Economy Issue August 2013 Www.upscportal.com

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Inflation IndexedInflation IndexedInflation IndexedInflation IndexedInflation Indexed

Bonds (IIBs) to be launchedBonds (IIBs) to be launchedBonds (IIBs) to be launchedBonds (IIBs) to be launchedBonds (IIBs) to be launched

The RBI (Reserve Bank of India)decided to launch Inflation Indexed

Bonds (IIBs). The first tranche of theIIBs 2013-2014 for 1000 to 2000

crore rupees will be issued on 4June 2013. The maturity period ofthese bonds will be 10 years. The

total issue size will be 12000 to15000 crore rupees in 2013 to 14.

The RBI will do on monthly basis to

attract household savings of up to15000 crore rupees so as to

discourage investments in gold.After the first tranche, bonds

will be issued on the last Tuesday of

every month. While the first series ofthe bonds will be open for all class of

investors, the second series issue -

Economybeginning October - will be reserved

exclusively for retail investors.

WPI Inflat ion eased to 4.89WPI Inflat ion eased to 4.89WPI Inflat ion eased to 4.89WPI Inflat ion eased to 4.89WPI Inflat ion eased to 4.89

PercentPercentPercentPercentPercent

As per official data released on14 May 2013, WPI Inflation eased to

4.89 percent in April 2013. Declining

price of food items, including fruitsand vegetables caused a three and a

half year low. Inflation based on theWholesale Price Index (WPI) stood

at 5.96 percent in March 2013. In

April, 2012, it was 7.50 percent. This

is the lowest level of inflation sinceNovember, 2009 when it was 4.78

percent.

The major data are given asThe major data are given asThe major data are given asThe major data are given asThe major data are given asfollowing:following:following:following:following:

WPI inflation in themanufactured items category

declined to 3.41 percent inApril from 4.07 percent in

March.


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Also, inflation in food articles

category, which has a 14.34percent share in the WPI

basket, came down to 6.08percent. Inflation in this cat-

egory was at 8.73 percent inMarch 2013.

The easing in food inflationwas helped by a sharp drop

in prices of vegetables.Inflation in vegetables stood at

(-) 9.05 percent inApri l 2013, against (-)0 .95

percent in March 2013. The inflation in fruits declined

to 0.71 percent during April2013 as compared to 4.71

percent in March 2013.

However, the rate of price risein onion was high at 91.69percent for the month of April,

as against inflation rate of94.85 percent in the previous

month. Inflation for February was

revised upwards to 7.28percent from 6.84 percent as

per provisional estimates. Theretail inflation, as measured by

consumer price index, camedown to single digit at 9.39

percent in April after manymonths, indicating

that inflationary ex-pectation is on de-

clining trend. Inflation in wheat eased to

13.89 percent in April, asagainst 19.87 percent in the

previous month. Potatoes toosaw decline to (-)2.42 percent,

from 20.06 percent in March.Inflation rate in rice and

cereals eased to 17.09 percentand 15.63 percent,

respectively, in April 2013. Pulses prices declined

marginally to 10.28 percentduring the month. While the

inflation rate in egg, meat andfish category stood at 10.44

percent, for milk it was 4.04percent. For the fuel and

number of APL families at the rate of

15 kg per family per month in 22

States/ UTs and at the rate of 35 kgper family per month in 13 States/UTs

under TPDS since June 2011.

RBI directed Banks to followRBI directed Banks to followRBI directed Banks to followRBI directed Banks to followRBI directed Banks to follow

Clean Note PolicyClean Note PolicyClean Note PolicyClean Note PolicyClean Note Policy

The Reserve Bank of India (RBI)directed banks to follow the CleanNote Policy strictly and issue clean

currency notes to public. RBI issued

a notification that also asked the banksto do away the process of stapling

the currency notes and to secure thenote packets with paper bands. In

its notification to the banks, the RBI

also directed to sort notes into re-issuable and non-issuable notes and

to withdraw soiled notes fromcirculation in the market. Banks have

also been asked to stop writing of any

kind on watermark window of banknotes as it disfigures the watermark

impression and recognition becomesdifficult. As per RBI, on an average

20 percent of notes is disposed off

after getting soiled every year and inthe fiscal year 2012-13 that ended

on 31 March 2013 the number of suchsoiled currency bills stood at over 13

billion units.

IMF approved 1.3 bn DollarsIMF approved 1.3 bn DollarsIMF approved 1.3 bn DollarsIMF approved 1.3 bn DollarsIMF approved 1.3 bn Dollars

loan for Cyprusloan for Cyprusloan for Cyprusloan for Cyprusloan for Cyprus

The International MonetaryFund on 15 May 2013 approved athree-year, 1.3 billion dollars loan for

supporting Cyprus attempts tostabilize its financial sector and to

bring the Governments deficit under

control and restore economicgrowth. The IMF loan to Cyprus is

power category, it was lower

at 8.84 percent in April ascompared to 10.18 percent in

March 2013.

CCEA approved the SameCCEA approved the SameCCEA approved the SameCCEA approved the SameCCEA approved the SameScale of Allocation to APLScale of Allocation to APLScale of Allocation to APLScale of Allocation to APLScale of Allocation to APL

FamiliesFamiliesFamiliesFamiliesFamilies

The Cabinet Committee onEconomic Affairs (CCEA) on 16 May

2013 approved the continuation of

the same scale of allocation to APLfamilies during 2013-14 (at the rate

of 15-35 kg monthly per family) underthe Targeted Public Distribution Sys-

tem (TPDS). As on 1 April, 2013, the

total stocks of rice and wheat in theCentral Pool is 596.75 lakh tonnes

comprising 354.68 lakh tonnes of riceand 242.07 lakh tonnes of wheat. The

procurement during the year is ex-

pected to be 401.3 lakh tonnes forrice and 441.21 lakh tonnes for wheat.

Thus it is expected that there will besufficient stock of foodgrains in the

Central Pool.

The CCEA has accordinglyapproved additional allocation of

41.89 lakh tonnes of wheat and 19.84lakh tonnes of rice at APL issue prices

to States/Union Territories (UTs) for

ensuring a minimum allocation of 15kg per APL family per month in 22

States/UTs and 35 kg per family permonth in 13 States/UTs. They are

Manipur, Assam, Meghalaya, Tripura,

Nagaland, Arunachal Pradesh,Mizoram, Sikkim, Uttarakhand,

Jammu and Kashmir, HimachalPradesh, Lakshdweep and Andaman

& Nicobar Islands. The Government

of India has been making allocationof foodgrains to the accepted


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basically a part of a rescue package

of 10 billion euros (12.9 billion dol-

lars) counterfeit in March 2013 withthe eurozones bailout fund. The

loan was approved by IMFs execu-

tive board which also includes animmediate disbursement of 110.7

million dollars.

Counting the IMF

disbursement, Cyprus has receivedabout 2.7 billion dollars in the third

week of May 2013 from its interna-tional lenders. The Luxembourg-

based European Stability Mechanism,

which is a eurozone bailout fund, on13 May 2013, announced that it had

approved its first bailout tranche forCyprus and transferred an initial 2

billion euros (2.6 billion dollars). The

rest of the tranche up to 1 billioneuros will be transferred by 30

June 2013.The loans approved by the

European Stability Mechanism help

to maintain financial stability in theeuro area and buy time for Cyprus. It

is important here to note that in theeurozones long-running fiscal crisis,

Cyprus followed Greece, Ireland and

Portugal to become the fourtheurozone country since 2010 to

agree to a full bailout.

Exports in India grew up byExports in India grew up byExports in India grew up byExports in India grew up byExports in India grew up by

1.6 percent in April 20131.6 percent in April 20131.6 percent in April 20131.6 percent in April 20131.6 percent in April 2013

Exports in the month of April

2013 recorded a growth of 1.6

percent and stood at 24.16 billion USDollar as against 23.7 billion US dollar

in April 2012.The surge in gold imports

2013-14 set by the Union

Government is 325 billion US dollar.

CCEA approved ExchangeCCEA approved ExchangeCCEA approved ExchangeCCEA approved ExchangeCCEA approved Exchange

Trade Fund for PSU stocksTrade Fund for PSU stocksTrade Fund for PSU stocksTrade Fund for PSU stocksTrade Fund for PSU stocks

The Cabinet Committee on

Economic Affairs (CCEA) clearedthe government proposal to set up

an exchange traded fund backed by

a basket of PSU stocks, commonlyreferred as CPSEETF. The basic idea

behind setting up of fund is thatamong other benefits, PSU

divestments could be carried out in

a much less disturbingmanner for the market and

can also incentivize retail investors.An empowered group of ministers

wo ul d ta ke th is fo rw ar d. Th e

government plans to float such a fundso that, The CPSEETF will comprise a

basket of shares of different PSUswhich would track an index, but will

trade like a stock on the exchange.

ICICI Securities is the adviser to the

ETF and Goldman Sachs is learnt tobe the fund manager. The releaseon CPSEETF noted that each stock

would have a fixed weightage in the

basket and the ETF will give discountto investors. It is important here to

note that the Selling a mutual fund ata discount to its NAV is a new concept

in the Indian market, and would

require some rule change by themarket regulator SEBI.

Stronger Powers proposed toStronger Powers proposed toStronger Powers proposed toStronger Powers proposed toStronger Powers proposed to

SEBI for tackling PonziSEBI for tackling PonziSEBI for tackling PonziSEBI for tackling PonziSEBI for tackling Ponzi

SchemesSchemesSchemesSchemesSchemes

The Union Government inMonth of May 2013 has proposed

Stronger Powers to (Securities and

Exchange Board of India) SEBIenabling it to carry out search and

seizure operations and for attachment

pushed the trade deficits to 17.7

billion US dollar.

This is the fourth consecutive

month that exports have witnessedgrowth. Imports of gold and silver in

April 2013 doubled by 138 percentto 7.5 billion US dollar from 3.1 billion

US dollar in April 2012. Themerchandize imports rose by 10.9percent to 41.95 billion US dollar

bringing up the trade deficit by morethan 72 percent from March.

Widening of trade deficit attributed

to the high gold imports. Thetargeted exports for the current fiscal


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of assets. With this a Special power

has also been proposed to SEBI with

which it can seek information ontelephone call data records, from any

persons or entities in respect to any

securities transaction being exam-ined by it.

It is worth mentioning here thatProposals to make required amend-

ments in the SEBI Act and otherrelevant regulations have been

finalised after detailed consultations

with the market regulator and arebeing presented before the Union

Cabinet for its approval.

A Cabinet note in this regard hasalso been circulated by the

Department of Economic Affairs to

other departments in the FinanceMinistry, as also to the Corporate

Affairs, Home, Law and Telecom min-

istries, Reserve Bank of India, PlanningCommission and Prime Ministers Of-

fice for their comments and feedbackon the proposals. The Government is

planning to introduce the SecuritiesLaws (Amendment) Bill, 2013 in

Parliament to carry out the proposed

changes for grant of stronger powersto SEBI. The Government has come

up with the decision of acceptingmost of the proposals made by SEBI

in this regard and the amendments

would be carried out after the Cabi-net approves them and the required

amendment Bill is passed byParliament.

What is Ponzi Schemes?

A Ponzi scheme is basically a

fraudulent investment operation thatpays returns to its investors from their

own money or the money paid by

plan projects under Indian Institute

of Pulses Research (IIPR), Kanpur andAll India Coordinated ResearchProject on Chickpea. In past three

years, thirteen types of high yielding

varieties of chickpeas have beenreleased in India.

Creation of basic and strategic

research for development of locationspecific climate supporting high

yielding chickpea varieties and

improved production and protection

following investors, rather than from

profit earned by the individual or

organization running the operation.The Ponzi scheme generally tempts

new investors by offering higher

returns than other investments, in theform of short-term returns that are

either abnormally high or unusuallyconsistent.

India is the largest ProducerIndia is the largest ProducerIndia is the largest ProducerIndia is the largest ProducerIndia is the largest Producer

and Consumer of Chickpeas inand Consumer of Chickpeas inand Consumer of Chickpeas inand Consumer of Chickpeas inand Consumer of Chickpeas in

Wor ldWo rldWor ldWo rldWo rld

Food & Agriculture

Organization (FAO) in its latest reportfor 2011 claimed that India is the

largest consumer and producer ofChickpeas in the world. The second

advance estimates for 2012-13

marked a record production ofChickpea is 8567.8 thousand

tonnes. Production details ofChickpeas in India as compared to

the World Chickpea producing

nation:

CountryCountryCountryCountryCountry Production (000 tonnes)Production (000 tonnes)Production (000 tonnes)Production (000 tonnes)Production (000 tonnes)

India 8221.10

Australia 513.34Myanmar 466.74

Turkey 487.48

Ethiopia 322.84

Systematic and concentratedresearch on Chickpeas is undertaken

by Indian Council of AgriculturalResearch (ICAR) through its on-going

technologies are the major stepsincluded in the research program.

Several Crop development schemeslike Food Security Mission (NFSM-

Pulses), Rashtriya Krishi Vikas Yojana(RKVY) and others are implementedby the Government of India in order

to increase the production and pro-ductivity of Pulses including

Chickpeas. Special Plan to achievemore than 19 million tonnes of pulseproduction during 2012-13 has also

been initiated.

BSE launched broad-basedBSE launched broad-basedBSE launched broad-basedBSE launched broad-basedBSE launched broad-based

Islamic Equity IndexIslamic Equity IndexIslamic Equity IndexIslamic Equity IndexIslamic Equity Index

The Bombay Stock Exchange(BSE) on 30 April 2013 launched an

Islamic equity index based on the

wide-measure S&P BSE 500 index.It will provide a new benchmark for

Islamic investors in one of the worldslargest stock exchanges. The new


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index includes the largest 500

companies in the BSE, out of more

than 5000 listed. These companiesfulfill Islamic finance principles such

as bans on investing in alcohol,

tobacco and gambling-related busi-nesses.

The BSE had launched thecountrys first Islamic index in 2010

after tracking the 50 largest and mostliquid stocks. Indias Islamic banking

industry has made slow progress

because banking rules need lendersto declare the rates of interest they

charge customers. This condition itat odds with Islamic banks which

base their products on profit rates

instead. In this regard to satisfy the

needs of Muslims in India, the industryis trying to develop investmentproducts.

SC upheld 51 Percent FDI inSC upheld 51 Percent FDI inSC upheld 51 Percent FDI inSC upheld 51 Percent FDI inSC upheld 51 Percent FDI in

Multi-brand RetailMulti-brand RetailMulti-brand RetailMulti-brand RetailMulti-brand Retail

The Supreme Court of India on

1 May 2013 upheld the constitutional

validity of Governments decision al-lowing 51 percent foreign direct

Investment in the multi-brand retailsector.

A bench of Justices R M Lodha,

Madan B Lokur and Kurian Josephgave the ruling. The bench observed

that there was no harm in giving thepolicy a chance. It saw merit in the

policy that it would eliminate

middlemen and help provide farmersa better price for their produce. It

dismissed the petition filed againstthe 51 percent FDI in multi-brand

retail. As per the court, the policy will

affect the lives of only 13.3% of thecountrys population living in 53

cities.

CCEA approved Proposal toCCEA approved Proposal toCCEA approved Proposal toCCEA approved Proposal toCCEA approved Proposal to

set-up 2 Major Portsset-up 2 Major Portsset-up 2 Major Portsset-up 2 Major Portsset-up 2 Major Ports

The Cabinet Committee onEconomic Affairs (CCEA) on 9 May

2013 approved the proposal of theMinistry of Shipping for setting up of

two major ports in the country. The

two ports will be set up through aPublic Private Partnership Mode in

West Bengal and Andhra Pradesheach. As per the proposal approved

the port will be developed at Sagar

Island in West Bengal after obtainingenvironmental clearances and

following exact procedures fordevelopment of the project. The

cabinet also agreed for appointment

of the transaction advisers and legalconsultants and finalization of the

project structure in consultationwith the State Government of West

Bengal and the PlanningCommission. In case of AndhraPradesh, the Cabinet identified

Dugarajapatnam location fordevelopment of the port and looked

forward to find out the techno-eco-

nomic feasibility report forcommissioning of the port.

Benefits of setting-up theBenefits of setting-up theBenefits of setting-up theBenefits of setting-up theBenefits of setting-up thetwo Portstwo Portstwo Portstwo Portstwo Ports Sagar Port in WestSagar Port in WestSagar Port in WestSagar Port in WestSagar Port in West

Bengal :Bengal :Bengal :Bengal :Bengal: At present Kolkata has

facilities of two ports namely KolkataDocks at Kolkata and Haldia Dock

Complex at Haldia. Both these portsbeing reverine face limitations of

draught due to the morphological

changes (change in river platform) inHooghly because of siltation.

Development of Sagar Port willprovide a deep draught port for

handling the large size vessels by

doing away the heavy maintenance

dredging activity.

Port of Andhra Pradesh:Port of Andhra Pradesh:Port of Andhra Pradesh:Port of Andhra Pradesh:Port of Andhra Pradesh: Itwi ll faci li ta te the economic

development of Andhra Pradesh as

the rapid industrialization acrossVisakhapatnam Port has created a

necessity of a new port in the state.

21 New Textile Parks21 New Textile Parks21 New Textile Parks21 New Textile Parks21 New Textile Parks

LaunchedLaunchedLaunchedLaunchedLaunched

The Union Minister forCommerce, Industry and Textiles,

Anand Sharma on 23 April 2013,launched 21 New Textile Parks

approved under Scheme for

Integrated Textile Parks (SITP). Withthe launch of these new textile

parks, the total number of parksreaches 61 because 40 parks were

already sanctioned.

The Scheme for IntegratedThe Scheme for IntegratedThe Scheme for IntegratedThe Scheme for IntegratedThe Scheme for IntegratedTextiles Parks (SITP)Textiles Parks (SITP)Textiles Parks (SITP)Textiles Parks (SITP)Textiles Parks (SITP)

The Scheme for Integrated

Textiles Parks (SITP) plays avital and instrumental role inthe development of wide

range of models for green fieldclusters from a 1000 acre FDI

driven integrated cluster, to a100 acre powerloom cluster

and a 20 acre handloomcluster.

Under this scheme, a totalnumber of 61 parks have been

sanctioned. 40 projects out ofthese began in 11th Five Year

Plan and another 21 projectsare scheduled to be

implemented in 12th Five YearPlan.

Out of these 21 parks, six arein Maharashtra, four in

Rajasthan, two each in AndhraPradesh and Tamil Nadu and


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increment in the Backward Region

Grant Fund (BRGF), entitled to Uttar

Pradesh. The fund has gone up to818.17 crore rupees for 2013-14 from

initial 667 crore rupees. To release

the funds for Uttar Pradesh, the UnionMinistry of Panchayati Raj has directed

the state Government to submit itsannual plan by 25 June 2013. 35

districts of Uttar Pradesh are entitledfor the BRGF Scheme. In 2012-13,

Uttar Pradesh failed to get its share of

BRGF grants as the Governmentordered a probe into the alleged

irregularities that was committedduring the Mayawati regime and it

stopped the work which was being

carried on in the BRGF beneficiary

districts.

IMG approved 10% EquityIMG approved 10% EquityIMG approved 10% EquityIMG approved 10% EquityIMG approved 10% Equity

Sale in Coal India LimitedSale in Coal India LimitedSale in Coal India LimitedSale in Coal India LimitedSale in Coal India Limited

An Inter-Minister ial Group

(IMG) on 10 May 2013 approved 10percent equity sale of Coal India

Limited. This equity sale is likely tofetch, about 17000 crore rupees tothe Union Government. Union

Governments holds over 90 percentstake in Coal India at present. The

Inter-Ministerial Group was headedby Ravi Mathur, the DisinvestmentSecretary and it is guiding the

process of disinvestment ofGovernments Equity in CIL. The CIL

with a cash balance of 60000 crorerupees is the biggest disinvestmentfor the Government in the current

fiscal year 2013-14 and UnionGovernment is in the plan to

generate 40000 crore rupees withsales of PSUs stakes in the currentfiscal.

SEBI approved Keralas Start-SEBI approved Keralas Start-SEBI approved Keralas Start-SEBI approved Keralas Start-SEBI approved Keralas Start-

up Village Angel Fund of 10up Village Angel Fund of 10up Village Angel Fund of 10up Village Angel Fund of 10up Village Angel Fund of 10

million Dollarsmillion Dollarsmillion Dollarsmillion Dollarsmillion Dollars

Market regulator SEBI in May

2013 had approved an angel fund of10 million Dollars to address the

problem of resource crisis for start-up companies across the country.

The fund could go up to 20 milliondollars with an over-allotmentoption that would focus on telecom

and internet firms. The Fund issupposed to start investing once the

initial close of 2 million Dollars isachieved. Consultancy KPMG is theadvisor and ILFS is trustee of the fund

based at Start-up Village which is thecountrys first telecom incubator.

About Village Angel Fund

The angel fund will beinvesting not only in the most

promising start-ups located inStart-up Village but also in

similar enterprises across thecountry.

Infosys co-founder and Start-up Village chief mentor Kris

Gopalakrishnan, MobME, thecountrys first campus

telecom start-up, Ravi Pillai,

founder of the.16000-croreRupees Bahrain-based RPGroup and other leading angel

investors in India will be part ofthe fund.

The Village angel fund will actlike a shot in the arm for Start-

up Village, which wouldbecome the first incubator in

India to have its own in-housefund.

The fund will help the internet-telecom incubator to get the

most conducive ecosystem

for product start-ups.

NSE LaunchedNSE LaunchedNSE LaunchedNSE LaunchedNSE Launched

Debt Trading PlatformDebt Trading PlatformDebt Trading PlatformDebt Trading PlatformDebt Trading Platform

National Stock Exchange, the

Leading bourse on 11 May 2013

launched the countrys firstdedicated debt trading platform.

The new Platform launched is

awaiting the market regulator SEBIs

guidelines for allowing participationof mutual funds, insurance compa-

nies and pension funds. NSE had

recently received approval from SEBIto launch the debt segment.

Function of the Debt Trading

Platform

The debt trading platform is

supposed to provide retailinvestors an opportunity to

invest in corporate bonds on aliquid and transparent

exchange platform. Banks and primary dealers are

the first to enter and they willprovide enough liquidity in the

debt segment. The mutual funds, in-

surance companies and

pension funds are alsoexpected to participate afterguidelines for the same are is-

sued.The Debt Trading exchange

platform is an innovation, which hasbeen launched after intensivefeedback from market participants.

It is similar to RBIs NDS-OM, whereGovernment securities are traded on

a transparent platform

Indias Services Growth hit 18-

month low

As per the survey undertake by

HSBC, in the month of May 2013,Indias services sector grew at itsslowest pace in one and half years

during the month of April 2013 ascosts for raw materials, petrol and

labour increased considerably. It isimportant here to note that the pace


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