(Current Affairs For SSC Exams) Economic | March : 2014

March 2014

India’s International Investment Position released

Reserve Bank of India has released the statistical statement of the International Investment Position (IIP) of the quarter ended in September 2013. The statement shows following at a point in the time of the value and composition:

  • Financial assets of residents of an economy that are claims on non-residents and gold bullion held as reserve assets

  • Liabilities of residents of an economy to non-residents

The difference between an economy’s external financial assets and liabilities is its net IIP. Such balance sheet is an analysis of international accounts that will help in understanding sustainability and vulnerability of economy’s external sector.

Important highlights of the International Investment Position (IIP) are following for the quarter-ended September 2013:

Net claims of non-residents on India (as reflected by the net IIP) decreased by US$ 12.8 billion over the previous quarter to 296.2 billion US dollars as at end-September  2013. This change in the net position reflected a US$ 10.6 billion decrease in the value of foreign-owned assets in India vis-à-vis a US$ 2.2 billion increase in the value of Indian Residents’ financial assets abroad (Table 1).

Indian residents’ financial assets abroad stood at 436.7 billion US dollars as at end-September 2013 recording a marginal increase of US$ 2.2 billion over previous  quarter mainly due to increase of US$ 6.8 billion in other investment abroad including trade credit, loans and currency and deposits. Reserve assets, decreased by US$ 5.3 billion to US$ 277.2 billion as at end- September 2013. Direct investment increased marginally by US$ 0.6 billion.

Foreign-owned assets in India have decreased by 10.6 billion US dollars over the previous quarter to US$ 732.9 billion as at end- September 2013. The Direct investment in India has been reduced by 2.9 billion US dollars and portfolio investment in India has gone down by 13.3 billion US dollars. Among other investment liabilities, trade credit decreased by 1.9 billion US dollars and loans increased by 2.8 billion US dollars.

Effects of Rupee Depreciation: Variation in exchange rate of rupee vis-a-vis other currencies influenced change in liabilities, when valued in US dollars terms. Though there was a net inflow of US$ 6.6 billion during the period, equity liabilities in US dollars term decreased by 10.2 billion US dollars, from 340.7 billion US dollars in June  2013 to 330.5 billion US dollars in September 2013 due to the stock valuation effect resulting from rupee depreciation.

India became third largest crude oil importer in the World

India overtook Japan to become the third largest crude oil importer in the World. As per the data released by Reuters on 30 January 2014, India imported 3.86 million barrels-per-day of crude oil in the year 2013. India’s crude oil imports were nearly 6 percent higher than Japan’s customs-cleared imports of 3648372 barrels-per-day (211716710 kilolitres). Recently, China had overtaken USA to become the world’s largest importer of crude oil.

World’s Top Five Oil- Importing Countries

  • China: China imports 6.30 million barrels per day

  • U.S.A: USA imports 6.24 million barrels per day

  • India: India imports 3.86 million barrels per day

  • Japan: Japan imports 3.64 million barrels per day

  • Germany: Germany imports 2.67 million barrels per day

CRISIL launched Financial Inclusix Index 2013

Indian credit-rating agency CRISIL launched a Financial Inclusix  Index 2013 on 2 January 2014. The index showed an improvement in the financial inclusion in India. The index showed an improvement of 2.7 percent in the year 2012.

The score was the highest since 2009. The index was based on the data provided by Reserve Bank of India (RBI). The all-India CRISIL Inclusix score of 42.8 on a scale of 100, reflects under-penetration of formal banking in the country. The index measured the financial inclusion in each of the 638 districts of India.

Highlights of the Index are:

  • Overall 79 million new savings accounts were opened in 2012 which was 12.6 per cent more  than in the year 2011.

  • Agricultural credit accounts grew at 11.1 per cent, the most since fiscal 2009.

  • The number of bank branches in the bottom 100 districts increased by 6 per cent, faster  than the all-India growth of 5.6per cent.

  • One in two Indians had a savings account and one in  seven has access to bankcredit.

  • The six largest cities in the country have 10 per cent of the bank branches whereas the bottom 50 districts have merely 2 per cent of the bank branches.

The four key elements driving the CRISIL Inclusix Index score up by 2.7 in fiscal 2012 were:

  • New deposit accounts in three regions – north, south and east.  This contributed 42% to the rise in CRISIL Inclusix Index.

  • The north, by adding 2.4 million new credit accounts, contributed 11% to the index’s increase.

  • Almost 30% of the 5125 new branches were added in the south, which contributed 9% to the increase.

  • Credit penetration in the top 50 districts jumped significantly as small-borrower accounts surged.

Thus, the CRISIL recommended:

To speed up inclusion, financial services need to flow beyond the south and the large cities, and Policy makers need to incentivise expansion of banking services in the districts that have low CRISIL Inclusix scores through an increase in branch network and partnerships with other players.

About CRISIL Inclusix Index CRISIL Inclusix index is a comprehensive index to measure the progress of financial inclusion in India across 638 districts. It is a relative index measured on a scale of 0 to 100. It combines three critical parameters of basic banking services — branch penetration, deposit penetration, and credit penetration —into one metric. MOT formed to reassess Hydrocarbon Resources of India

Veerappa Moily, the Petroleum and Natural Gas Minister on 20 January 2014 announced to set-up a Multi Organisation Team (MOT) to carry out re-assessment work of hydrocarbon resources in 26 sedimentary basins.
The re-assessment will be done to highlight the oil and gas potential of India and has been given a time limit of 30 months to prepare basin wise portfolio in light of the oil and gas discoveries since 2001. It has been asked to estimate the resource of all 3.14 million square kilometers of India. Resource assessment will be carried out at Keshav Dev Malviya Institute of  Petroleum Engineering (KDMIPE) of ONGC in Dehradun. The work done by the institute will be reviewed periodically by the National Steering Committee. The panel will be headed by the Oil Secretary and will include the Director General of Hydrocarbons, exploration heads of ONGC and OIL and the head of the KDMIPE.

The International Energy Agency (IEA) in 2013 estimated that India’s oil and gas resource potential is of 206 billion barrels of oil and oilequivalent gas. Last such exercise of 15 sedimentary basins was carried out about two decades back and its full revision is overdue because of the vast amount of data collected during the exercise. The oil ministry statement has said that the MOT will comprise exploration heads of ONGC (Oil and Natural Gas Corporation) and Oil India limited. It will also have an official from the Directorate General of Hydrocarbons (DGH). The re-assessment and revisit of the Hydrocarbon Resource of India is required following the quantum jump in the availability of geo-scientific data that was generated under the New Exploration Licensing Policy (NELP).

New Exploration Licensing Policy (NELP)

The New Exploration Licensing Policy (NELP) was launched by the Government to accelerate the pace of hydrocarbon exploration in the country. So far two rounds of NELP have been announced.

Terms of Reference

  • Resource estimation exercise will be carried out for all the 26 sedimentary basins of India. The total sedimentary basin area is 3.14 million Sq. kms.

  • Preparation of sedimentary basin and sub-basin wise portfolio of available technical data and indicating the future data requirement/generation in unexplored sedimentary basins/sub-basins for their Hydrocarbon resourceassessment.

  • Within the basins, comprising sub-basins and/or sectors, the hydrocarbon resource figures are to be worked out for smallest possible units within a basin.

  • For basins with vertically stacked multiple petroleum systems, resource estimation is to be attempted separately for each petroleum system/source rock.

  • Preparation of detailed maps with exact delineation of basin/ sub-basin boundaries & basin/ sub-basin areas based on the latest available Geo-scientific data of all types.

  • Review the present parameters used for categorization of basins and suggest changes, if needed, for re-categorization of basins. Modalities

  • The work of hydrocarbon resource assessment will be carried out under the leadership of KDMIPE, Dehradun. Multiple work executions teams will be established for the purpose, as required.

  • KDMIPE my engage expert bodies and consultants as required for the arrangement as per standard ONGC procedure.

  • Since the Resource assessment of all the basins cannot be done simultaneously, the work execution teams will prioritize and draw timelines for completion schedule for each Basin, so as to complete the total exercise including report writing within a time frame of 30 months.

Multi Organization Team (MOT): To ensure data confidentially and quality output in the desired time frame, a Multi Organization Team (MOT) that will comprise of

  • Director (Expl) ONGC: Chairman

  • Director (Expl & Dev) OIL: Co- Chairman

  • Head, KDMIPE ONGC, Dehradun: Member

  • Head, R&D OIL, Duliajan, Assam: Member

  • GM (G&G) DGH, Noida: Member

The process of Hydrocarbon resource estimation of different basins being sequential, there will be quarterly review meetings by MOT for assessing the progress. Comprehensive documentation in the form of various reports and maps will be generated. The detailed modality of generation of documents and maps will be decided by the Head, KDMIPE, Dehradun and Head (G&G), DGH, Noida. The MOT may meet at more frequent intervals, if required.

Geo-scientific data for the study: KDMIPE will utilize the geoscientific data available with them and DGH for propose of resource assessment. DGH will be responsible for providing all the resource assessment related data of NELP and pre-NELP blocks, operated by various E&P companies. Data confidentially will be maintained by KDMIPE.

Currency notes issued before 2005 to be withdrawn The Reserve Bank of India (RBI) has decided to withdraw all currency notes issued prior to 2005 from circulation on 21 January 2014. From 1 April 2014, Banks will provide exchange facility to the general public for exchanging the pre-2005 issued bank notes. The notes issued before 2005 do not have the year of printing on the reverse side. However, bank notes issued before 2005 would continue to be legal tender. That is banks are required to exchange the notes for their customers as well as for non customers. From 1 July 2014, those wanting to exchange more than 10 pieces of 500 and 1000 rupee notes in a bank where they do not have an account will have to provide proof of residence and identity. The move by the RBI is to capture the money flows into the system and also to help flush out counterfeit notes. This would leave currency hoarders with no option but to liquidate their unaccounted holdings by spending or exchanging them. As of March 2012, as many as 5 lakh fake bank notes had been detected in the banking system, a 31% jump from the year before. In its annual report, RBI asked banks to ensure that the notes they receive over the counter are sent back into circulation only after they being properly authenticated. Globally, it is a practice across central banks to phase out banknotes at regular intervals.

March 2014

Government notified new natural Gas Pricing Formula

The Government of India on 10 January 2014 notified the new natural gas pricing formulae, which will be in effect from 1 April 2014. As per the newly issued notification, the rate of all domestically produced fuel will be almost doubled to 8.2 to 8.4 dollar per unit. The notification of the Petroleum and Natural Gas Ministry said that the prices of the gas will be the average price of liquid gas imports into India and benchmark global gas rates. This formula will be in applicable for the next five years from the date of its being into effect. The rates will be changed every quarter on the basis of the 12 month average of global rates and LNG import price. This formula will be applied to all gas produced by both the public sector firms like ONGC and the private companies. These guidelines will be applicable on D1 and D3 gas discoveries of the block depending upon the submission of bank guarantees, which will be notified separately. The same rates also will be uniformly applicable to all the fields of India except the fields where the prices has been fixed following the contract and also in the marginal small fields, which requires special dispensation.

The formula was announced during the Petrotech Conference, where the government interacts with the industry leaders and markets the next round of the New Exploration Licensing Policy for the potential investors. Might be possible that the development of the formula will help in development of the new fields, which were missed out by the companies that doesn’t know about the revenue can be generated from the gas fields.

The notification of the formula for price hiking was awaited by the gas and oil industry since 27 June 2013, the date when the new pricing system got the first nod of the Cabinet following the recommendations of the Rangrajan Committee. The notification on the formula was delayed because of the legal fight between the Union Oil Ministry and Reliance Industries after the concerns was raised by the Union Finance Ministry. Reliance has been penalized for the fall in output. Higher prices against bank guarantees that could be encashed in the case that the output of gas from D1 and D3 fields of KG-D6 block was hoarded by the company, which was
approved by The Cabinet in December 2014.

Effects of the formula on prices of other materials: This formula will lead to raise the subsidy on fertilize and will enormously raise the costs of the power plants fired with gas. The fertilizer and power firms lobbying exercise failed to be in effect with the raise of the domestic gas prices.

Foreign Direct Investment rules relaxed by RBI

The Reserve Bank of India relaxed the rules of Foreign Direct Investment on 9 January 2014. The decision is aimed at providing exit option to the foreign investors. The investors can exit their investments by selling their holding of equity or debt. The relaxation was expected to facilitate higher foreign direct investment (FDI) inflows into India. India saw a drop of 15 percent in FDI inflows from April 2013 to October 2013. The exit option given to the foreign investors is subject to the condition that any FDI will have a minimum lock-in period without any assured return. The lock-in period for defence and construction sector has been kept at three years and for all other sectors it will be at least a year. For a listed company the non-resident investor can exit at the market price prevailing at the stock exchanges. In case of unlisted company an investor can exit from equity shares at a price not exceeding the price arrived at on the basis of return on equity.

India ranked lowest in International Intellectual Property Index

US Chamber of Commerce released the International Intellectual  Property (IP) Index on 28 January 2014. In the IP Index, India has scored a low seven point out of maximum 30 points. India continues to have the weakest IP environment of all countries included in the GIPC Index for the second consecutive year

The continued use of compulsory licenses, patent revocations, and weak legislative and enforcement mechanisms raise serious concerns about India’s commitment to promote innovation and protect creators.

Other highlights of the IP Index

  • The United States received the highest (28.5 percent) overall score, but came in third after the United Kingdom and France in the enforcement category.

  • China IIP environment continued to see challenges (trade secret protection and enforcement) and it shows improvements in certain aspects of its patent regime.

  • Canada’s treatment of pharmaceutical patents, copyright laws, and unwillingness to ratify international IP treaties resulted in significantly lower scores than other upper in come economies.

International IP Index is prepared by the Global Intellectual Property Center (GIPC) of the US Chamber of Commerce which maps the IP environment of 25 countries from around the world utilising 30 factors, which are indicative of an IP environments that fosters growth and development.

Comment

In 2010, the then-President of India declared the next 10 years to be India’s “Decade of Innovation.” Promoting innovation means protecting domestic innovators and creators, attracting world-class research and development, and creating and sustaining high-quality future jobs through a robust  intellectual property (IP) system.However, recent policy, regulatory, and legal decisions have deteriorated IP rights in the country, making India an outlier in the international community.

China to be become a partner in the proposed NIMZ in Andhra Pradesh

China decided to be one of the partners in the proposed National Investment and Manufacturing Zones (NIMZ) in Andhra Pradesh on 6 January 2014. Chittor, Medak and Prakasam district of Andhra Pradesh will be the centre of the NIMZ. China would provide both technical and investment support . Each NIMZ was expected to attract an investment of 30000 crore rupees. The project under NIMZ will be supported by both Central and state government.

About NIMZ

National Investment and Manufacturing Zones (NIMZ) was proposed by Ministry of Commerce and Industry in 2010 in order to increase the overall share of manufacturing in Gross Domestic Product (GDP) of India. The
objective is to increase the share of manufacturing to 25 percent by 2022 in the GDP of India. To increase the rate of job creation so as to create 100 million additional jobs by 2022, to enhance global competitiveness, domestic value addition, technological depth and environmental sustainability of growth. Under NIMZ there would be a provision for the creation of Special Purpose Vehicle (SPV).

Natural Manufacturing Policy benefits extended to Industry Clusters

The Union Government on 18 January 2014 extended the benefits of the Natural Manufacturing Policy (NMP) throughout the country. These extended benefits would be applicable whenever industry will organize itself into clusters and adopt a self regulatory model. This extension has been done to boost the manufacturing sector. The issued guidelines of the Department of Industrial Policy and Promotion (DIPP) mentions that all the incentive provided to National Investment and Manufacturing Zones (NIMZs) will be available to all such clusters. Apart from the NIMZ, the policy benefits are also applicable to manufacturing industry across India, whenever the industry is able to organise itself into clusters and adopts a model of selfregulation as enunciated in the policy. The guidelines have also mentioned that all such benefits or dispensations except NIMZ specific benefits or dispensation as available to the policy is also available for the manufacturing industry cluster. It also says that clusters as per the guidelines will be a concentration of manufacturing industry units located within a clearly demarcated geographical area notified by the state government. To manage each cluster, the state government has to constitute a Special Purpose Vehicle (SPV) that will be headed by a government official.
Other important points of the guidelines issued are:

  • The policy also aims to create 100 million additional jobs over the next decade

  • The zones that has been accorded with benefits like exemption from capital gains tax, simplified procedures and easier exit norms.

  • Technology acquisition and development fund and greater access to institutional finance will be accessed to the SME units in the clusters

  • There exists a provision for suitable representation of the industrial units on the Board of the SPV, which will be responsible to facilitate the clearances that are required to set up in the cluster and/or for running the units. Filling of the periodic returns will be facilitated by SPY to the Units III the cluster by designing an appropriate single window mechanism

  • Incentives under NMP for the manufacturing equipment and technologies used to produce energy from sun, geothermal, wind, clean coal technology and carbon sinks management will also be accessed by the
    units in a cluster.

Incentives provided to the clusters will consist if the 5 percent interest reimbursement of the nominal interest charged by lending agency and 10 percent capital as subsidy. In case the private sector units in the cluster will undertake a PPP project for skill development in coordination with the National Skill Development Corporation (NSDC) the government will provide a weighted standard deduction of 150 percent of the expenditure, which will not include the land and building. This will be done only to encourage the private sector participation in the skill development. The Natural Manufacturing Policy 2011 was done with an aim to raise the share of
manufacturing to 25 percent of GDP by 2022 from its present 16 percent. The union government proposed to set up a mega integrated industrial townships.

Comment : These benefits might help India in recovering the industrial production which contracted by 2.1 percent in November 2013. This contraction was the lowest in past six months and all this happened due to the poor performance of the manufacturing sector.

Kelkar panel submitted report

The Kelkar Committee submitted the first part of its report on 8 January 2014. The committee recommended continuing with the present production-sharing regime in contracts for blocks and allows companies to recover exploration and production costs. A Committee was set up under Vijay Kelkar on 13 May 2013 to suggest ways of raising domestic oil and gas output. The panel was entrusted with the task of drafting a plan to reduce India’s dependence on overseas energy by 2030 and submit a report within six months. Suggestions of committee:

  • It suggested administering Production-Sharing Contracts (PSC) without any changes and strengthening the Directorate- General of Hydrocarbons (DGH) for better administration.

  • Shifting to an open acreage regime, where companies can pick exploration areas through the year rather than wait for periodic auctions that offer areas identified by the government.

  • The panel has called for setting up a National Data Repository (NDR) that will preserve and promote the country’s natural resources data.

The second part of the report would cover pricing and taxation issues and is likely to be submitted in February 2014. Under the present regime, oil companies can recover all costs of successful and unsuccessful wells from sales of oil and gas before sharing profit with the government. The suggestions in the first part of the Kelkar Committee report are contrary to the royalty-sharing regime suggested by C. Rangarajan Committee, which has been accepted by the government. Under royalty -sharing regime companies are required to state upfront the quantum of oil or gas they would share with the government from the first day of production.

Rangarajan Committee had suggested for royalty sharing regime without cost recovery to check gold plating of investments by companies. Royalty sharing regime is prevalent in developed countries. However, Kelkar Committee has opined that royalty sharing regime is not workable in Indian conditions wherein the exploration of oil & gas blocks are still under-developed. Thus, the Kelkar panel favoured the revenue sharing model for shallow and on-land blocks that are less cost-intensive than deep sea exploration. The Comptroller and Auditor General (CAG) had criticised the PSC regime on grounds that it encouraged companies to increase
capital expenditure and delay the government’s share

RBI selected CCIL as Legal Entity Identifier

The Reserve Bank of India (RBI) selected the Clearing Corporation of India Ltd (CCIL) for issuing globally compatible legal entity identifiers (LEIs) on 6 January 2014.CCIL will act as a local operating unit for issuing
globally compatible legal entity identifiers (LEIs )in India. Legal Entity Identifiers (LEI) are a 20-character unique identity code assigned to entities which are parties to a financial transaction. Clearing Corporation of India Ltd (CCIL) will issue unique identifier codes to the eligible legal entities participating in financial markets across the globe on a non-profit cost recovery basis. CCIL is recognised by the Regulatory Oversight Committee of
the global LEI system and the unique identity codes issued by it will be accepted globally. Once the infrastructure is set up, the LEI numbers will be mandatory for Over-the-Counter (OTC) derivative transactions. The
implementation of the global LEI system is led by the Financial Stability Board (FSB).The functioning of CCIL as LEI will be under the regulation and oversight of the Reserve Bank of India.

About Clearing Corporation of India Ltd (CCIL)

The Clearing Corporation of India Ltd (CCIL) was set up in 2001 for providing exclusive clearing and settlement for transactions in Money and Foreign Exchange. In 2013 the Reserve Bank designated CCIL as a critical Financial Market Infrastructure (FMI) for oversight. Recently CCIL was granted the status of a Qualified Central Counterparty (QCCP).

Background

The global financial crisis underscored the lack of a common, accurate and sufficiently comprehensive identification system for parties undertaking financial transactions across the globe. International regulators recognised the importance of the LEI as a key component of necessary improvements in financial data systems. The G20 Summit 2011held at Cannes endorsed FSB for the development and maintenance of a global LEI system. FSB also lead the co-ordination of international regulatory work. FSB comprises of a Regulatory Oversight Committee (ROC), Central Operating Unit (COU) and Local Operating Units (LOUs).

  • A Regulatory Oversight Committee has the ultimate responsibility for the governance of the GLEIS.

  • A Central Operating Unit (COU) is the pivotal operational arm of the GLEIS and

  • Local Operating Units (LOUs) will provide the primary interface for entities to register for the LEI system.

India Inclusive Innovation Fund launched

India Inclusive Innovation Fund
(IIIF) was launched by the National
Innovation Council (NIC) and the
Union Ministry of Micro, Small and
Medium Enterprises (MSME) on 27
January 2014.

IIIF seeks to combine innovation and the dynamism of enterprise to solve the problems of citizens at the base of the economic pyramid in India.

Main characteristics of the IIIF

  • IIIF will help create a new class of capital or venture capital to set up and scale entrepreneurial skills and innovation in the firms delivering goods and service to the poorest of the country.

  • The Fund will invest in innovative ventures that are scalable, sustainable and therefore profitable.

  • It will address social needs of less privileged citizens in areas such as healthcare, food, nutrition, agriculture, education, skill development, energy, financial inclusion, water, and sanitation and employment generation.

  • It will also partner the entire ecosystem in this space, including incubators, angel groups, and also public R&D programmes and laboratories to support the commercialisation and deployment of socially relevant innovative technologies and solutions.

  • The Fund will be registered under SEBI’s Alternative Investment Fund Category I guidelines.

  • The initial corpus of fund is 500 crore rupees with the Union Ministry of MSME committing 20 percent and rest would be given by banks, insurance companies, overseas financial and development institutions.

The Fund’s eventual aim is to expand the corpus to 5000 crore rupees in next two years. The Government will set up Asset Management Company (AMC) to take the responsibility of day to day operations of the fund. The AMC will build a mentoring network, incubation and provide training and skills development programmes to entrepreneurs and IIIF assisted companies. A Governing Council comprising government nominees as
well as eminent persons from the fields of public service, industry, finance and entrepreneurship will provide oversight and ensure the purpose of the fund is maintained.

HSBC released Services Purchasing Managers Index (PMI)

HSBC Services Purchasing Managers Index (PMI) was released on 6 December 2014. The Index showed that Indian services sector shrank at a faster pace in December 2013 than in November 2013. HSBC in collaboration with Markit Economic Limited provides emerging market data through Purchasing Managers Index (PMI). HSBC Services Purchasing Managers Index (PMI) fell to 46.7 in December 2013 from 47.2 in November 2013. The Services PMI in December 2013 has been the lowest in the Quarter 3 of 2013 and also it stayed below the 50 mark ¬– dividing the line between growth and contraction – for the past six consecutive months. The new orders index fell from 48.2 in November 2013 to 47.3 in December 2013 and it has remained below 50 mark for past six months. The Employment sub-index rose in December 2013 to its highest since July 2013 indicating pickup in the labour market. Inflation with high interest rates, government policy paralysis and fragile global demand slowed the economic growth in India.

Sale of 10% stake in IOC to ONGC and OIL approved

Empowered Group of Ministers (EGoM) headed by Union Minister of Finance P Chidambram approved on 16 January 2014, the sale of 10 percent government stake in Indian Oil Corporation (IOC) to Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL). ONGC and OIL will buy a part of the government’s stake in Indian Oil Corp for a total of 4700 crore rupees to 5000 crore rupees. It will help the government meet part of its disinvestment target of 40000 crore rupees set for the financial year 2013- 14. The government opted to sell the 10% stake in IOC through block deal on stock exchange. The Securities and Exchange Board of India (SEBI) rule for block deal says that the rate should be one per cent higher or lower than previous day’s closing price. At present, Union Government of India holds78.92 percent stake in IOC whereas ONGC already holds 8.77 per cent stake in IOC. The 10% disinvestment in IOC was approved by the Cabinet last year. However, the decision was deferred due to opposition from the Union Ministry of Oil and Natural Gas and IOC Chairman RS Butola. They had cautioned the government against launching a public offer in light of the weak market and falling shares of IOC.

CRISIL forecast on Indian economy

Ratings and Research firm CRISIL released its Indian Economic Forecast for 2014-15 on 21 January 2014. The CRISIL projected that Indian economy will grow at 6 percent in 2014-15, which is significantly higher than the 4.8 percent CRISIL has forecast for financial year 2013-14. The projected growth is achievable provided some key conditions are fulfilled.

The key conditions include among others normal monsoons, continuation of the recent reform process and widely anticipated global recovery. CRISIL is hopeful because of some of the major factors i.e., the partial declogging of the policy logjam witnessed for the bulk of the past couple of years. This, together with the improved globaleconomic prospects, is expected to improve India’s GDP prospects the next fiscal.

The improved private consumption demand is another factor which is expected to trigger a mild revival in industrial growth which CRISIL expects to be at 6 percent for FY15. The sectors expected to gain from the improved demand are consumer durables, automobiles and textiles. The mining sector is forecast to expand for the first time in three years. The recent momentum on resolving mining issues will continue into 2014-15 and will help address supply-side constraints for industries, particularly in the steel and power sectors. The integration of south India into the national power grid will help improve power availability for industries in the region.

March 2014

Guidelines on New Land Policy for Major Ports of the Country Released

The Union Shipping Ministry on 16 January 2014 unveiled new policy guidelines for major ports. The policy guidelines have been released with an aim to help them leverage their land resources for commercial advantage. The policies will help in carrying out leasing and licensing of port land in a transparent manner as this provides necessary framework for land allotment by major ports. The Union Shipping Ministry has also cleared 20 port projects involving an investment of 6000 crore rupees, envisaging 102 million tonnes in capacity in the first nine months of the fiscal. The guidelines have also reduced the discretion powers and has prescribed tender-cum-auction as the most preferred method of allotment.

The new policy guidelines says

  • Land can be allotted only through licensing in custom bond areas by inviting competitive bidding, while land outside custom bond areas can be leased through tender cum-auction

  • There is also a provision to license land outside custom bond areas, but it should be only for port related activities.

  • The Boards of respective ports can approve leasing of land for a period up to 30 years. For leasing of land beyond 30 years and up to 99 years, approval of the Government has to be obtained through the mechanism of Empowered Committee.

The guidelines has also made it mandatory to draw land use plan by covering all land owned and managed by all the 12 major ports of the country.

The issued guidelines are applicable on all the ports except for land related to township areas of the Mumbai, Kandla and Kolkata. The new policy guidelines for land management are part of the process of port reforms and liberalization. The central owned ports operate in a comparatively regulated environment, while the non-major ports that comprise state ports and private ports enjoy substantive flexibility. By issuing these guidelines the government is trying to create a level playing field for major and non major ports.

About 2.64 lakh acres of land is being used by the major ports of the country, which can be considered as the major resource. The land has not been utilised to an optimum level which in return has given less returns
of the use of lands. The new policy might link the value of land with the prevailing market rates.

Indian companies allowed by RBI to issue non-convertible debentures

The Reserve Bank of India on 6 January 2014 allowed the Indian companies to issue non-convertible or redeemable preference shares or debentures to non-resident shareholders as bonus. This facility will also encompass the depositories that act as the trustees for the American Depository Receipt/Global Depository Receipt – ADR/GDR holders.

The decision has been taken by RBI in order to rationalize and to simplify the procedures that the company will issue shares or debentures by way of distribution as bonus from its general reserves. As per the notification, has made the preference shares, which excludes non-convertible/ redeemable preference shares and convertible debentures, (except optionally convertible or partially convertible debentures) a subject of Foreign Direct Investment Scheme. Earlier, RBI was granting permission for such issuances on a case-to-case basis.

RBI has simplified the norms following the references of some companies of India for issuing a nonconvertible or redeemable bonus preference shares or debentures to non-resident shareholders from their general reserve under a scheme. This has been permitted with an arrangement by a court following the provisions of the Companies Act. Apart from this RBI in another notification said that the Maintenance, Repairs and Overhaul (MRO) will be treated as the part of the airport infrastructure, which will facilitate external commercial borrowings for the sector.

Union Agriculture Ministry on 31 January 2014 issued detailed guidelines and strategy for implementation of National Mission on Oilseeds and Oil Palm. The issued scheme is aimed at enhancement of production of traditional and tree borne oilseeds. The scheme also seeks to bring-in large area under the oil palm cultivation. Under the 12th five-year plan, the government has sanctioned 3507 crore rupees for the Mission.

Implementation of the strategy includes

  • Increasing Seed Replacement Ratio

  • Irrigation coverage under oilseeds from 26 to 36 percent

  • Diversify of area from low yielding cereal crops to oilseed crops and inter-cropping of  oilseeds with cereals, sugarcane and pulses

  • Use of fallow land after paddy and potato cultivation

Active involvement of all the stakeholders would be implemented under the scheme of which 75 percent cost will be borne by centre and 25 percent by the states. The fund flow will be monitored strictly to ensure benefits of the Mission reaches to the targeted beneficiaries at a proper time.

RBI relaxed Gold loan norms

The Reserve Bank of India on 8 January 2014 allowed the Non-  Banking Financial Companies (NBFCs) to lend up to 75 percent of the value of gold. With this order of the central bank, the people seeking loan against gold can now borrow more. Earlier, the limitation of loan on gold was 60 percent. The order has been passed in a view of the moderation in the growth of the gold loan portfolios of NBFCs in recent past. The value of loan will be the intrinsic value of the gold content and no other cost like making charges will be given. The decision was taken following the recommendation of the KUB Rao Working group, which said that the loan-to-value (LTV) may be increased to 75 percent from 60 percent. The working group has also recommended the standardization methodology to determine the value of gold.

RBI included Hong Kong and Macau in the sensitive list

The Reserve Bank of India (RBI) included Hong Kong and Macau in the sensitive list of countries along with Pakistan and China on 15 January 2014. Macau and Hong Kong are two Special Administrative Regions controlled by China. This means that establishments from Hong Kong and Macau will require prior approval of RBI for setting up business or related activities in India. The activities include establishment of liaison,
branch, project offices or any other place of business. To this effect, Regulation 4 of Foreign Exchange Management (Establishment in India of Branch or Office or Other place of Business) Regulations, 2000 has been
amended to substitute words, Iran and China, with words Iran, China, Hong Kong and Macau. Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran and China are already included in the sensitive list.

IMF forecast of India Economic Growth

International Monetary Fund (IMF) released its World Economic Outlook report on 21 January 2014. The IMF projected the Indian economy’s growth at 4.5 percent for 2013-14 which is much less than ASEAN countries such as Indonesia, and Philippines. IMF in its earlier report in October 2013 had projected that Indian economy would grow by 3.8 percent in 2013- 14. The lower growth rate of 3.8 percent was caused due to global slowdown and domestic factors like interest rates. However, with India receiving a favourable monsoon and higher export revenues since October 2013, the growth in the second largest economy of Asia picked up. The growth is expected to firm further on strong structural polices supporting investment. The economic growth rate can expand up to 5.4 percent and 6.4 percent in next two fiscals. The ASEAN countries Indonesia, Malaysia, Philippines, Thailand and Vietnam had grown by 5.7 percent in 2012. The Economic growth in Indonesia and the Philippines are due to strong fundamentals such as strong consumption and investment, diversified exports and low policy rates.

India signed a Credit Agreement with World Bank for RRSMP

India on 2 January 2014 has signed a credit agreement of 160 million dollar with World Bank for Rajasthan Road Sector Modernisation Project (RRSMP). On behalf of the Government of India, the agreement was signed by Nilaya Mitash, the Joint Secretary, Department of Economic Affairs Ministry of Finance and on behalf of World Bank it was signed by Manoj Jain, the action Director, New Delhi. Similarly on behalf of Government of Rajasthan, the project agreement was signed by JC Mohanty, the Principal Secretary of Public Works Department. The project aims to improve the rural connectivity and enhance road safety by strengthening road sector
management capacity of Rajasthan.

Components of the project are:

  • Rural Connectivity Improvement

  • Road Sector Modernization and Performance Enhancement

  • Road Safety Management The closing date of the project has been decided December 2013.

CCI ordered fresh probe into Coal India and subsidiary for violations

Competition Commission of India (CCI) on 30 January 2014 ordered a fresh probe into the staterun miner Coal India and its subsidiary for alleged abuse of dominant market position in fuel supplies. The ordered probe will also look into the role of the executives who were incharge of business for violations of competition norms if any found. Earlier, the Competition Commission of India slapped a penalty of 1773 crore rupees on Coal India for unfair business ways in December 2013. This penalty charge has been challenged by the company and at present it is lying with the appellate tribunal.

CIL declared dividend of 290 percent for 2013-14

Coal India Ltd (CIL) board declared a dividend of 290 percent to its shareholders for the financial year 2013-14 on 14 January 2014. The declared dividend of 290 percent effectively translates into a payout of 18317 crore rupees at 29 rupees per share.This will be the highest dividend ever declared by CIL, a Maharatna company. CIL will pay the dividend from 25 January 2014 onwards to its shareholders. The Union Government of India will get 16485.71 crore rupee since it holds 90 percent of the company’s share. The government will also get an additional 3113.05 crore rupees as dividend distribution tax from CIL. As a result, the total dividend that will be paid by the CIL to the government amounts to 19598.76 crore rupees. The payout of dividend by the CIL will help the Union Government in achieving its disinvestment target of 40000 crore rupee for the financial year 2013-14. This in turn will help restrict the fiscal deficit within the targeted 4.8 percent for the year 2013-14. In 2012-13, CIL paid a total dividend of 8842.91 crore rupee to the Union Government at 14 rupees per share

Sale of Government’s residual stake of HZL approved

Cabinet Committee on Economic Affairs (CCEA) on 20 January 2014 approved the sale of the Government’s residual stakes of the Vedanta group controlled Hindustan Zinc (HZL). The approval has allowed the sale of the stakes worth 16500 crore rupees of HZL. At present, the government holds 29.5 percent stakes of the company. The CCEA was headed by Manmohan Singh, the Prime Minister of India.

This approval came following the consent of the Attorney-General of India on the proposal. The Attorney- General gave his consent for the sale of the stakes as HZL is no more a public sector company. Whereas, his previous view was to get an approval of the Parliament as the company was created by an Act. Earlier in 2002, the government sold a majority of stakes of India’s largest zinc maker to Anil Agarwal-led Vedanta Resources.

India to have 243 million Internet users by June 2014

The internet user base in India  was projected to touch 243 million by June 2014. This was according to the data released by the Internet And Mobile Association of India (IAMAI) on 29 January 2014. With more and more people accessing the Web through mobile phones, the IAMAI projected a growth of 28 percent in internet user base from June 2013 to June 2014. The Internet user base in the country stood at 190 million at
the end of June 2013.

The other highlights of IAMAI data

  • The internet user base in the whole year 2013 grew by 42 per cent. It increased from 150 million in 2012 to 213 million in 2013.

  • Of the total user base, mobile Internet users accounted for 130 million in 2013, a growth of about 92 per cent from 68 million in 2012.

  • The number of mobile Internet users was expected to touch 185 million by June 2014, accounting for about 76 per cent of the Internet user base in the country.

  • The growth of Internet users has also led to a substantial growth of other digital industries such  as e-commerce and digitaladvertising.

  • Digital commerce market stood at 8146 crore rupees in December 2007 and it grew to 47349 crore rupees by the end of 2012. At the end of December 2013, digital commerce in India grew to 62967 crore rupees.

  • Digital Advertising is projected to touch 2938 core rupees by the end of March 2014 witnessing a steady growth.

2 oil and gas blocks Offered to ONGC by Sudan at Petrotech 2014

Oil-rich Sudan offered two oil and gas blocks to ONGC Videsh Limited (OVL) on the sidelines of Petrotech 2014 on 14 January 2014. The offer by Sudan will help India strengthen its energy ties with the African nations. Sudan offered the onland Block 8 and Block 15 to the OVL on a nomination basis. Block 8 will have an oil discovery while Block 15 will have exploration acreage. OVL will evaluate the data and take 100 percent rights if it finds them feasible for investment. OVL, the overseas arm of Oil and Natural Gas Corp, has been present in Sudan since 2003. In 2003, it acquired 25 percent stake in the Block 1, 2 and 4 of the Greater Nile Project (GNOP) and Sudan Crude Transport System. Greater Nile Oil Project (GNOP) is spread over an area of 49500 square kilometres in the Muglad Basin, located about 700 km southwest of the capital city of Khartoum. It also owns a 1504 km crude oil pipeline from the oilfield in Heglig to Port Sudan at Red Sea. Union Minister of Oil and Natural Gas, Veerapa Moily welcoming the offer from Sudan also held talks with his Azerbaijan counterpart Natig Aliyev on the sidelines of Petrotech 2014. The Azerbaijan minister welcomed Indian participation in both upstream and downstream projects. OVL in 2013 bought a stake in the Azeri-Chirag-Guneshli oilfields as well as the Baku-Tbilsi-Ceyhan pipeline, which was supported by Azerbaijan. The southwestern Asian nation is now keen to get Indian participation in more producing assets. Earlier, ONGC and Kuwait
Petroleum Corp (KPC) signed an initial agreement for broad cooperation. The agreement could lead to KPC picking up stakes in the ONGC Mangalore Petrochemicals Ltd (OMPL) and ONGC Petro-Additions Ltd (OPAL) projects. OMPL petrochemicals complex is subsidiary of Mangalore Refinery and Petrochemicals. OPAL petro chemicals project is a joint venture of GAIL and Gujarat State Petroleum Corp (GSPC) in Gujarat

Third Quarter Policy Review by RBI

Reserve Bank of India (RBI) raised the Repo rate under Liquidity Adjustment Facility (LAF) by 25 basis points from 7.75 percent to 8 percent. Besides, it kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4 percent of net demand and time liability (NDTL). The decision to raise the repo rate and keep the CRR unchanged was announced by the RBI in its Third Quarter Monetary Policy Review on 28 January 2014. As a result, the reverse repo rate under the LAF stands adjusted at 7 percent, and the marginal standing facility (MSF) rate and the Bank Rate at 9.0 percent.

The Main highlights of the Third Quarter Policy Review

  • Global uncertainty continues to surround the prospects for some emerging economies, with domestic fragilities getting accentuated. Financial market contagion is a clear potential risk.

  • Domestically, some loss of momentum of growth is likely in Quarter 3 of 2013-14, despite a strong pick-up in rabi sowing.

  • The current account deficit (CAD) for 2013-14 is expected to be below 2.5 percent of GDP as compared with 4.8 percent in 2012-13.

  • Over the ensuing 12-month horizon, and with the current policy stance, the CPI inflation is expected to be on the upside risk of 8 percent in 2014-15.

  • Real GDP growth can be expected to firm up from a little below 5 percent in 2013-14 to a range of 5 to 6 percent in 2014-15, with risks balanced around the central estimate of 5.5 per cent.

  • Following the recommendation of the Dr. Urjit Patel Committee, monetary policy reviews will ordinarily be undertaken in a two-monthly cycle, consistent with the availability of key macroeconomic and financial data. Accordingly, the next policy review is scheduled on 1 April 2014.

NABARD reduced refinance rate for banks

National Bank for Agriculture and Rural Development (NABARD) on 11 January 2014 reduced the refinance rates for the banks and other lending agencies by 0.20 percent. This has been done with an aim to promote rural credit and rural infrastructure. The new rates will be in effect from 7 January 2014. The revised rate of interest on refinance will be for a period of five years for commercial, state cooperative, regional rural and primary urban cooperative banks will be 9.70 percent, which has been decreased from 9.90 percent. In its notification, NABARD has also mentioned that banks drawing refinance of 500 crore rupees and more in a single drawl would be allowed further reduction of 0.10 percent. In its notification it also mentioned that the reduction of 10 basis point for the State Cooperative Agriculture and Rural Banks (SCRDBs) will be allowed for a single drawl of 200 crore rupees and above. With this reduction, NABARD expects that this step will give a boost to banks by extending investment credit. It will also help in creation of warehouse infrastructures for agricultural commodities in India.

1000 rupees minimum monthly pension plan

Union Finance Ministry on 23 January 2014 approved a proposal to provide minimum monthly pension of 1000 rupees to workers of organised sector, under the Employees Pension Scheme 1995 (EPS-95). The proposal will be in effect from 1 April 2014 and will benefit around 27 lakh pensioners. The government will provide an additional contribution of over 1200 crore rupees to ensure minimum monthly pension. Now it depends on the decision of Union Labour Minister, Oscar Fernandes to take it to the Cabinet for approval. At present the subscribers get 500 rupees per month despite working for 30 years. Apart from this the
Finance Ministry has also approved a proposal seeking raise of the basic wage ceiling under the Employees Provident Fund Scheme from the existing 6500 rupees to 15000 per month. Employees who get the basic wages more than 6500 rupees per month (including basic pay and dearness allowance) are not covered under the social security scheme run by EPFO. The Employee Pension Scheme is run by Employees’ Provident Fund Organisation (EPFO).

Guidelines for investment in Equity Exchange Traded Funds issued by IRDA

The Insurance Regulatory and Development Authority (IRDA) released a draft on allowing investment in Equity Exchange Traded Funds (ETF). This step is considered as a crucial step towards achieving disinvestment target. The Government plans to meet this target by transferring shares in public sector companies to Equity ETFs. It is expected that there will be around 11 PSUs in the Equity ETFs and by selling shares, the government would reduce volatility in PSU stocks.

The Draft guidelines are:

  • Equity ETFs would be restricted to the schemes of Mutual Funds that are registered with Securities and Exchange Bureau of India  (SEBI) and governed by SEBI(Mutual Funds) Regulations, 1996.

  • Any investment in the Equity ETF would be considered as investment in mutual funds.

  • Equity ETFs would come under current exposure norms applicable to investment in mutual funds.

  • Equity ETFs in mutual funds should be registered with the SEBI.

  • Equity ETFs cannot hold more than 15% of fund in a single company and needs to ensure that total exposure to a sector cannot be more than 30%.

  • Equity ETF should be listed on at least two Exchanges having nationwide terminals and should not have any overseas investments.

Equity ETFs are those funds whose unit price is derived from basket of underlying equity shares. These baskets of securities differ depending upon the nature of ETF. The main difference between ETFs and other types of index funds is that ETFs don’t try to outperform their corresponding index, but simply replicate its performance. The advantage of using ETFs is that ETFs combine the range of a diversified portfolio with the simplicity of trading a single stock.

New CPI for Anchoring Monetary Policy

Expert Committee to revise and strengthen the monetary policy framework submitted its report to the Governor of RBI on 21 January 2013. The committee was headed by Dr. Urjit R Patel, the Deputy Governor of RBI and was constituted on 12 September 2013 by the Governor Dr. Raghuram G Rajan. It has been done to make it transparent and predictable. The committee in its suggestion has recommended that a new Consumer Price Index (CPI) should be adopted by Reserve Bank of India (RBI) to anchor the monetary policy has been recommended on 21 January 2014 by an expert panel set by the central bank. The committee has also set an inflation target at 4 percent with a band of plus/minus 2 percent around it. The panel in its recommendation has also suggested that the monetary policy decision should be vested in the hands of the Monetary Policy Committee (MPC) that will be headed by the Governor.

These suggestions as recommendation is intended to better ground inflation expectations by making it clear that inflation is the RBI’s primary objective. It also expects to be held accountable for its performance in this regard. As per the suggestions the government also needs to ensure the fiscal deficit as a ratio of GDP should be brought down to 3 percent by 2016-17 which should be consistent with the Fiscal Responsibility and Budget Management (Amendment) Rules 2013. In its suggestion it has suggested two schemes namely Market Stabilisation Scheme (MSS) and Cash Management Bills (CMBs) may be phased out and the government debt and cash management should be taken over by the Debt Management Office of the government. It has also suggested that all fixed income financial products should be treated on par with the bank deposits for the
purposes of taxation and TDS. The committee has suggested detachment of Open Market Operations (OMOs) from the fiscal operations and instead linked solely to the liquidity management. OMOs should not be used for managing yields on government on government securities.

About the Committee

Member of the committee apart from its chairman Dr. Urjit R Patel were: Dr. P.J. Nayak, Professor Chetan Ghate, Professor Peter J. Montiel, Dr. Sajjid Z. Chinoy, Dr. Rupa Nitsure, Dr. Gangadhar Darbha, Deepak Mohanty, Dr. Michael Debabrata Patra was the Member Secretary of the panel.

The terms of reference of the Committee were

  1. To review the objectives and conduct of monetary policy in a globalised and highly interconnected environment.

  2. To recommend an appropriate nominal anchor for the conduct of monetary policy.

  3. To review the organisational structure, operating framework and instruments of monetary policy, particularly the multiple indicator approach and the liquidity management framework, with a view to ensuring compatibility with macroeconomic and financial stability, as well as market development.

  4. To identify regulatory, fiscal and other impediments to monetary policy transmission, and recommend measures and institutional pre-conditions to improve transmission across financial market segments and to the broader economy.

  5. To carefully consider the recommendations of previous Committees/Groups in respect of all of the above.

In recent years, inflation in India has been amongst the highest within the G-20. Household Inflation expectations have risen sharply and have remained at elevated levels, unhinged from the low inflation experience of 2000-07 as also from the global inflation record. Professional forecasters’ surveys show that the long-term inflation expectations have risen by about 150 basis points during this period.

Suresh Mathur panel formed by IRDA

The Insurance Regulatory and Development Authority (IRDA) formed a new committee headed by Suresh Mathur to suggest ways to enhance Foreign Domestic Investment (FDI) in insurance intermediaries (other than insurance companies) and Third party administrators (TPA). The Committee would consist of ten members.

The Terms of Reference of the Committee are:

  • To explore the options of further increasing FDI limit for insurance intermediaries.

  • To analyse possible impact of such increase on the industry and other related sectors.

  • To review the related international practices.

  • To examine to what extent, if possible, the FDI limit can be increased in intermediaries and study the international practices in this regard.

Presently, a foreign company cannot hold more than 26% shares in an insurance company. But, in case of insurance intermediaries there is no such restriction. There was also a consistent demand for increasing the foreign shareholding in insurance brokers from the existing limit of 26% to 100%. The aforesaid proposed change would not require any modification in the Insurance Act. But, In case of increasing foreign shareholding in an insurance intermediary or TPA, the insurance act would get modified. There is a long pending Insurance bill in Rajya Sabha since 2008. This bill seeks to raise the FDI limit in insurance sector from existing 26% to the 49 %.

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