFollowing the Supreme Court judgment,

cancelling all 122 telecom licences issued in 2008,the Telecom Regulatory Authority of India (TRAI)said it would discuss and deliberate on how toimplement the apex court directions of fresh auctionof spectrum. The telecom sector regulator also saidit would ensure that no mobile subscriber wasaffected by the cancellation of licences.

Pointing out that the TRAI had alreadyrecommended that all new licences should be issuedunder Unified Licensing (UL) regime, its Chairman

J. S. Sarma told journalists that spectrum would bedelinked from licence and radio waves auctioned torealise its real value. “Under the new licensingregime, telecom companies will have to pay a pricefor the spectrum determined through auction,” hesaid.

The eight companies that got 122 licences in2008 are: Uninor (a joint venture between Unitechand Norway’s Telenor), Sistema Shyam (joint venturebetween Sistema of Russia and India’s ShyamGroup), Etisalat DB (joint venture between Etisalatof the UAE and DB Group, formerly Swan), S Tel (ajoint venture between Bahrain Telecommunicationsand Siva Group), Videocon, Tata Telecom, IdeaCellular and Loop Telecom.

GoM Approves Direct Import of Jet FuelIn a bid to ease financial burden on airlines, a

Group of Ministers (GoM) recommended directimport of jet fuel by carriers to help them save onhigh taxes. The GoM also gave its nod to cash-strapped Air India to raise Rs.7,400 crore by issuinggovernment-guaranteed bonds or other means.

The GoM’s recommendations, headed byFinance Minister Pranab Mukherjee, would be takenup for approval by the Union Cabinet and theCabinet Committee on Economic Affairs (CCEA),respectively, soon, Civil Aviation Minister Ajit Singhtold journalists after the GoM meeting.

The GoM was also informed of the recentgovernment decision to allow foreign airlines to pickup 49 per cent stake in Indian carriers. A note onthe issue would be prepared soon for the UnionCabinet to obtain its approval, the minister said.

A number of airlines had complained that ATFcosts in India were almost 40-50 per cent higher ascompared to Singapore and Dubai, mainly becausestates levy sales tax which vary from 4 per cent tomore than 30 per cent. Fuel is one of the largest costcomponents of domestic airline and accounts for upto 40 per cent of an airline’s operating costs. Jet andKingfisher Airlines, among the largest operators,together use about 80,000 kl of ATF a month.

PMO to Monitor Dedicated FreightCorridor Project

The Prime Minister’s Office (PMO) willhenceforth directly monitor the progress of theconstruction of the Dedicated Freight Corridor —virtually taking the job away from the Railways.



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Prime Minister Manmohan Singh held ameeting to take stock of the progress, apparentlydissatisfied with the role of the Railways which wasprimarily to monitor the progress of the job — theexecution of which had been handed over to thenodal authority, the Dedicated Freight CorridorCorporation of India Limited (DFCCIL).

The two corridors will cover a length of 3300km. The Western Corridor from Dadri in UttarPradesh to Jawaharlal Nehru Port Trust near Mumbaimeasuring 1499 km will connect Haryana,Rajasthan, Gujarat and Maharashtra. A major portionof the corridor will be financed through Japaneseassistance. The 1839-km-long Eastern Corridor fromLudhiana to Dankuni in West Bengal will connectPunjab, Uttar Pradesh, Bihar and West Bengal. TheWorld Bank will provide assistance for a part of thispassageway, while the Sonnagar-Dankuni sectionwill be funded through PPP.

MCX to Enter Capital MarketCommodity bourse MCX will hit the capital

market with an estimated Rs.650-750 crore initialpublic offer (IPO) on February 22, becoming the firstever IPO by an exchange in the country. The biddingfor shares in the IPO process would begin on February22 and close on February 24, the company said inits Red Herring Prospectus, the final document forthe offer.

1974 Agreement to be Replaced withLiberal visa Regime, says Anand Sharma

In what could prove to be a historic step inremoving the atmosphere of animosity between Indiaand Pakistan and promoting peace and people-to-people exchange, both countries have agreed tocompletely revise the 1974 Bilateral Visa Agreementand put in place a liberal visa regime shortly for allcategories of people, especially businessmen, as partof the Confidence Building Measures (CBMs) aimedto promote peace in the region.

Centre to Miss Disinvestment TargetThe Centre is likely to miss the disinvestment

target of Rs.40,000 crore for the current fiscal as theEmpowered Group of Ministers (EGoM) failed toreach a consensus on selling the government’s stakein ONGC and BHEL. “The government isconsidering the auction route for ONGC(disinvestment)...no timeline fixed as yet. The EGoM

will meet again shortly,” Petroleum and Natural GasMinister S. Jaipal Reddy said here while briefingjournalists after the EGoM. On the BHEL issue,Heavy Industries and Public Enterprises MinisterPraful Patel said no decision could be taken on theissue and that the stake sale might happen in 2012-13. The EGoM had met to decide on thedisinvestment in the two major government-ownedfirms aimed at garnering around Rs.14,500 crore in2011-12.

So far the government has been able to garneronly Rs.1,145 crore by diluting its share in PowerFinance Corporation (PFC). It is expected that a 5per cent stake sale in ONGC would help thegovernment fetch Rs.12,000 crore, while the BHELdisinvestment could bring in Rs.5,000 crore. Lastfiscal, the government had raised around Rs.22,500crore through stake sale in PSUs. Meanwhile,Disinvestment Secretary Mohammad Haleem Khansaid it was now almost impossible to meet thedisinvestment target set for the current fiscal.“Everybody knows that Rs.40,000 crore is nowalmost impossible,” he said.

Hindustan Copper, Rajasthan toCollaborate in Copper Mining

Hindustan Copper Limited and the RajasthanGovernment propose to start joint ventures to exploreand exploit copper and other mineral deposits in theState. The initiative is part of Hindustan CopperLimited’s plan to consolidate its mining business,especially in Rajasthan. The company is planning toexecute as many as eight mining projects across thecountry at an estimated capital expenditure ofRs.3,435 crore to quadruple its mining capacity overthe next five years, said Hindustan Copper LimitedChairman & Managing Director Shakeel Ahmedduring a visit to the Khetri Copper Complex inJhunjhunu district in Rajasthan.

It is the only copper mining company in India.The Khetri copper belt, situated on the foothills ofthe Aravallis along the 80-km metallogenetic provincefrom Singhana in the north to Raghunathgarh in thesouth, has prominent copper deposits at Khetri,Kolihan, Banwas, Chandmari, Dhani Basri and inBaniwali Ki Dhani (at Neem Ka Thana in Sikardistrict). Devlalai in Bhilwara district, Akwali andMuradpura-Pacheri in Jhunjhunu also have sizeablecopper ore presence.



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India wants EEZ out ofwar zone List

India will make a fresh appeal before theLondon-based Joint War Committee, a body ofinsurance underwriters, to exclude India’s ExclusiveEconomic Zone (EEZ) from the war zone notificationconsidering that there have been no piracy incidentsin Indian waters for the last nine months. The Navyhad sanitised the country’s EEZ. There had been nopiracy-related incidents over the last three quartersand India was keen to see that its waters, up to 78degree East, were excluded from the war zonenotification. Exclusion of India’s EEZ from the warzone has implications on premiums on insurancecover. More importantly, it has a security angle to itbecause once within the war zone list, ships plyingthe Indian Ocean and Arabian Sea will hug the Indiancoast for safety from perceived threats.

Vedanta to Merge Sterlite and Sesa GoaIn a move aimed at simplifying and

consolidating its business structure, the VedantaGroup announced that its Indian subsidiaries SterliteIndustries and Sesa Goa would be merged into asingle entity named Sesa Sterlite. The move, expectedto cut costs, beef up cash flows and improveeconomies of scale, will create a company that isthe seventh largest global diversified natural resourcesmajor in operating profit terms. Sesa Sterlite will belisted in India with American Depositary Shares(ADS) listed on the New York Stock Exchange. Thetransaction involves merger of Sterlite into Sesa Goain the ratio of three shares of Sesa Goa, the country’slargest iron ore exporter, for five Sterlite shares.

Pranab-headed High-level Group StudyingIssues Post 2G verdict

Clearly understanding the implications of theSupreme Court order cancelling all 122 telecomlicences issued in 2008, Prime Minister ManmohanSingh has formed a high-level group, headed byFinance Minister Pranab Mukherjee, to look intolarger issues emerging from the historic judgment thatwill have an impact not just on the Department ofTelecommunications (DoT) but also on thefunctioning of other departments.

The government is trying to understand thejudgment that questions the policy of allocatingscarce natural resources. In its ruling, the Supreme

Court found serious faults in the ‘first-come first-served’ (FCFS) policy adopted to allocate spectrumto firms.

Significantly, a similar policy is being followedby other government departments to allocate othernatural resources. Though the apex court did notclarify whether the indictment of the FCFS policy waslimited to the telecom sector, the government is ina bind, as similar decisions in other sectors coulddraw the court’s ire. It is learnt that the governmentmight seek a presidential reference to get clarity onthe issue.

On the other hand, as per Dr. Singh’sdirections, a group of technical and legal expertsformed by the DoT is studying the matter andidentifying legal options to make recommendationsregarding the “course of action to be adopted [after]duly analysing the pros and cons of each course ofaction.”

RBI Confirms Intervention in ForeignExchange Market

The Reserve Bank of India (RBI) said that it hadintervened in the domestic foreign exchange marketwhen the rupee’s foreign exchange value had gonedown against the U.S. dollar in the half-yearly periodended September 30, 2011.

Foreign exchange reserves stood at $304.8billion as at end-March, 2011. It increased to a peakof $322 billion as at end-August, 2011. Thereafter,it came down to $311.5 billion at the end ofSeptember 2011. “The main reasons for the declineare the revaluation effect and intervention in thedomestic foreign exchange market,” RBI said in itshalf-yearly report on Management of ForeignExchange Reserves. Till August 2011 (calendar year)the rupee was quoting in the 44-45 range to the dollar.However, it started falling sharply in September andmoved above the 52-level in November last year.There were market rumours on central bank’sintervention by pumping dollars into the market. Therupee hit an all-time low of 52.73 in November. TheRBI always maintained that it would intervenewhenever necessary.

Although the U.S. dollar and the euro areintervention currencies and foreign currency assetsare maintained in major currencies such as U.S.dollar, euro, British pound sterling and Japanese yen,foreign exchange reserves are denominated andexpressed in U.S. dollar only.



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Widening trade deficit, high inflation andeurozone debt issues have been attributed to the fallin rupee value against the dollar. India’s netInternational Investment Position, which is asummary record of the stock of country’s externalfinancial assets and liabilities, as at end September2011 was negative at $224.9 billion.

The Reserve Bank held 557.75 tonnes of goldas on September 30, 2011. Of these, 265.49 tonnesare held abroad in deposits / safe custody with theBank of England and the Bank for InternationalSettlements.

Cabinet nod for Subsidy Cut in P&Kfertilizers

The Union Cabinet approved the proposal tobring down the quantum of subsidy on decontrolledfertilizers — phosphatic (P) and potassic (K) — for2012-13.

The Cabinet Committee on Economic Affairs,headed by Prime Minister Manmohan Singh,approved the Department of Fertilizer’s proposal toreduce subsidy on P&K fertilisers under the Nutrient-Based Subsidy (NBS) policy. However, it is unlikelyto have any adverse impact on the fertilizer prices.

Cabinet Clears PSU share Buy-backIn an innovative mechanism devised to partly

make up for the shortfall in the Rs.40,000-croredisinvestment target set for the current fiscal, theUnion Cabinet approved buy-back of the Centre’sequity by cash-rich public sector undertakings (PSUs).

With the enabling provision for quick dilutionof the Centre’s stake in blue chip companies throughbuy-back by the cash-rich PSUs themselves gettingthe Cabinet’s nod at its meeting chaired by PrimeMinister Manmohan Singh, the way is now pavedfor the government to inch a tad closer to the till-now elusive disinvestment target.

To facilitate quick transaction, market regulatorSecurities and Exchange Board of India (SEBI) hasalready relaxed the norms for buyback of shares anddilution of equity as a result of which PSUs will beable to complete the buy-out deals within days ascompared to the normal disinvestment processthrough public offers which can take months.

Alongside, the Cabinet Committee onEconomic Affairs (CCEA) is understood to havepermitted financial institutions to buy thegovernment’s equity stake in PSUs. Clearly, in the

current market trend of high volatility and profit-taking, the auction route introduced by SEBI as a newmechanism called IPP (institutional placementprogramme) is unlikely to yield the desired results.

In its bid to garner the required funds throughequity buy-back, the Department of Disinvestmenthad identified nearly two dozen cash-rich PSUswhich account for a total cash reserve totalling nearlyRs.2-lakh crore. Some of these blue chip companiesare: SAIL, NMDC, NTPC, Coal India, Oil India,MMTC, Neyveli Lignite Corporation, NHPC, BHELand GAIL (India).

In all probability, Coal India, which has a cashreserve of about Rs.45,000 crore, is likely to be thefirst in line for the buy-back route. There are likelyto be many more, as is clear from the movement ofshare prices on the bourses. Despite a falling market,there were a number of PSUs which gained up to 5per cent. Among these were: MMTC, Coal India,NMDC, SCI, MTNL, HMT, STC, Hindustan Copper,Engineers India, and NHPC.

Economic Experts bat for a Green Goodsand Services Tax

While there is agreement on the need forenvironmental taxes, there is a need to carefullycalibrate the level of taxation on polluting industriesin targeting a reduction in environmental pollution,C. Rangarajan, Chairman, Economic AdvisoryCouncil to the Prime Minister, said.

Addressing a meeting of State-level policy-makers on a monograph of the Madras School ofEconomics (MSE) on integrating eco-taxes in theGoods and Services Tax (GST) regime in India, Mr.Rangarajan said though eco taxes have had someeffect in reducing industrial pollution in countrieslike the U.K., the important question that arises iswhat should be the level of taxation on industries tobring about desired change in the level of pollution.

Pointing out that the whole idea ofintroducing an environmental tax was based on theexpectation that it would improve the environmentand act as a deterrent in undertaking activities thatwill pollute the environment, he said the otherquestion pertaining to how the revenue from thesetaxes should be utilised could be addressed byapportioning the revenue between lowering generalGST and funding measures to improve theenvironment. In advancing the integration of ecotaxes into the GST framework through non-rebatable



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excises or cesses on polluting goods and servicesalong with environment-promoting subsidies, theMSE model claims to address the two importantconcerns among States regarding introduction of GSTin India —autonomy over revenue generation and alower revenue share.

Some of the advantages of the proposed systemof integration with GST were that polluting and non-polluting goods and services could be taxeddifferentially, non-rebatable taxes would enableproducing States to retain the tax revenue to tacklepollution, the State autonomy could be preserved inmanaging its environmental concerns and the revenuefrom these taxes could be used to bring the overallGST rate down to, say, about 14 per cent.

NTPC to Invest Rs.25,000 crore in twoOdisha Projects

NTPC hopes to break the ground for its twoproposed super thermal power projects (STPP) with1,600 MW capacity each at Darlipali in Sundargarhand Gajmara in Dhenkanal district of Odisha. “Toensure the upcoming project gets uninterrupted rawmaterial, NTPC will source 7 million tonnes perannum coal from Dulunga and 12.5 million tonnesfrom Pakri Barwadih blocks allotted to thecompany,”. The project would depend on Hirakudreservoir for sourcing water.

Sovereign Guarantee Likely for IranImports

The Union government is ‘favourably’ lookinginto the demand of oil marketing companies (OMCs)and state-run Shipping Corporation of India (SCI) foramendment to shipping laws and providing for‘sovereign guarantee’ and Cost and Freight (C&F)mode for crude oil import shipping consignmentsfrom Iran.

The government was also actively looking intothe issue of exempting payments made to Iran underthe agreed rupee mode from imposition of‘withholding tax’ to tackle the sanctions imposed bythe U.S. and European Union.

Recently, reports indicated that India and Iranhave agreed to make a substantial part of paymentfor crude oil under the rupee mode. However, theOMCs raised concerns stating that the whole exercisecould turn futile until the Finance Ministry exemptedpayments from massive local taxes.

“The new mechanism cannot be used unless

rupee payments are exempted from withholding tax.If we include other levies total tax liability willtranslate to over 42 percent tax. This will have to beborne either by us or Iran. We have written to thePetroleum Ministry and in turn the matter has beentaken up with the Finance Ministry which is activelyconsidering the matter,’’ a senior official remarked.

Iranian supplier, National Iranian OilCompany (NIOC), will be the main mechanism forimport of crude into India and for receivingpayments.

Centre Bans Cotton ExportsThe Directorate-General of Foreign Trade

(DGFT) issued a notification prohibiting export ofcotton with immediate effect. According to anofficial in the Union Ministry of Textiles, about 130lakh bales were registered for exports so far thisseason. Of this, nearly 95 lakh bales were shippedalready against the estimated export surplus of 84lakh bales for this season (October 2011 to September2012). According to the notification, exports againstregistration certificates already issued will not beallowed too. Cotton exports were placed on opengeneral licence this season with the requirement ofregistration for monitoring.

$2-b infra debt Fund FinalisedFour private and public financial institutions

— ICICI Bank, Citi Financial, Bank of Baroda andLife Insurance Corporation (LIC) —joined hands toset up India’s first $2 billion (about Rs.10,000 crore)Infrastructure Debt Fund (IDF) to meet the financingneeds of infrastructure projects in the country. Amemorandum of understanding (MoU) to set up theIDF was inked here in the presence of FinanceMinister Pranab Mukherjee by the top executives ofthe four lending agencies — ICICI Bank CEO andManaging Director Chanda Kochhar, Bank of BarodaChairman M. D. Mallya, Citi Bank CEO PramitJhaveri, and LIC Managing Director SushobhanSarkar.

As the main sponsor of the funding jointventure, ICICI Bank will have a 31 per cent equitystake in the IDF, followed by Bank of Baroda (30per cent), Citi Financial (29 per cent) and the balance10 per cent will be held by LIC.Speaking on theoccasion, the Finance Minister maintained thatsetting up of the IDF in the public-private partnership(PPP) mode would meet the long-term funding needs



Economy



of the infrastructure sector and expressed confidencethe ICICI Bank-led joint venture would be “a guidingprinciple” for future activities.

Mr. Mukherjee pointed out that financing thedevelopment of infrastructure during the next fiveyears would require a total of $1 trillion, of whichabout 50 per cent is envisaged to come from theprivate sector through the PPP route.

Kingfisher out of IATA Clearance SystemCash strapped private carrier Kingfisher

Airlines, which is struggling to stay afloat, was, dealtwith yet another blow when the International AirTransport Association (IATA), a leading internationalassociation, asked travel agents to immediately stopbooking tickets on the private airline’s behalf forfailure in settling dues since February.

The move — which can be compared to theReserve Bank of India (RBI) removing a commercialbank from its currency clearing system — came hoursafter the Income-tax Department froze more bankaccounts of the Vijay Mallya-owned airline for non-payment of dues.

Aviation analysts said the IATA move tosuspend Kingfisher from the clearance system onaccount of non-payment of dues was likely to affectnearly 30-35 per cent of its business. They said thatit would put a question mark if tickets for the airlinecould be booked using globally interconnectedsystems such as Galelio, Sabre and Amadeus.

Suspension from the ICH means that the airlinewill not be able to settle their transactions with otherICH members via the clearing house. However,despite the suspension, airlines can continue tofunction by settling bilaterally with other airlines.

Facebook Signs $8 b Credit Deal withLenders

Social networking website Facebook, whichhas at least 46 million active users in India, hassecured credit deal worth $8 billion from aconsortium of banks before its initial public offering.

In a filing to the Securities and ExchangeCommission, Facebook said it had terminated thecredit facility agreement inked with Braclays Capitaland others that granted the company the borrowingcapacity of $2.50 billion. In February it entered into new agreement for an unsecured five-year revolvingcredit facility that would allow it to borrow up to$5 billion from a consortium of banks which

include, Citigroup Global Markets, Credit SuisseSecurities (USA), Deutsche Bank Securities, RBCCapital Markets and others. The social networkinggiant has entered into a bridge credit facility withthe lenders that are parties to its new revolving creditfacility.

Inter-ministerial Row Dogs NELP IXThe New Exploration Licensing Policy (NELP)

round IX offering 34 oil and gas blocks has fallenvictim to internal squabbling among variousministries and departments of the UnionGovernment. Even a series of high-level meetings,convened by the Prime Minister’s Office (PMO), hasfailed to iron out differences.

With the energy security of the nation havingtaken a backseat in the spat among various Ministries,the NELP IX seems to have become a victim ofinternal fights among the Petroleum and Natural GasMinistry, Department of Space and the DefenceMinistry.

The Principal Secretary to the Prime Minister,Pulok Chatterjee, discussed the delays in theexecution of exploration activity in the nearly 20-odd blocks, some under NELP IX and some old ones,which have been stuck due to sharp differencesamong the Petroleum Ministry, Defence Ministry andthe Department of Space.

NBCC Set to go Public this MonthPublic sector undertaking National Buildings

Construction Corporation Limited (NBCC) willcome out with its initial public offering (IPO).

Ten per cent of the equity is to be divested inthe company, which offers project managementconsultancy (PMC) services for civil constructionprojects, creates civil infrastructure for power sectorand is into real estate development.

BSE Lists First Company on SME PlatformBSE, launched operations of its SME Exchange

platform with the first listing ceremony of BCBFinance Ltd. Market regulator Securities and ExchangeBoard of India (SEBI) had granted permission to BSElast September to launch SME Exchange to offer aplatform to small and medium companies to raisecapital.

Speaking on the occasion, R. K. Mathur,Secretary, MSME, said, “The MSME department hasbeen looking forward to this platform.” C. S.



Current Affairs



Mohapatra, Adviser (FSDC), DEA, Ministry ofFinance, who was also present at the ceremony, saidthat “this is a big contribution to the country whereSMEs play a crucial role but face difficulties in raisingcapital for their potential businesses. This is aneffective way to improve financial inclusion.”Meanwhile, the National Stock Exchange (NSE) alsoannounced the launch of its SME platform onTuesday. The new platform will be called, ‘EMERGE’.

Reconsider MCX-SX Plea for EquityPlatform, HC Tells SEBI

The Bombay High Court directed the Securitiesand Exchange Board of India (SEBI) to reconsider anapplication filed by MCX Stock Exchange (MCX –SX) to set up an equity trading platform.

The capital market regulator rejected MCX-SX’sapplication in September last, saying that the boursehad failed to comply with the norms on theshareholding structure stipulated for a stockexchange.Promoters’ Undertakings

However, the promoters of MCX StockExchange — Multi Commodity Exchange (MCX) andFinancial Technologies India (FTIL) — had given anundertaking to the Court that they would reduce theirholdings in the exchange to 5 per cent from 10 percent.

The Court passed the order after hearing anappeal filed by MCX-SX in October, 2010,challenging the SEBI order rejecting its applicationto set up a new equity trading platform. MCX andFTIL previously held 51 per cent and 49 per cent,respectively, in the stock exchange. They later broughttheir holdings down by divesting to financialinstitutions and issuing convertible warrants with anoption to buy them back in the future. However MCXand FTIL failed to disclose the details to SEBI.

“SEBI will always remain a respectedregulator. The MCX-SX stance is not against regulatoryinstitution, but is for principles. We stand vindicatedand always have full faith in our judiciary. “Weremain committed to growth and development of thecountry’s financial markets,” MCX-SX spokespersonsaid after the court order.

Airlines get ECB AccessIn a major relief to the airline industry, the

Budget proposed to allow it to raise funds through

external commercial borrowings worth $1 billion fora year even as it proposed an allocation of Rs.4,000crore to the cash-strapped Air India. In a bid toencourage the nascent maintenance, repair andoverhaul (MRO) sector, this year’s Budget proposedto allow full exemption from customs duty andcountervailing duty to aircraft spares, tyres and testingequipment. Presenting the Budget proposals, FinanceMinister Pranab Mukherjee acknowledged that theairline industry was facing a financial crisis.

“The high operating cost of the sector is largelyattributable to the cost of Aviation Turbine Fuel(ATF). To reduce the cost of ATF, the governmenthas permitted direct import of ATF by Indian carriers,as actual users,’’ the Finance Minister said. In a bidto address the immediate financing concerns of thecivil aviation sector, which is facing capital crunch,the Finance Minister proposed to permit “ExternalCommercial Borrowings (ECBs) for working capitalrequirements of the airline industry for a period ofone year, subject to a total ceiling of $1 billion.”

In another move that could bring cheer to theailing civil aviation sector, Mr. Mukherjee said thata proposal to allow foreign airlines to participate upto 49 per cent equity of an airline company,operating scheduled or non-scheduled services, was“under active consideration of the government.’’

Major Boost to InfrastructureGiving the much needed push to the

infrastructure sector in the Budget, Finance MinisterPranab Mukherjee, announced a slew of measuresincluding allowing financial institutions to raiseabout Rs.60,000 crore from tax-free bonds andopening decks for larger private participation.

Mr. Mukherjee said investment in the sectorduring the XII Plan (2012-17) would go up to Rs.50lakh crore, about half of which was expected to flowfrom the private sector. “Lack of adequateinfrastructure is a major constraint on our growth.The strategy we have followed so far is to increaseinvestment. For 2011-12, tax free bonds for Rs.30,000crore were announced for financing infrastructureprojects. I propose to double it to raise Rs.60,000crore,’’ he said. To attract private investment, moresectors such as irrigation, oil and gas storage facilitiesand telecommunications have been made eligible forviability gap funding under the scheme, Support toPPP in Infrastructure.



Economy



Budget Strives for Credible FiscalConsolidation

A day after the Union budget, even as analystsquestioned the sanctity of estimates under variousheads, top officials of the Finance Ministry soughtto stress that Pranab Mukherjee’s prime effort wasat addressing the basic necessity of fiscalconsolidation along with credible projections.

In a post-budget interaction Finance SecretaryR.S. Gujral said fiscal consolidation could beachieved by either increasing revenue mobilisationthrough higher taxes or by lowering expenditure, ora combination of both. However, since curtailing thespending during 2012-13 would further decelerategrowth, the budget laid stress on raising revenue. Onthe credibility of the fiscal deficit projection of 5.1per cent of the GDP (gross domestic product),especially when there is no indication of the subsidybill coming down, the officials maintained that theoutgo on oil and fertilizer would be capped at twoper cent of the GDP, on the assumption that therewould be some action on the reform front during thefiscal.

Divestment, Spectrum Sale to FetchRs.70,000 crore

Two major streams of revenue generation forFinance Minister Pranab Mukherjee in the next fiscalwould be sale of spectrum and disinvestment inpublic sector undertakings (PSUs) from which thegovernment plans to earn at least Rs.70,000 crore.

Thanks to the cancellation of 122 telecomlicences issued “illegally” in 2008, the governmentwould auction radio waves vacated after the SupremeCourt’s landmark judgment. “Rs.40,000 crore isestimated from telecom spectrum auction,” Mr.Mukherjee said. This figure could further go up asthe Department of Telecommunications plans toauction spectrum other than the one vacated by newplayers. It will be yet another windfall for the stateexchequer, similar to the 2010 scenario where thegovernment had collected over Rs.1.06-lakh crorefrom the auction of 3G and wireless broadbandspectrum against the projected figure of Rs.35,000crore. Similarly, Mr. Mukherjee plans to generateRs.30,000 crore from stake sales in PSUs, despite thefact that the targets set for 2011-12 were missed. “In2011-12, as against a target of Rs.40,000 crore, thegovernment will raise about Rs.14,000 crore from

disinvestment. For 2012-13, I propose to raiseRs.30,000 crore through disinvestment,” he said, andasserted that the government would maintain at least51 per cent ownership and management control inthe PSUs. Mr. Mukherjee announced various measuresto help small and medium enterprises. For instance,he has also proposed to set up a Rs.5,000 crore IndiaOpportunities Venture Fund with SIDBI to enhanceavailability of equity to micro, small and mediumenterprises.

In order to augment funds for small andmedium enterprises (SMEs), he has proposed toexempt capital gains tax on sale of a residentialproperty, if the sale consideration is used forsubscription in equity of a manufacturing SMEcompany for purchase of new plant and machinery.Similarly, providing relief to a large number of SMEs,it has been proposed to raise the turnover limit forcompulsory tax audit of accounts as well as forpresumptive taxation from Rs.60 lakh to Rs.1 crore.

Retrospective Amendment of I-T Act notSpecific to Vodafone Case: Pranab

Finance Minister Pranab Mukherjee maintainedthat the budgetary proposal to amend the Income TaxAct with retrospective effect from 1962 to assert thegovernment’s right to levy tax on merger andacquisition (M&A) deals involving overseascompanies with business assets in India is notVodafone “case specific,” but an enabling provisionto protect the fiscal interests of the country and avertthe chances of a crisis.

Faced with all-round criticism at home andabroad of the move to amend the relevant legalprovision with the objective of bringing the Vodafonecase under the ambit of tax through the back doorafter it lost the litigation in the Supreme Court, thegovernment has gone on a fire-fighting mode toexplain its stand and legal position.Three Points

In his post-budget interaction, whileconceding that retrospective amendments should notnormally be brought in, Mr. Mukherjee asserted thatthe changes being sought are not Vodafone-specific.In fact, it was not merely to prevent the erosion ofrevenues in present cases, but also to prevent theoutgo of revenues in old cases. “We are making threepoints quite clear — that India is a not a ‘no tax’ or‘low tax’ or even a ‘tax haven.’ India is a country



Current Affairs



where all taxpayers, whether resident or non-resident,will be treated on a par. Secondly, India is a countrywhere tax laws are that if you pay tax in one country,you need not pay tax in the other country of yourbusiness operation which is covered by the DTAA.But it cannot be a case that you pay no tax at all.”

“Why we have to go back to day one is thatthis is one piece of legislation which is relevant tothe date of enactment. Because I am amending theIncome Tax Act 1961, Section 90, its relevant dateis the date of enactment of the Act and that is whyit goes back to 1962.” Mr. Mukherjee said theintention was clear: where assets are created in onecountry, it will have to be taxed by that country unlessit is covered by the DTAA. Does that mean that allcases of a similar nature from 1962 come into theambit of tax? “No. Because, other provisions of theI-T Act are there which says that you cannot reopenany case beyond six years,” he said.

Now, Planning Commission Lowers thePoverty Line

The Planning Commission released the latestpoverty estimates for the country showing a declinein the incidence of poverty by 7.3 per cent over thepast five years and stating that anyone with a dailyconsumption expenditure of Rs. 28.35 and Rs. 22.42in urban and rural areas respectively is above thepoverty line. The new poverty estimates for 2011-12 will only add to the furore triggered by theCommission’s affidavit in the Supreme Court inOctober in which the BPL cap was pegged at anexpenditure of Rs. 32 and Rs. 26 by an individual inthe urban and rural areas respectively at the goingrate of inflation in 2010-11. Eventually, UnionMinister of Rural Development Jairam Ramesh andPlanning Commission Montek Singh Ahluwaliajointly set aside the cap suggested by the TendulkarCommittee and set up a new committee to work outa new methodology for identifying the BPLhouseholds.Rural Poverty

Rural poverty has declined by eight percentagepoints, from 41.8 per cent to 33.8 per cent, and urbanpoverty by 4.8 per cent, from 25.7 per cent to 20.9per cent. At the national level, anyone earning Rs.672.8 monthly that is earning Rs. 22.42 per day inthe rural area and Rs. 859.6 monthly or Rs. 28.35per day in the urban area is above the poverty line.

Population as on March 1, 2010 has been used forestimating the number of persons below the povertyline.

The total number of people below the povertyline in the country is 35.46 crore as against 40.72crore in 2004-05. In rural areas, the number has comedown from 32.58 crore five years ago to 27.82 croreand the urban BPL number stands at 7.64 crore asagainst 8.14 crore five years ago. One of the mostastonishing revelations is that poverty has actuallygone up in the north-eastern States of Assam,Meghalaya, Manipur, Mizoram and Nagaland.

IMF Chief Christine Lagarde Lauds India’sReform Steps

Even as the Union budget for 2012-13 hascome in for severe criticism from various quartersfor not being ‘bold’ on reforms and has having beena ‘lost opportunity’, International Monetary Fund(IMF) Managing Director Christine Lagarde laudedthe government’s decision to cap subsidies at 2 percent of the Gross Domestic Product as ‘reform’ anda good step forward, coming as it has amidst theongoing global uncertainties.

On her first visit to India as chief of the IMF,Ms. Lagarde said: “The decision of [the Indian]government to cap subsidies at 2 per cent of GDP, Ithink that is a solid anchoring of the role of subsidies… We are encouraged to see there is a continuedpath towards fiscal consolidation; that there is adetermination to improve the tax code; there is adetermination to cap the subsidies at two per cent;all of those measures are good measures.”

Commerce Ministry Cites WTO to Shootdown TRAI Proposal on Local Manufacture

In an unprecedented move, the CommerceMinistry has told the Department ofTelecommunications (DoT) that its ambitions tofoster domestic manufacturing through ‘preferentialaccess’ to procurement by government andgovernment licenseesare in violation of India’sinternational commitments at the World TradeOrganization (WTO).

Though a serious source of embarrassment forDoT, and a major blow to the domestic lobby, thiswarning safeguards India from a potential showdownwith global manufacturers of telecom equipmentinvoking WTO agreements to block domestic



Economy



producers. The genesis of this face-off between thetwo ministries lies in the Telecom RegulatoryAuthority of India’s (TRAI) April 12, 2010,recommendations on the telecom equipmentmanufacturing policy. TRAI had also directed thatlicences be suitably modified to include suchstipulations for preferential market access and thattelecom service providers be held responsible formeeting market access criterion even if theinstallation, maintenance and operations areoutsourced.DoT’s Defence

The DoT’s defence is that its decision tostimulate domestic manufacturing capability intelecom and electronic products is on account of amounting import bill, additionally citing securityconcerns to seek special exemptions. Refusing toentertain even these security arguments, theCommerce Ministry has informed DoT that whileArticle 21 of GATT, which provides for securityexemptions can be invoked, there will still bedifficulties as telecom equipment usually forms partof a network. It further points out that the argumentthat domestic manufacturing of 35 per cent or even80 per cent of telecom equipment will addresssecurity concerns like protection from malware,denial of service software etc may be difficult tosustain.

Technical Committee to Estimate Poverty,Says Manmohan

In a bid to address the rising concerns, withinand outside Parliament, over the latest povertyestimates released by the Planning Commission,Prime Minister Manmohan Singh declared that atechnical group would be put in place to come up anew methodology to capture the incidence of poverty.

The new technical committee would not workat cross purposes with the committee set up underPlanning Commission Member Abhijit Sen; the twocommittees would discharge their duties as definedby their respective terms of reference. The AbhijitSen committee had been set up jointly by PlanningCommission Deputy Chairman Montek SinghAhluwalia and Union Minister of Rural DevelopmentJairam Ramesh in October last year to rework themethodology for poverty estimation to stem protestsover the issue arising from the estimates provided inan affidavit to the Supreme Court.

NALCO’s Smelter Plant May be ClosedThe manufacturing unit of the State-run

National Aluminium Company Limited (NALCO)now faces a serious threat of being closed down onaccount of the company’s inability to managemassive amounts of fly ash. In a letter addressed toB.L. Bagra, NALCO’s chairman-cum-MD, the StatePollution Control Board (SPCB) said it will be forcedto close down its 1,200 mw-capacity Captive PowerPlant, critical for running a smelter unit at Angul inOdisha, unless the company takes up the disposalof fly ash on a war footing.

AI to Directly Import Aviation Turbine FuelAiling national carrier Air India has decided

to go in for direct import of Aviation Turbine Fuel(ATF) in a bid to curb the escalating cost. The AIboard, which approved the direct import, also gavea go-ahead to the state-owned carrier to soon appointa service provider who would source the supply aswell as provide the necessary infrastructure for storageand distribution of the same for in-plane fuelling.

Partha Chatterjee to head HaldiaPetrochemicals

A marathon round of meeting of the board ofdirectors of the beleagured Haldia Petrochemicals Ltd(HPL) was held, which saw the appointment of thestate’s Industry Minister Partha Chatterjee as thecompany’s chairman, even as three directors,belonging to The Chatterjee Group (TCG), the othermain promoter of the joint venture company,opposed the move. The meeting also took note ofthe notice received from the International Chamberof Commerce which has received a request fromTCG for initiating arbitration proceedings overreneging on contracts. The notice was received bythe company recently. Mr. Partha Chatterjee said thatHPL would be a board-managed company as it wasnot the business of the government to run businesses.This is the first time, since its inception in 2001,that a minister will head HPL, the country’s secondlargest petrochemical company.

World Bank backs move for BRICS bankWorld Bank, on Friday, expressed its

willingness to support the proposal of BRICS nationsto set up a development bank to insulate theireconomies from the ongoing economic problems,rising oil prices and currency volatility.



Current Affairs



“India was one of the sponsors of this idea(BRICS bank). And partly because they wanted morefunds for infrastructure development...if they dodevelop an institution, the Bank will want to bepartner with it”, World Bank President RobertZoellick said. The summit of BRICS — Brazil, Russia,

India, China and South Africa — on Thursdaydecided to examine the possibility of setting up abank on the lines of World Bank and AsianDevelopment Bank to mobilise resources forinfrastructure and sustainable developments inemerging economies.

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