April + May 2014

9-member panel  set up by IRDA

• Insurance regulator IRDA has set up a nine-member committee to review the 14 non-legislative recommendations made by the Financial Sector Legislative Reforms Commission (FSLRC).

• The committee will also examine the extant legislative and regulatory framework in compliance 14 non-legislative recommendations (NLRs).

• The non-legislative recommendations are related with consumer protection, transparency and capacity building, among others.

• The Insurance Regulatory and Development Authority (IRDA) said the committee will submit its report by April-end.

• The committee members include C.R. Muralidharan, G. Prabhakara, and Mathew Varghese, all ex-Members, IRDA and M.S. Sahoo, ex-Member, SEBI.

• The committee will identify the gaps and possible improvements in the extant framework vis-a-vis the 14 NLR. The panel will also suggest changes or modifications to the extant framework in compliance with the 14 NLR.

Import tariff value of gold & silver

• Government slashed the import tariff value on gold and silver to $404 per ten grams and $635 per kg, respectively, taking into account the volatility in the global prices

• Import tariff value is the base price at which customs duty is determined to prevent under-invoicing. The tariff value is revised on a fortnightly basis after analysing the global price trend.

• The notification in this regard has been issued by the Central Board of Excise and Customs (CBEC).

• Gold is the second largest import item for India after petroleum. However, gold imports are expected to decline this year as government has taken several measures to curb shipments to address the high current account deficit.

Interest rate futures as hedging instrument

• Interest rate futures, which were launched across three bourses and touted as a much-needed hedging instrument, are seeing a sharp drop in participation already.

• IRFs are contracts, which allow a bond investor to hedge against interest rates, and have the option of being settled in cash without the physical bond.

• Volumes have slipped to as low as Rs 476.35 crore from Rs 3,080 crore notched on their launch day on the National Stock Exchange (NSE). Turnover on the MCX-SX and BSE have seen a fall of 74% and 70%, respectively.

• Banks can keep 24% of their bond portfolio under HTM and the portfolio is not required to be marked to market prices.

• Banks can move their bonds from available-for-sale and held-for-trading portfolios to the HTM once in every financial year.

• There is also a lack of participation from public sector banks, the biggest market participants of the bond market.

Rationalising reserve prices

• Rationalisation of spectrum reserve prices has helped the government get Rs.40,000 crore of bids on the opening day of the ongoing auction.

• People are now expected to  realise how irrational it was at that point in time for media and everybody to shout that the government is losing revenue,according to Mr. Sibal said, while referring to lowering of the base price compared to 2013 auction, which did not evoke much response from mobile firms.

• The architectural vision of ‘GI Cloud’ encompasses a set of discrete cloud computing environments spread across multiple locations, built on existing or augmented infrastructure, following a set of common protocols, guidelines and standards issued by the Centre.

• Some of its features include self-service portal, multiple cloud solutions, secured VPN access and multi location cloud.

• Output of India’s pvt sector

• India’s private sector output contracted for the seventh consecutive month in January as services sector output remained weak amid tough economic conditions.

• The fall was largely on account of drop in services sector output unlike the manufacturing sector which had seen acceleration in production growth in January.

• Service providers in the country reported falling new business orders for the seventh month running in January, amid increased competition for new work, deteriorating confidence among clients and weaker underlying demand.

• Retail or CPI inflation in December moderated to a three-month low of 9.87 per cent, while the wholesale or WPI was at 5-month low of 6.16 per cent during the month.

FIIs, NRIs to invest in insurance

• The government has allowed 26 percent foreign investment in activities related to insurance, like broking, third party administrators and surveyors, and permitted FIIs and NRIs to also invest in insurers within the stipulated cap.

• Under the norms notified, 26 percent foreign investment, including foreign direct investment (FDI), Foreign Institutional Investors (FII) and Non-Resident Indians (NRI) will be allowed under the automatic route in insurance companies, insurance brokers, Third Party Administrators (TPAs), surveyors and loss assessees.

• The decision will come into force with immediate effect, the note added. Insurance brokers are entities which, for remuneration, arrange insurance contracts with insurers or reinsurers on behalf of their clients. TPAs help in facilitating health insurance on behalf of insurers.

• All these entities are required to obtain a licence from the IRDA for undertaking specific activities. The relaxation falls short of the demand of insurance industry which has been pleading for hiking the FDI cap in the sector to 49 per cent, from 26 per cent at present. The Insurance Laws Amendment Bill, which seeks to raise the cap, has been pending in Parliament since 2008 and is unlikely to be taken up in the ongoing session due to lack of political consensus.

White label ATMs in India

• The Reserve Bank of India (RBI) has permitted four non-bank entities to set up white label ATMs in India.

• The RBI has issued Certificate of Authorisation to Tata Communications Payment Solutions Ltd., Prizm Payment Services Pvt. Ltd., Muthoot Finance Ltd., and Vakrangee Ltd. for setting up and operating white label ATMs.

• Of these, three have already launched their services. Vakrangee is likely to commence its service shortly.

• The objective of permitting non-banks to operate white label ATMs was to enhance the spread of ATMs in semi-urban and rural areas, where bank-owned ATM penetration has not been growing.

FIIs to purchase shares in Dabur India

• The Reserve Bank allowed Foreign Institutional Investors (FIIs) to purchase shares in Dabur India up to 30 per cent of the firm’s paid up capital.

• FIIs have been allowed to buy more shares in Dabur India as the company has passed a special resolution to enhance the limit for purchase of its equity shares and convertible debentures by FIIs.

• ¨ FIIs, through primary market and stock exchanges, can now purchase up to 30 per cent of the paid up capital of Dabur India Limited under the Portfolio Investment Scheme (PIS).

• ¨ As per data available on the BSE, FIIs held 19.94 per cent shares in Dabur India as of quarter ended December 2013.

• ¨ FIIs, NRIs and PIOs are allowed to invest in the primary and secondary capital markets in India through PIS.

• ¨ RBI monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis.

• ¨ For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cut-off points that are two percentage points lower than the actual ceilings.

The burden of interest on the government’s borrowings

• The burden of interest on the government’s borrowings is estimated to grow at 17 per cent this fiscal. The Finance Ministry estimates that the Centre’s expenditure on interest payments will grow 17 per cent to Rs. 3,64,244 crore in 2013-14, according to the economic and functional classification of the Union Budget .

• This is even greater than the UPA government’s subsidy bill for the year, estimated at Rs. 2,42,255 crore. A rate of growth of interest payments that is faster than the rate of growth of the economy is not a good trend.

• Interest payments are growing five percentage points faster than GDP growth. The Central Statistical Office estimates the GDP growth rate for the year will be 12.3 per cent.

• Consumption expenditure, mainly salaries, will grow at 17 per cent in 2013-14 to Rs. 3,15,318 crore as against 12 per cent the previous year.

Number one car exporter

• Nissan has displaced Maruti to become the second-largest passenger car exporter from India. Hyundai remains the number one car exporter.

• Nissan has been shipping more India-built cars than Maruti in the past two months, and it has now emerged as the second big exporter of cars with its total volumes standing at 94,931 units when compared with Maruti’s exports of 79,945 units in the first 10 months of current fiscal. In the year-ago period, Nissan and Maruti exported 80,867 units and 95,526 units, respectively.

• Though the domestic car market is going through its worst phase with plummeting sales, exports continue to maintain some momentum with a marginal growth. Over all passenger vehicle exports, however, have seen a rise of seven per cent, driven by a significant growth in exports of utility vehicles.

• Many global brands have made Indian operations as their manufacturing hub for small cars and have been attempting to sell India-built cars in more markets in view of the slump in domestic sales as also to take advantage of weak rupee.

India to combat black money

• Global economic body OECD unveiled a new “game-changing” mechanism to combat the menace of offshore tax evasion, a protocol to which India is a signatory with the purpose of tackling black money.

• The Organisation for Economic Cooperation and Development will formally present the standard for the endorsement of G20 finance ministers during a February 22-23 meeting in Sydney in Australia,” the world body, whose economic policies are followed by over 120 countries..

• The G20 invited the OECD to develop a global standard on automatic exchange of information in 2013 and remains the driving force behind the move toward greater tax transparency worldwide.

• India has already signed the OECD’s global standard for automatic exchange of information between tax authorities two years back and once the new format is implemented, the country will follow the new protocols envisaged in it.

• OECD Secretary General Angel Gurria called the new norms a “game changer.”

• The new standard on automatic exchange of information will ramp up international tax co-operation, putting governments back on a more even footing as they seek to protect the integrity of their tax systems and fight tax evasion.

Mor committee suggestions

• Reserve Bank Governor Raghuram Rajan has termed the changes in priority sector lending norms suggested by the Nachiket Mor committee as “interesting ideas” which need to be discussed.

• Among other things, the committee on financial inclusion headed by Mor, a former executive director with ICICI Bank, has suggested a weightage-based approach to the priority sector lending norms, which stress leveraging of strengths by a bank, and incentivizing lending to the credit deprived sections and regions.

• Through this approach, the committee feels a bank’s maximum priority sector lending can touch the 50 per cent mark, as against the present requirement of 40 per cent.

• As per the report, submitted last month, a bank having strength in farm credit should leverage its strength and do more of it, while some other bank having a strength in small enterprises loan should focus on its core strength.

• The Mor committee also talks of certain credit deprived areas such as the north-east, and incentivising banks to lend more there by giving greater weightage.

Service Tax Exemption for Rice

• Finance Minister P Chidambram has announced that service tax would be abolished on rice from the staple’s loading to storage stage.

• Rice was originally exempt from service tax. However, later the Finance Ministry had said that only paddy is agri-produce, while rice is a processed item.

• Presenting the interim budget for 2014-15 fiscal, Mr. Chidambram said that by virtue of the definition of ‘agricultural produce’ in Finance Act 2012, read with the Negative List, storage or warehousing of paddy was excluded from the levy of service tax. Rice was not. The distinction is somewhat artificial. Hence, I propose to exempt loading, unloading, packing, storage and warehousing of rice from service tax.”

• The FM’s decision comes following pressure from Tamil Nadu Chief Minister Jayalalithaa who had shot off a letter to Prime Minister Manmohan Singh seeking his personal intervention in the issue. She had also sought to remit and return the already levied service tax since July 1, 2012.

China and Pakistan’s “economic corridor”

• The economic corridor, envisages expanding road links, building railway lines and installing energy pipelines linking Xinjiang with the Gwadar port in Pakistan.

• Some Chinese companies have voiced concern about stability and security in Pakistan, while violent attacks in southern Xinjiang, located next to the PoK border, have been blamed by local officials on terror outfits with links to Pakistan-based groups.

World’s top importer of Gold

• Chinese demand for gold bars, coins and jewelry soared by 32% to record levels in 2013, even as the price of gold slumped 28%.

• The surge in buying saw China overtake India as the world’s top consumer of physical gold, importing 1,066 metric tons of the metal to India’s 975 metric tons in 2013, according to new data from the World Gold Council. (A metric ton is equal to about 2,240 pounds.)

• In India, consumption increased by 13% but further growth was curbed by import restrictions aimed at narrowing the country’s current-account deficit. The council estimates around 200 metric tons was smuggled into the country.

• China’s lead over India as the world’s top importer is likely to be sustained.

Changes in excise duty

• The Interim Budget has some good news and some bad for consumers. Two-wheelers and cars will be cheaper while low-end mobile phones will be a bit more expensive due to changes in excise duty.

• Auto-makers, including Tata Motors, Hyundai, Maruti Suzuki and Honda Cars India, have already announced that they would be passing on the benefits of the excise duty cut to the consumer.

• Mobile phones that cost less than Rs. 2,000 are set to cost more after Mr. Chidambaram’s decision to levy a uniform excise duty on phones across price bands.

Burden of student loan eases

• With an eye on the country’s youth bulge, Union Finance Minister P. Chidambaram has proposed a moratorium period for all education loans taken up to March 31, 2009, and outstanding at the close of the 2012-13 fiscal. However, such student-borrowers – estimated to be in the vicinity of nine lakh — would have to pay interest for the period beginning January 1, 2014.

• Of the view that such students “deserve some relief’’, the Minister said Rs. 2,600 crore would be set aside in the current financial year itself for the purpose. This will be transferred to Canara Bank which is the designated banker for the Central Scheme for Interest Subsidy (CSIS).

• Dwelling at some length on the CSIS with respect to education loans, Mr. Chidambaram said the Government had introduced this in the 2009-10 Budget to take over the burden of interest for the duration of study and a little beyond from April 1, 2009.

Future of Telangana economy

• Post bifurcation of Andhra Pradesh, the information technology and pharmaceuticals manufacturing sectors may become backbone of Telangana economy, leaving power production, ports and oil and natural gas to play a pivotal role in driving prosperity in the residuary state.

• With nearly 1,000km-long coast line, the coastal Andhra has major private ports such as Krishnapatnam, Kakinada and Gangavaram, besides state-owned Vizag Port and can continue to reap rich harvest by way of export and import of commodities such as iron ore and coal.

• According to experts, Telangana is likely to face power shortage of up to 2,000 MW after the state is formed. Of the 8,924.86 MW installed capacity of state power utility APGenco, about 54 per cent (4,825 MW) is located in Telangana, while 46 per cent is in the Seemandhra region.

• However, 52 per cent capacity in Telangana lies in hydro power, which is available only when reservoirs receive good inflows, while just 48 per cent capacity is available through coal-fired power plants.

First ‘Auto City’ in India

• The Tamil Nadu government will set up an ‘Auto City’, considered a first of its kind initiative under the automobile and auto component policy launched by Chief Minister Jayalalithaa.

• It will be under the theme ‘Tamil Nadu, the Partner in Automotive Sector Investment’.

• The state government would form an Automotive Industrial Development Centre offering investment facilitation services to companies willing to invest in the automotive industry.

• It said AIDC would help the government put in place appropriate policy framework. It would also support and facilitate its implementation and interventions aimed at making Tamil Nadu a destination for manufacture and export of motor vehicles.

• As per AIDC, the government would set up an “Auto City”, a state-of-the-art over 1,000 hectare industrial park as a JV for domestic and global automotive and auto-component firms.

• Tamil Nadu accounts for 35 per cent of India’s auto component production worth USD 6.2 billion.

• Aimed at making Chennai one of the top five global auto-clusters, the state government unveiled the first of its kind automobile policy, an industrial policy and second volume of ‘Tamil Nadu Vision 2023’.

Online education category launched by Snapdeal

• Online marketplace Snapdeal has announced foray into services space with the launch of ‘online learning and education’ category.

• The platform will enable consumers to access a wide assortment of test preparation material, certificate courses, classroom training and online coursesand it will include preparing for the civil services entrance examination, certification in Java, Microsoft or wealth management, among others.

• Brands such as Edukart, Simplilearn, Meritnation, EasySkillz, Practice Guru and Test Funda have already listed their e-learning packages on the site.

Bitcoin banned in Vietnam

• Vietnam banned the virtual currency bitcoin, citing its ease of use for criminal purposes and its high risk for investors.

• Transaction by bitcoin is highly anonymous so bitcoin can become a tool for crimes like money laundering, drug trafficking, tax evasion, illegal payment.

• It did not outline punishments for violations of the ban. Online access to several popular bitcoin trading sites overseas appeared to be blocked.

• The sudden closure of one of the largest bitcoin exchanges this week in Japan has raised concerns about the future of the digital currency.

• Voltas and Dow Chemical Pacific’s Joint venture

• Voltas and Dow Chemical Pacific (Singapore) Pte Ltd. have agreed to set up a joint venture company in India to tap the growing water and waste water treatment market. The proposed new company, Voltas Water Solutions Private Ltd., will be an equal partnership joint venture.

• The company will market and distribute standard packaged water treatment systems and waste water treatment systems to residential and commercial complexes and light industrial markets.

• The entity’s operations would include designing, procuring, testing, marketing, selling and servicing of such standard water treatment systems and waste water treatment systems.

Foreign currency deposit rates lifted in China

• ¨ In a move to further liberalise foreign currency deposits, China’s central bank said it will remove interest rate ceilings on smaller foreign-currency deposits in Shanghai Free Trade Zone from March 1 as part of long-anticipated financial reforms.

• ¨ Deposits of less than USD 3 million owned by businesses and agencies registered in the zone or by individuals who have worked in the zone for more than one year will receive the same rate of interest, the Shanghai branch of the People’s Bank of China.

• ¨ Currently, regulatory caps apply to one-year or other shorter-term deposits in US dollars, Japanese yen, euros and Hong Kong dollars.

• ¨ China launched the Shanghai pilot free trade zone last year as a part of its new set of fiscal reforms to halt the economic slowdown and revitalise the world’s second largest economy.

VIX futures

• The National Stock Exchange has launched trading of futures tied to its VIX volatility index, known as the “fear gauge,” providing a key hedging tool against uncertainty ahead of general elections and weaker global market sentiment.

• The futures are tied to VIX, which is modeled on the Chicago Board Options Exchange’s popular index and measures expected near-term volatility for shares based on prices of options.

• Traders expect strong demand for VIX futures, including for speculative trading, even though recent launches by India’s largest exchange of other products, such as a listing platform for small and medium-sized companies, failed to gain much traction.

• India’s broader VIX index, which was launched in April 2008 under license, has become a popular barometer of sentiment for domestic investors.

FY’15 growth pegged at 5.5%

• Stating that the forthcoming elections will delay the reform process and hurt growth, international rating agency Moody’s said that  it expects growth to pick up to only 5.5 per cent in FY’15.

• Growth has been below the trend for much of FY’14 and the government’s official estimate pegs it at 4.9 per cent, a bit higher than 4.5 per cent achieved in FY’13. Elections are scheduled for April-May.

• The agency also gave a negative outlook for non-financial corporates in 2014 on weak economy, political uncertainty and effects of the US Fed’s tapering.

• It specifically said domestically focused sectors like real estate, cement, automotive, steel, metals and mining, and retail which are dependent on “vagaries of regulation and policy-setting” have negative outlooks.

Asia Pacific’s biggest market for biz jets

• India has emerged as the biggest fleet owner of business aircraft in the Asia Pacific surpassing China with business houses and high net worth individuals (HNIs) acquiring aircraft.

• Even during the economic slowdown period of 2008- 12, Indian businessmen purchased 38 per cent more aircraft than the previous five years as per estimates by Beechcraft Corporation.

• As per latest data from Beechcraft, 65 business aircraft were delivered in India between 2008 and 2012, up from 47 in the previous five years. This was compared to 119 delivered in China, 19 in Japan, 47 in Hong Kong and 10 in South Korea.

• Quoting Knight Frank Wealth Report 2013, Beechcraft said the number of wealthy businessmen (HNIs) in India would double from 8,481 in 2012 to 17,032 in 2022. During the same period, the number of HNIs in China will grow 137 per cent from 10,849 to 25,660.

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