ECONOMY AFFAIRS APRIL 2014

ECONOMY AFFAIRS APRIL 2014

• Rajeev Suri was appointed as the President and CEO of Nokia Corporation on 29th April 2014. The appointment was announced by the directors of Nokia. He took the charge as President and CEO of Nokia on 1st May 2014. The US giant, Microsoft acquired the Nokia’s handset business for 7.2 billion US dollar on Rajeev Suri (46) studied Electronics and Telecommunications Engineering from the Manipal Institute of Technology, India.
  
• Bharat Heavy Electricals Ltd. (BHEL) on 30th April signed an agreement with Yemen’s Ministry of Electricity and Energy for setting up solar photovoltaic (PV)-based power plants at different locations in the Yemen. The agreement was signed by BHEL Chairman and Managing Director B. Prasada Rao and Yemen’s Minister of Electricity and Energy Saleh Hassan Sumie. The move will help India’s BHEL to further consolidate its position in the overseas market. BHEL is presently executing a 400-MW gas turbine-based power plant, Marib Phase-II, in Yemen.
  
• National Council of Applied Economic Research (NCAER) on 30th April projected a 5.1-5.5 per cent economic growth in 2014-15 for India. It also forecast 6.1 per cent inflation based on wholesale prices in the current fiscal. The fiscal deficit is estimated at 4.5 per cent of GDP.
  
• A European Union wide ban on mangoes from India has come into force on 1st May. It halts imports into the UK until December 2015. The ban also includes aubergines, two types of squash, and a type of leaf used in Indian cooking. The UK imports around £6.3m worth of Indian mangoes per year out of a UK mango market worth £68m in total. Non-European food pests were found in 207 shipments of fruit and vegetables in 2013. Local prices for mangoes fell around 15% in the few days before the ban came into force. The UK imports a total of 56,205 tonnes of mangoes per year, of which 4,816 tonnes, or 8.5%, come from India. 
  • Shipments of mangoes were suspended into Europe after consignments were found to be infested with fruit flies.
  • Premium Alphonso mangoes are much popular in the UK, and severely affected by this ban.
    
• The country's largest IT services provider, Tata Consultancy Services (TCS) on 21st April entered into the top 10 global IT services companies league. TCS moved from the 13th position in 2012 to the 10th spot in 2013. TCS is estimated to have IT services revenues of $10.1 billion. 
  • India-based companies Cognizant, Infosys, Wipro and HCL are at the 15th, 18th, 20th and 25th positions, respectively.
  • Top four companies’ are- IBM ($54.4 billion), Fujitsu ($32.1 billion), Hewlett-Packard ($29.2 billion) and Accenture ($25.4 billion) lead the list.
    
• India’s leading fertiliser cooperative IFFCO on 18th April, said that its subsidiary had received permission from the provincial government of Quebec to set up a $ 1.6 billion urea plant. The proposed facility will have a production capacity of upto 1.6 million tonnes of urea and 7, 60,000 tonnes of diesel exhaust fluid (DEF).The cooperative will now focus on the development and construction of the facility. In January 2013, IFFCO’s Canadian subsidiary acquired the land for the plant. The site is at Bncour Port and Industrial Park, which provides access via land, rail and water to markets across North America. The deep-water port will also facilitate exports, especially to markets in Europe. 
  • Quebec province is the Canada’s largest province and it is located in the east-central region of the country.
  • IFFCO Chairman and Managing Director U S Awasthi.
    
• The Gujarat High Court on 25th April, restored the RBI's power to decide the period after which a bad loan can be called a non-performing asset (NPA). The Gujarat High Court told that section 2(1)(o) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act is held unconstitutional. The High Court also observed that the Parliament was wrong in taking the power to decide NPA guidelines away from RBI.
  • Before the amendment in 2004 to the Act, RBI was the regulator for the banking, non-banking institutions and securitization agencies for deciding the period after which the loans can be treated as NPA.
  • Till 2004, RBI had set the NPA period for banks at 90 days, and at 180 days for NBFCs. But with the amendment, the financial institutions became free to have their own regulations for NPA. The NPA period was decided separately by each firm.
    
• Mauritius which is well-known as the biggest gateway for flow of funds into India has dropped to the second place after the US, in terms of quantum of money being brought in by overseas investors into Indian markets. According to the latest data available with the SEBI, the US accounted for the largest block of 'assets under custody' of foreign institutional investors(FII’s) investing in the Indian equity and debt markets at the end of 2013 with over Rs 4.37 lakh crore worth funds. The US was followed by Mauritius with over Rs 3.31 lakh crore worth assets under custody (AUC) of FIIs. According to the government data, the Foreign Direct Investment inflows from Mauritius have also fallen sharply on fears of possible re-negotiation of the tax avoidance treaty between the two countries. The FDI from Mauritius almost halved during April-January period of last fiscal, 2013-14, to close to $4 billion, from over $8 billion in the same period of 2012-13.
  • Mauritius was on the top with AUC of over Rs 3.51 lakh crore at the end of 2012, while the US came second with Rs 3.42 lakh crore.
  • During 2013, the assets brought in by the FIIs into the Indian markets from the US increased significantly, while the fund-flow from Mauritius declined amid concerns about suspected money-laundering though the Mauritius.
  • Among the top-ten countries in terms of AUC of FIIs and their sub-accounts registered in India are—1)USA 2) Mauritius 3) Singapore 4) Luxembourg 5) The United Kingdom 6) The UAE 7) Norway 8)Netherlands 9) Canada and 10)Australia.
  • Mauritius has been one of the biggest sources of FDI into India, which attracted inflows of $77.77 billion FDI from that country between April 2000 and January 2014.
    
• The European Parliament on 15 April 2014 approved the Banking Union reforms. The banking reforms provides for a set of rules to supervise the euro zone banks and deal with any future failures. The Banking Union reforms are essential for the monetary union of the Euro single currency whose very existence came under threat as the debt crisis forced Greece and then Ireland and Portugal to seek massive international bailouts in the recent past.
  
  To establish a new oversight system known as the Single Supervisory Mechanism (SSM) under the European Central Bank (ECB), the new scheme will become operational from November 2014. A fund of 55 billion Euros (76 billion dollars) will be set up to cover the cost of closures. The fund will be paid by a levy on the banks. Lenders must comply with stricter rules of conduct and capital levels. The aim is to limit the amount of risk a lender can take on and to ensure that shareholders and creditors shoulder the cost of any rescue, not the taxpayer.
  
  About EU-
  • The European Union (EU) is an economic and political union of 28 member states that are located primarily in Europe. The EU operates through a system of supranational independent institutions and intergovernmental negotiated decisions by the member states. 
  • The EU has 7 institutions- the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, the European Parliament, the European Central Bank, the Court of Auditors. The European Parliament is elected every five years by EU citizens.
  • The EU was the recipient of the 2012 Nobel Peace Prize.
  • The European Union membership-28.Czech republic joined as 28th nation on 1 July 2013.
  • President of the European Council is Herman Van Rompuy.
  • European Commission President is Jose Manuel Barroso.
    
• The World Bank on 9th April, projected an economic growth rate of 5.7 per cent in fiscal year 2014 for India. World Bank estimated the growth rate with activity receiving a boost from a more competitive exchange rate and many large investment projects going ahead to the nation. The World Bank published this in its latest edition of ‘South Asia Economic Focus.’ The World Bank report said in India the problem was the banking sector’s growing exposure to company debt.
  
• IMF in its latest edition on the World Economic Outlook released on 8 April, estimated India’s economic growth is recovered from 4.4 per cent in 2013 to 5.4 per cent in 2014. In 2012, India’s growth rate stood at 4.7 per cent.IMF estimations was supported by slightly stronger global growth, improving export competitiveness and implementation of recently approved investment projects, a pick-up in exports in recent months and measures to curb gold imports.IMF also said consumer price inflation was expected to remain an important challenge, but should continue to move onto a downward trajectory. Policymakers in India must also concentrate on structural reforms to support investment, which has slowed markedly. IMF outlook also projected India’s growth rate to increase to 6.4 per cent in 2015. IMF estimated for Asia as a whole, growth is expected to accelerate, from 5.2 per cent in 2013 to about 5.5 per cent in 2014 and 2015.
  • The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries.
  • It is working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
  • The IMF's stated goal was to assist in the reconstruction of the world's international payment system post–World War II. Countries contribute funds to a pool through a quota system from which countries with payment imbalances temporarily can borrow monies and other resources.
  • Member nations- 188 countries
  • It is headquartered in Washington D.C., United States.
  • Managing Director-Chritine Lagarde
    
• India's exports grew by 3.98 per cent to 312.35 billion US dollars in Financial Year 2013-14 while imports decreased by 8.11 per cent during the period. Imports declined to over 450.94 billion dollars. It narrowed the trade deficit to USD over 138 billion dollars in the last fiscal. In 2012-13, financial year, trade deficit stood at USD 190.33 billion dollars. However, in March exports contracted by 3.15 per cent to 29.57 billion dollars and imports fell by 2.11 per cent to 40 billion dollars as compared to the same period last year.
  • Trade Deficit is an economic measure of a negative balance of trade in which a country's imports exceeds its exports.
  • A trade deficit represents an outflow of domestic currency to foreign markets.
    
• In a landmark transaction for Indian pharmaceutical industry, Sun Pharmaceutical Industries (SPL) on 7th April announced that it will acquire 100 % of Ranbaxy Laboratories in a $ 4 billion all-share transaction. The transaction has a total equity value of $ 3.2 billion and a net debt of $ 800 million. The combined group will create the fifth-largest specialty generics company in the world and the largest pharmaceutical company in India. with this merger the combination will have operations in 65 countries, 47 manufacturing facilities across five continents. It will also become the largest Indian pharma company in USA with over $ 2 billion sales. The transaction has been approved by the Boards of Directors of both companies and Daiichi Sankyo of Japan which holds 63.4 per cent in Ranbaxy. The deal comes against the backdrop of a slew of sanctions against Ranbaxy by the U.S. Food and Drug Administration (FDA) due to concerns about manufacturing processes at its India plants. Sun Pharma's strong sales base in the U.S., along with India supply chain management that has been tight enough to meet FDA standards in most cases and a good record in managing troubled acquisitions, made the firm an attractive buyer for Daiichi Sankyo.
  • Dilip Shanghvi is the Managing Director of Sun Pharma.
  • Arun Sawhney is the managing director & CEO of Ranbaxy.
  • The combined group will create the fifth-largest specialty generics company in the world and the largest pharmaceutical company in India. It will also become the largest Indian pharma company in USA with over $ 2 billion sales.
    
• Holcim of Switzerland make a deal to buy France's Lafarge on 7 April to create the world's biggest cement maker, with $44 billion of annual sales. It will become the biggest ever cement industry tie-up. The merged business will be based in Switzerland and listed in Zurich and Paris. The two biggest listed companies have the operations in 90 countries. The deal will give the group a market value of close to $60 billion. Lafarge is stronger in Africa where as Holcim is stronger in Latin America. Holcim, based near Zurich, employs 71,000 people and has production sites in around 70 countries. Paris-based Lafarge, meanwhile, employs 65,000 people and operates in 64 countries.
  
• The Asian Development Bank on 1st April lowered the growth projection of Indian economy, for 2014-15 to 5.5 per cent from its earlier estimate of 5.7 per cent. But, it is better than 4.9 per cent growth estimate for 2013-14. ADB says that the Indian economy is still operating below potential, as it remained constrained by slow industrial growth, lowered manufacturing output, weak investment, and a reduction in private consumption. It believed that India’s potential growth is 6 per cent.ADB also estimated the current account deficit is expected to rise marginally to 2.5 per cent of GDP in the current financial year from the projected 2.2 per cent in 2013-14. This deficit is likely to widen further to 2.8 per cent in 2015-16, as import demand grows with improvements in investment and industry.
  • The Asian Development Bank (ADB) is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia.
  • ADB now has 67 members.
  • Present President -Takehiko Nakao.
  • Headquarters: Mandaluyong City, Metro Manila, Philippines
    
• According to the report of ASSOCHAM released on 3rd April, Maharashtra has emerged as the number one investment destination in the country. It replaced Gujarat. Maharashtra attracted cumulative investment proposals of Rs 14, 73,466 crore as on December 2013, while Gujarat drew proposals worth Rs 13, 98,347 crore. The primary reason behind Maharashtra overtaking Gujarat is the state's focus on development of industrial centres in tier-II and tier-III cities, making it the preferred choice of investments, especially for the Indian and global service sector industries. Maharashtra has become the hub for the service and electricity industrieswhich together attracted investment over Rs 67,000 crore in 2013. 
  • The other three states that attracted the most investment proposals are Andhra Pradesh, Odisha and Karnataka.
  • The top five states together accounted for 48.2 per cent of the total of Rs 1, 30, 50,467 crore as on December 2013.
  • Of the investment proposals, the highest amount was in electricity (36.5 per cent), services (23.6 per cent), manufacturing (23 per cent), construction & real estate (11.1 per cent), irrigation (3 per cent) and mining (2.8 per cent).
    
• Reserve Bank of India on 1st April extended the deadline for banks to implement global capital norms, Basel III, by a year to March 2019 on concerns of potential stresses on the asset quality and profitability of the banks. RBI said that the transitional period for full implementation of Basel III Capital Regulations in India is extended up to March 31st, 2019, instead of as on March 31st, 2018.This necessitated some lead time for banks to raise capital within the internationally agreed timeline for full implementation of the Basel III Capital Regulations. 
  • Basel III (or the Third Basel Accord) is a global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk.
  • Basel III was supposed to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage.
  • It was agreed upon by the members of the Basel Committee on Banking Supervision in 2010–11, and was scheduled to be introduced from 2013 until 2015; however, changes from 1st April 2013 extended implementation until 31st March 2018.
  • The third instalment of the Basel Accords was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis. Basel III was supposed to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage.
  • Unlike Basel I and Basel II which are primarily related to the required level of bank loss reserves that must be held by banks for various classes of loans and other investments and assets that they have, Basel III is primarily related to the risks for the banks of a run on the bank by requiring differing levels of reserves for different forms of bank deposits and other borrowings.
    
• RBI Governor, Raghuram Rajan, on 1st April said that the central bank had adopted the new Consumer Price Index (CPI) (combined) as the key measure of inflation. Earlier, RBI had given more weightage to Wholesale Price Index (WPI) than CPI as the key measure of inflation for all policy purposes. This decision is taken on the recommendations of Urjit R. Patel Committee report. 
  • RBI appointed an expert committee to examine the current monetary policy framework of the Reserve Bank of India (RBI).
  • The expert committee was headed by Urjit R. Patel, Deputy Governor of the Reserve Bank of India.
    
• The first bi-monthly monetary policy review was released by RBI on 1st April. The highlights are-
  • Short-term lending (repo) rate unchanged at 8%.
  • Cash reserve ratio (CRR) unchanged at 4%.
  • Economic growth for 2014-15 expected at 5.5%.
  • CAD expected to come down to 2% of GDP in 2014-15.
  • Retail inflation expected to be under 6% in 2014.
  • Industrial activity continues to be a drag on economy.
  • RBI will strive to increase reach of financial services to everyone by using technology and new products.
  • Stress on priority sector lending for greater financial access.
    
• The Reserve Bank of India has granted "in-principle" bank licences to Infrastructure Development Finance Company and microfinance lender Bandhan Financial Services Limited. The announcement came after the Election Commission allowed the central bank to go ahead with the move. The in-principle approval is valid for 18 months during which IDFC and Bandhan will have to meet all RBI rules to secure a permanent licence and begin banking activities. Twenty-five applicants, including Reliance Capital backed by Anil Ambani and Aditya Birla Nuvo BSE -2.35 % backed by the Aditya Birla Group, were among the applicants. The RBI had subsequently constituted a panel under former governor Bimal Jalan to shortlist candidates. 
  • Infrastructure Development Finance Company Ltd (IDFC) is India's leading integrated infrastructure finance body providing end to end infrastructure financing and project implementation services.
  • Infrastructure Development Finance Company Ltd was incorporated on January 30th, 1997, as a public limited company with their registered office at Chennai.
  • Dr. Rajiv Lall is the Executive Chairman of IDFC.
  • Bandhan is the country's largest microfinance company by loans.
  • Chandra Shekhar Ghosh is the founder and chairman of Bandhan