May 2013

CCI approves Five Oil,Gas Blocks Operations

The Cabinet Committee on Investment (CCI) on 21 March 2013 cleared Reliance Industries’ (RIL) KG-D6 and NEC-25 blocks for oil and gas exploration along with three other areas. The work on these blocks, which has an investment close to 10.7 billion has dollars, was having difficulties because of inter-ministerial differences, particularly relating to Defence issues. Eight blocks, including RIL’s Krishna Godavari basin KG-D6 block and gas discovery area of NEC-25 in the North East Coast (NEC) region, were declared No-Go zones for reasons relating to defence issues raised by the Indian Navy, and the Indian Air Force. An approval for eight blocks, was Sought by the Petroleum and Natural Gas Ministry of which one was already renounced by the contractor, Reliance Industries Ltd. Out of the remaining seven, conditional clearance for four blocks – two of Reliance Industries, one each of ONGC consortium and Cairn India – were sought. The Ministry had also sought CCI approval to declare three blocks as ‘no go’ areas. Two blocks belonged to the ONGC-led consortium and one to the Oil India Ltd-led consortium. The CCI, headed by Prime Minister Manmohan Singh, was set up to fast-track clearances to infrastructure projects involving investments of over 1000 crore rupees.

Authorized Capital of NABARD Raised

The Union Cabinet of India approved raise in the authorized capital of National Bank for Agriculture and Rural Development, Nabard to 20000 crore rupees from 5000 crore rupees.

The authorized capital was increased with the aim to enlarge the operations and broadening the activities of NABARD.

10 Rupees Plastic Notes in 5 Cities

The Union Government and RBI on 12 March 2013 decided to introduce one billion pieces of 10 Rupees bank notes made of plastic on a field trial basis in five. A 10 Rupees note in polymer/plastic on a field trial basis will be introduced first; Minister of State for Finance Namo Narain Meena said it in a written reply to the Rajya. The field trail is supposed to be conducted in five cities of Kochi, Mysore, Jaipur, Bhubhaneswar and Shimla with varied geographical locations and climatic. As per the RBI, the primary objective of introduction of polymer notes is to increase its life, it could also help in combating counterfeiting. Various agencies such as the RBI, Ministry of Finance, Ministry of Home Affairs, Security and Intelligence Agencies of the Centre and States, Central Bureau of Investigation are already working in tandem to thwart the illegal activities related to Fake Indian Currency Notes (FICN). The work of these agencies is periodically reviewed by a nodal group set up for this purpose.

RBI Cuts Repo Rate by 25 Base Points

The Reserve Bank of India (RBI) on 19 March 2013 cut the repo rate by 25 basis points to 7.5 per cent from 7.75 percent in its mid-quarter review of the monetary policy. The change of the Repo rate is aimed to prompt growth and revive investment. Consequently, the reverse repo rate under the LAF stands adjusted to 6.5per cent from the earlier 6.75 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 8.5 per cent with immediate effect. The Cash Reserve Ratio (CRR) has been retained at 4 per cent. It is for the second time since the start of the year RBI has cut down the repo rate in a bid to help revive flagging growth in Asia’s third-largest economy. RBI has also warned that its scope for further policy easing is limited. The RBI will continue to actively manage liquidity through various instruments, including open market operations, so as to ensure adequate flow of credit to productive sectors of the economy. With the change in Repo rate, the Reserve Bank of India also announced infusion of 10000 crore rupees into the financial system by purchasing government securities as part of its liquidity injection measure. The Indian economy expanded at a 25-quarter low of 4.5% in October-December 2012 quarter, and the 2.4% rise in industrial production in January 2013 after two months of contraction suggests the recovery is still weak. The current account deficit hit a record-high 5.4 per cent in the September quarter and is expected to end the 2012/13 fiscal year at its highest level ever.

What is Repo Rate?

The rate at which the RBI lends money to commercial banks is called repo rate. It is an instrument of monetary policy. Whenever banks have any shortage of funds they can borrow from the RBI. A reduction in the repo rate helps banks get money at a cheaper rate and vice versa.

What is Reverse Repo rate?

Reverse Repo rate is the rate at which the RBI borrows money from commercial banks. An increase in reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool which can be used by the RBI to drain excess money out of the banking system.

What is cash Reserve Ratio?

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks comes down. The RBI uses the CRR to drain out excessive money from the system.

Highlights of the RBI Quarterly Monetary Policy Review:

• Repo rate changed to 7.5 Percent from 7.75 Percent

• CRR Remain Unchanged at 4 Percent

• Reverse repo rate changed to 6.75 percent from earlier 6.5 Percent

• Marginal standing facility (MSF) rate – 8.5 Percent

• Bank Rate to 8.5 per cent

CCEA approved Increase of MSP of Copra

The Cabinet Committee on Economic Affairs approved increase in the Minimum Support Price (MSP) for 2013 season of both Milling and Ball Copra by 150 rupees per quintal over the MSP that was regulated in 2012. The MSP for the Fair Average Quality (FAQ) of Milling Copra is fixed at 5250 rupees per quintal, and for the Ball Copra it is 5500 rupees per quintal. The decision from government of India may ignite the interests of the farmers to invest in cultivation of coconut to increase its productivity. Government also cleared that National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED) is the body that will act as the nodal agency for undertaking the price support operation at the minimum support prices in the coconut growing states.

Exports of India Increased By 0.8 Per Cent

The exports of India increased by 0.8 percent in the month of January 2013 to 25.58 billion US dollars. Comparatively, exports in January 2012 were 25.37 billion US dollars. Imports on the other hand, increased by 6.12 percent to 45.5 billion US dollars. During April to January 2012-2013, the overseas shipments of India dropped by 4.86 percent to 239.6 billion US dollars. The main concern for the country is however to widen the trade deficit. As a cumulative result, the exports depicted an arrest in decreasing exports. Now, the result is -4.9 percent. Import of crude oil was growing at a faster pace. Oil imports in January 2013 increased by 6.91 percent to 15.89 billion US dollars in comparison to 14.87 billion US dollars in January 2012.

BHEL and GAIL Granted Maharatna Status

The Union Government of India gave the Maharatna status to two PSUs- BHEL and GAIL on 1 February 2013. Granting Maharatna status to BHEL and GAIL will provide them with better functional and financial freedom and will also guarantee them with better valuation of the shares. Ideally any Maharatna firm has a capacity to take investment decision of around 5000 crore Rupees without taking assistance from the government. On the other hand, forms with Navratna status have the capability of 1000 crore Rupees. However, both BHEL and GAIL do not have enough non-official directors on the board, which is why they cannot exercise their Maharatna powers. Even though all other conditions of Maharatna status were met by both these PSUs but their boards do not have requisite number of board members. While GAIL is short of 4 independent directors, BHEL, on the other hand is short of 6 non-official directors. In terms of turnover, networth as well as net profit, both these companies meet all the eligibility criterions.

Eligibility of a Company to get a Maharatna Status

• For any company to qualify for Maharatna status, the annual turnover should be over 25000 crore Rupees in past three years, as per the guidelines issued by Department of Public Enterprises.

• The net worth of the PSU should be more than 15000 crore Rupees in past three years.

• The net profit should be over 5000 crore Rupees during past three years.

At present, there are seven Maharatna companies, after inclusion of BHEL and GAIL and these companies are - ONGC, Indian Oil, SAIL, NTPC and CIL. Also, there are 14 Navratna companies, including Rashtriya Ispat Nigam Limited and NMDC.

Price Pooling Mechanism on Coal

The Cabinet Committee on Economic Affairs (CCEA) gave its principle approval for the price pooling mechanism of coal. The mechanism includes cost blending of the domestic coal with the imported one to counterbalance price hike. Basic principles and parameters of the price pooling mechanism have been identified and a specific data on the same would be created by the Power and Coal Ministries. The mechanism has been created before government decided to put on sale the 9.5 percent stake of the National Thermal Power Corporation (NTPC) from its present holding of 84.50 percent. The sale of the stake was approved by the Empowered Group of Ministers on disinvestment chaired by Finance Minister P Chidambaram on 5 February 2013. This disinvestment of NTPC would fetch about 12000 crore rupees for the exchequer.

World Bank Estimated a growth of over 6 Percent

The World Bank in the month of March 2013 forecasted that the Indian economy is estimated to grow over 6 per cent during 2013-14. World Bank Chief Jim Young Kim, who is on a three-day visit to India asserted that India is estimated to have grown 5 percent in the current fiscal and the growth rate is likely to improve to 6.1-6.7 percent in 2013-14. The Indian economy, like any other economy, is subject to global slowdown. It has effect here and at the same time, the export market has started doing better. On the positive node, it also had be seen that share of India in global economy almost doubled in five years between 2005 and 2010. Kim is on his first visit to India after taking over as President of World Bank Group in July 2012.

Penalty on Rajasthan Royals

The Enforcement Directorate (ED) slapped the IPL team Rajasthan Royals with a penalty notice of around 100 crore Rupees for violating the Forex laws. ED issued this penalty notice after investigating the matter for 2 years under the Foreign Exchange Management Act (FEMA).

Three notices in all were sent across to the IPL franchise which totaled to 98.5 crore Rupees. The Jaipur IPL Cricket Private Limited (JIPL) as well as its directors was sent a penalty notice of 50 crore Rupees. Apart from this, 34 crore Rupees penalty notice was issued against EM Sporting Holding, Mauritius and its directors for evading the Forex duties. A notice of 14.5 crore Rupees was also issued additionally against the Ms ND Investments, United Kingdom and its directors. All these three parties are free to appeal against the penalty order in appellate authority of FEMA. According to the order, IPL team needs to make the payment in 45 days. This is said to be the first biggest order against any team issued by the ED. According to the penalty order, it was found that the foreign investment in JIPL was conducted in flagrant contravention of FEMA. The first penalty order was issued by ED against the Rajasthan Royals in mid-2011. Now, it issued the final orders after it moved to FEMA Adjudicating Authority in Delhi in order to examine investigations in the case.

Coal India signed Fuel Supply Pacts with 56 Power Plants

The Union government on 12 March 2013 informed that state-run Coal India Ltd. (CIL)signed fuel supply pacts with 56 power plants so far. Minister of state for coal, Pratik Prakashbapu Patil in his written reply to Lok Sabha mentioned that, Coal India Ltd has signed 56 fuel supply agreements (FSAs) with the power plants as on 2 March 2013. It is important to note that the deadline set by the Prime Minister’s Office (PMO) for signing of FSAs between CIL and power producers expired in January 2013. Chief vigilance officer replying to a question regarding CIL’s highlighted irregularities in awarding of FSAs.

CIL observed certain inadequacies in the documents of 11 cases, during verification of the documents in respect of milestone achievement of LoAs (letter of assurance). It was also affirmed by the minister that appropriate action would be taken in this regard by CIL’s subsidiaries to ensure that all due procedures are observed. Minister of state for coal stated that there is a proposal to engage an independent third party sampling agency by CIL for consumers having FSAs.

India’s Trade Deficit was estimated at 167168.12 Million US Dollars

As per the data released by Union Ministry of Commerce and Industry on 13 February 2013, India’s performance in export and import are as following:

Exports

Exports during January, 2013 were valued at 25587.24 million US dollars. (138981.70 crore rupees) which was 0.82 per cent higher in Dollar terms (6.67 per cent higher in Rupee terms) than the level of 25379.05 million US dollars (130294.02 crore rupees) during January 2012. Cumulative value of exports for the period April-January 2012 -13 was 239687.01 million US dollars (1305420.39 rupees) as against 251930.14 million US dollars (1196962.33 crore rupees) registering a negative growth of 4.86 per cent in Dollar terms and growth of 9.06 per cent in Rupee terms over the same period 2011-12.

Imports

Imports during January, 2013 were valued at 45583.25 million US dollars (247593.63 crore rupees) representing a growth of 6.12 per cent in Dollar terms and 12.28 per cent in Rupee terms over the level of imports valued at 42952.47 million US Dollars ( 220514.54 crore rupees) in January 2012. Cumulative value of imports for the period April-January 2012-13 was 406855.13 million US dollars (2215115.46 crore rupees) as against 406820.28 million US dollars (1934946.96 crore rupees) registering a positive growth of 0.01 per cent in Dollar terms and growth of 14.48 per cent in Rupee terms over the same period 2011-12.

Crude Oil and Non-oil Imports

Oil imports during January, 2013 were valued at 15899.3 million US dollars which was 6.91 per cent higher than oil imports valued at 14871.2 million US Dollars in the corresponding period last year. Oil imports during April-January, 2012-13 were valued at 140420.1 million US dollars which was 11.56 per cent higher than the oil imports of 125874.2 million US dollars in the corresponding period last year. Non-oil imports during January 2013 were estimated at 29684.0 million US dollars which was 5.71 per cent higher than non-oil imports of US 28081.3 million in January 2012. Non-oil imports during April – January 2012-13 were valued at 266435.0 million US dollars which was 5.17 per cent lower than the level of such imports valued at 280946.1 million US dollars in April - January 2011-12.

Trade Finance

The trade deficit for April - January 2012-13 was estimated at 167168.12 million US dollars which was higher than the deficit of 154890.14 million US dollars during April -January 2011-12.

Economic Growth of India Estimated to Fall To 5 Percent in 2012-2013 FY

The Central Statistics Office (CSO) on 7 February 2013 revealed that the economic growth of India is estimated to fall to 5 percent in 2012-2013 financial year, which is a lowest figure in 10 years. A fall in the economic growth is because of the poor performance of the services, agriculture and manufacturing sectors. The Central Statistics Office (CSO) in its advance forecast of the national income chopped off the gross domestic product (GDP) growth estimate to 5 percent for financial year which will end on 31 March 2013. This is much less than the GDP of 6.2 percent in 2011-2012 financial year. This is said to be the worst performance of economy of India since 2002-2003 when the economic growth was 4 percent. The major share of India’s GDP comes from the services sector. The services sector is estimated to record a growth of 5.2 percent in 2012-2013 fiscal year against 7 percent of 2011-2012 fiscal year.

As far as the industry sector is concerned, it is expected that the growth would decrease to 1.9 percent in 2012-2013 FY. The farm sector growth will fall down to 1.8 percent. It is important to note that the official projection of the economic growth of India is much lower than budgetary estimate as well as projections of the central bank of India and other organisations. In the union budget for financial year 2012-2013 which was presented in March 2012, the government pegged India’s economic growth at 7.6 percent. Also in the quarterly monetary policy review which took place in the first week of February 2013, the Reserve Bank of India projected the growth of 5.5 percent for 2012-2013 financial year. In the meanwhile, Finance Minister P. Chidambaram had projected the economic growth of 5.7 percent. In first half of 2012-2013 FY, the economy of India grew by 5.4 percent. However, as per the latest estimate, the growth would be around 4.6 percent in second half of 2012-2013. Industry bodies in the meanwhile asked the government to press for the reform process in order to revive the economic growth.

Memu Coaches Manufacturing Facility at Bhilwara

Memorandum of Understanding (MoU) was signed on 25 February 2013 between Indian Railways and Bharat Heavy Electricals Ltd (BHEL) for setting up of Greenfield MEMU coaches manufacturing facility by BHEL at Bhilwara in Rajasthan. Main Line Electric Multiple Unit Trains, popularly known as MEMU trains were first introduced in Indian Railways in the Year 1994-95, as a mode of rapid transit system, to cater to non-suburban passengers, residing in small towns and villages surrounding urban and industrial centres.

MEMU trains have higher passenger carrying capacity and higher average speed as compared to conventional loco hauled passenger trains due to faster acceleration and braking characteristics. These rakes are now being manufactured with toilet facilities to take care of passenger needs. MEMU trains increase the line capacity utilisation, and therefore are more suitable for running on high traffic density routes.
These MEMU trains have gained rapid popularity over the years. Currently, there are about 160 MEMU services running. There are demands coming from all over the country for running more and more MEMU trains. The demand for these coaches will further increase as Indian Railways have plans to Electrify approximately 15000 route kilometre during the next 10 years, in addition to the existing 22000 route kilometre of electrified track. There was a shortfall in acquisition of 800 MEMU coaches during XIth Plan Period due to capacity constraints at Rail Coach Factory, Kapurthala, where these MEMU coaches are produced. Overall it is expected that the requirement of MEMU coaches will grow to nearly 9000 coaches during the next 10 year period. Setting up of factory for conventional MEMU coaches will go a long way in meeting this demand.
Bharat Heavy Electricals Limited (BHEL) is a Maharatna Central Public Sector Unit (CPSU) company, which is a partner of Indian Railways for a period spanning more than 40 years. It has been manufacturing and supplying electric rolling stock including EMUs and MEMUs; as well as sub-assembly and equipment for rolling stock being manufactured at IR’s own production units. The proposed facility for production of MEMU coaches will be set up by Bharat Heavy Electricals Limited (BHEL) at Bhilwara in the State of Rajasthan. The entire cost will be borne by BHEL. Government of Rajasthan will provide land to Railways, for setting up the project. In order to make the project viable, Ministry of Railways will give Assured Off- Take orders to BHEL.

Railway Revenue Earnings Increased by 20.38 Per Cent

The total approximate earnings of Indian Railways on originating basis during 1 April 2012 to 31 January 2013 were 101223.95 crore rupees compared to 84083.74 crore rupees during the same period last year, registering an increase of 20.38 per cent, as per the data released by Ministry of Railways.

• The total goods earnings have gone up from 56163.30 crore rupees during 1 April 2011 – 31st January 2012 to 70067.36 crore rupees during 1 April 2012 – 31 January 2013, registering an increase of 24.76 per cent.

• The total passenger revenue earnings during 1 April 2012 – 31 January 2013 were 25924.29 crore rupees compared to 23344.42 crore rupees during the same period last year, registering an increase of 11.05 per cent.

• The revenue earnings from other coaching amounted to 2617.19 crore rupees during April 2012 - January 2013 compared to 2353.54 crore rupees during the same period last year, an increase of 11.20 per cent.

• The total approximate numbers of passengers booked during 1st April 2012 – 31st January 2013 were 7150.60 million compared to 6910.00 million during the same period last year, showing an increase of 3.48 per cent. In the suburban and non-suburban sectors, the numbers of passengers booked during April 2012 -January 2013 were 3753.32 million and 3397.28 million compared to 3651.70 million and 3258.30 million during the same period last year, showing an increase of 2.78 per cent 3.48 per cent respectively.

Indian Financial Regulators signed pact to Monitor Conglomerates

The country’s top four financial regulators on 8 March 2013 signed an agreement among each other for co-operation on consolidated supervision and monitoring of financial groups identified as financial conglomerates- large banks and other key players. The decisivenesses were taken at a sub-committee meeting of the Financial Stability and Development Council (FSDC) held in the Reserve Bank. The regulators who signed the pact were the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority and Pension Fund Regulatory and Development Authority. The FSDC (Financial Stability and Development Council) meeting, chaired by RBI Governor D Subbarao also approved formulating a national strategy for financial education by incorporating the feedback received from public consultations and from a global peer review, RBI said without providing details. RBI had on 22 February 2013 released rules on allowing companies to start banks in India and such coordination among regulators is needed for effective supervision.

Inflation goes Down to Three Years Low

The inflation rate of India dropped down to the three year low in the chart to 6.62 percent in January 2013 from the 7.18 percent, measured in December 2012. The inflation was measured based upon monthly Wholesale Price Index. The official Wholesale Price Index for All Commodities (Base: 2004-05 = 100) in January, 2013 rose by 0.4 percent to 169.2 (Provisional) from 168.6 (Provisional) for the previous month. Slowing exports and decline in investments and low demand in the domestic market have been a major factor in slipping down the growth rate of India. The two factors have affected the manufatruing as well as service sectors of India. The growth forecast for the running fiscal year that would end on 31 March 2013 was lowered by the India’s Statistical Office to 5 percent. The Reserve Bank of India also changed its forecast from 5.8 percent to 5.5 percent. To revive a fresh air in the slowing down economic conditions of India, the Reserve Bank took a major step of lowering the key interest rate from 8 percent to 7.75 percent; this was the first step in nine months. The Policy makers have also taken afresh steps to revive the slowing economic conditions of the nation.

Teledensity declined by 25.97 Million

As cellphone operators continued disconnecting inactive SIM cards, India’s total telecom subscriber base declined by 25.97 million to 895.51 million in December. In November, the country had 921.47 million telecom subscribers. Telecom Regulatory Authority of India(TRAI) stated that total wireless subscriber base decreased from 890.60 million in November 2012 to 864.72 million at the end of December 2012. TRAI reasoned that this decline is majorly due to large scale disconnections of inactive SIMs by some of the service providers. With this, the overall teledensity in India decreased to 73.34 per cent at the end of December, 2012 from 75.55 per cent in the previous month.

Export of Additional 5 Million Tonnes of Wheat approved

The Union Government of India on 7 March 2013 approved export of extra five million tonnes of Wheat from its Godowns. The group of ministers in its meeting also decided that the added quantity of 5 million tonnes of wheat shall be exported by the private traders. It also cleared that the public sector trading firms will not be a participant in export of the additional quantity of wheat.

The GoM (Group of Ministers) have also decided that bidding process would be used by the Private traders to export the 2011-12 crop and the floor price decided for per quintal is 1480 rupees. For the present fiscal, the permitted export of wheat from the godowns of the Food Corporation of India now stands at 9.5 million tonnes.

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