ECONOMY AFFAIRS AUGUST 2013

ECONOMY AFFAIRS AUGUST 2013

• Oil and Natural Gas Corporation Videsh Ltd. (OVL), on 26 August, announced that it would buy a 10 per cent stake in a giant Mozambique gas field from Anadarko Petroleum Corp of U.S. for US $ 2.64 billion. In a statement issued in New Delhi, OVL said it had signed agreements to buy a 10 per cent stake from Anadarko in Mozambique's offshore Rovuma Area 1, where up to 65 trillion cubic feet of gas reserves are to be converted into LNG for transportation to markets like India. With this, OVL has transacted almost $11 billion in energy deals since last September . The company, along with Oil India Limited (OIL), had, in June, bought a 10 per cent stake in the same block from the Videocon Group for US $ 2.475 billion. The deal has been approved by the Mozambique government but awaits clearance of the Indian government.OVL has also acquired two blocks each in Columbia and Bangladesh, and is mulling exercising its pre-emption rights to block China's Sinochem Group from buying a 35 per cent interest in Brazilian oilfields for US $1.54 billion.
  
• The government has set up a high-level panel under chairmanship of Parthasarathi Shome to review tax laws and suggest ways for a stable and non-adversarial tax administration. The seven-member Tax Administration Reform Commission (TARC) will have 18 months to suggest various measures, including appropriate organizational structure for tax governance, an official statement said. Earlier this month, the Cabinet had approved setting up of TARC. The terms of reference of the commission include a review of the existing mechanism of dispute resolution and methods to widen tax base. Further the TARC would recommend measures to strengthen inter-agency information sharing between the Central Board of Direct Taxes, Central Board of Excise and Customs, Financial Intelligence Unit, Enforcement Directorate and also with the banking and financial sector. It would also look at mechanism for grievance redressal, timely disbursal of tax refunds and duty drawbacks.
  
• The Cabinet Committee on Investment (CCI) on 27 August, has approved 36 projects in the road, railways, power and oil and gas sectors worth Rs.1.83 lakh crore stalled on account of various issues, including regulatory hurdles. Talking to press in New Delhi, Finance Minister P. Chidambaram said 18 major projects in the power sector entailing an investment of Rs.83,773 crore were cleared by the CCI with instructions to the Ministry and the regulatory bodies concerned to put in place all clearances. Similarly, 18 others in sectors such as road, railways, petroleum and gas were also given the green signal. Mr. Chidambaram said apart from power projects, where fuel supply agreements (FSAs) would now be signed by September 6 instead of earlier deadline of August 31, there were nine projects with a total outlay of over Rs.14,084 crore, where banks had disbursed Rs.11,484 crore.
  
• Rattled by the continued decline in value of the rupee, the Commerce and Industry Ministry has constituted a task force comprising representatives from the Ministry, Department of Economic Affairs, Reserve Bank of India (RBI), SBI, industry bodies FICCI, CII and Federation of Indian Export Organizations (FIEO) to work out currency swap arrangements with key trading partners of India. The task force will restrict itself to issues pertaining to the swap of national currency for trade purpose only. “The purpose of the task force is limited to examine swap of national currency for trade which is distinct from currency swap agreements of central banks,’’ according to an official statement. The task force will examine various types of such arrangements and their implication for India’s trade and financial system besides studying the pros and cons of such pacts the country’s commerce. It would also explore the possibility of currency swap agreement between India and identified countries and make recommendations accordingly. The task force may submit its recommendations to the Department of Commerce in four weeks, it said. The issue had come up for discussion during the Board of Trade Meeting chaired by Commerce and Industry Minister Anand Sharma. The inter-departmental group of the Commerce Ministry will also have representation from Export Credit Guarantee Corporation of India. It would explore the possibility of using local currency for trade with major trading partners and advice on pros and cons of the same.
  
• The Cabinet Committee on Economic Affairs on 29 August, gave its approval for continuing the Technology Up gradation Fund Scheme (TUFS) during the 12th Plan period with a major focus on power looms in accordance with the Budget announcement for the financial year 2013-14. The total budget outlay for continuation of the scheme will be about Rs.11, 900 crore, out of which Rs. 2,400 crore have been allocated for the financial year 2013-14. TUFS is one of the flagship schemes of the Ministry of Textiles and has helped the industry to garner investments of Rs. 2.43 thousand crore. The scheme was launched in 1999 and has been instrumental in helping India achieve new heights in the development of the textile sector and particularly in the spinning segment. The Finance Minister in his Budget Speech of February, 2013, had announced continuation of TUFS in the 12th Plan with a major focus on modernization of the power loom sector. Higher subsidies for weaving / power loom sector have accordingly been planned in the continued TUFS.
  
• The Ministry of Civil Aviation will soon float Request For Qualification (RFQ) document for six airports, including the recently refurbished Chennai and Kolkata airports, and is open to offering 100 per cent stake to private players. Highly placed sources in the Aviation Ministry said the RFQ for Kolkata and Chennai airports along with four others, would also be issued in the next few weeks.“These airports would be given on a concessional basis to private parties for a period of 30 years and the Airport Authority of India (AAI) may not have equity participation as we are open to giving 100 per cent stake to private parties,” sources in the Ministry said on 29 August.AAI has a 26 per cent share in the private airports of Delhi and Mumbai and a 13 per cent share in Hyderabad and Bangalore. Once finalised by the government, RFQ would be issued by the Key Infrastructure Development (KID) Cell of AAI. After RFQ, which is a response-seeking process to help identify the participants for the bidding, request for interest (RFI) would be issued. RFQ would include the broad parameters of the privatization process. AAI had modernized the Kolkata and Chennai airports at a cost of Rs. 2,325 crore and Rs.2,015 crore respectively.
  
• In a clear reflection of the ongoing economic downturn, GDP (Gross Domestic Product) growth decelerated further to 4.4 per cent, the slowest pace of expansion since the 2008 meltdown — in the first quarter (April-June) quarter of the current fiscal. The pull-down, as has been the case in recent years, was mainly due to the dismal performance of mining and manufacturing. Such has been the steady slide in economic growth that from a GDP expansion of 5.4 per cent achieved in the first quarter of 2012-13, the performance during the April-June quarter this fiscal marked a further moderation on a sequential basis from 4.8 per cent in the fourth quarter (January-March) last fiscal.
  
• Pointing out that the GDP numbers for the first quarter clearly showed that the economy continued “to be in the throes of a slowdown,” CII Director General Chandrajit Banerjee, in a statement, said on 30 August.Alongside, contraction in the manufacturing sector also yawned further to 1.2 per cent from one per cent in the same quarter a year earlier. These apart, other sectors such as construction, power generation, hotels and transport, also witnessed a significant deceleration in growth. The farm sector also posted a lower growth of 2.7 per cent as compared to a 2.9 per cent expansion in the same period of 2012-13.Among others, the growth rate in the services sector, which includes financing, insurance and real estate, stood pegged at 8.9 per cent against 9.3 per cent in the same quarter of 2012-13. The growth in electricity, gas and water supply was also lower at 3.7 per cent compared to 6.2 per cent a year ago, as was the construction sector which expanded by 2.8 per cent as against seven per cent in the like quarter last fiscal. The only sector that fared better was community, social and personal services sector which posted a higher growth of 9.4 per cent as compared to 8.9 per cent.
  
• A U.S. Federal agency has launched an investigation into Indian trade policies, which allegedly discriminate against American trade and investment.The investigation, “Trade, Investment and Industrial Policies in India: Effects on the U.S. Economy”, was requested jointly by the Senate Committee on Finance and the House Committee on Ways and Means. The United States International Trade Commission (USITC) will report on recent policies and measures in India that affect U.S. exports and investment, and evaluate the effects of such barriers on U.S. firms and the economy, the federal agency has said in a statement on 31 August. In its examination, the USITC will enumerate restrictive trade and investment policies that India maintains or has recently adopted and determine which sectors of the U.S. economy are most affected by these policies. The USITC will provide several case studies of U.S. firms or industries that have been particularly affected by India’s restrictions. As requested, by the Congress, the USITC will also perform a quantitative analysis of the effects of such measures.
  
• India, on 20 August, raised the issue of heavy trade imbalance with China and sought immediate steps to facilitate Indian exports of pharmaceutical and agricultural products, buffalo meat and information technology (IT) services. Raising the issue with Chinese Minister of Commerce, Gao Hucheng, during his meeting in Brunei, Commerce and Industry Minister Anand Sharma drew the attention of the Chinese Minister to India’s pending request for facilitating Indian exports of IT services, buffalo meat, pharma and agricultural products. Mr. Sharma is in Brunei to attend the Regional Comprehensive Economic Partnership Agreement, East Asian Economic Ministers and the ASEAN-India Ministerial meeting.
  
• Both the sides agreed that the working group on trade and economic co-operation should meet in September along with another working group on trade in services and trade statistics with a view to implementing the decision taken by the leadership of the two countries. They also discussed about the possibility for the next meeting of the Joint Economic Group (JEG) likely to be scheduled for late October in Beijing. Gao assured Sharma that China would make every effort to facilitate imports from India for bridging trade imbalance. Sharma also sought Chinese investment in manufacturing in the National Manufacturing Investment Zones. It was decided that they would finalise the details about investments in various sectors during their next meeting in October.
  
• The Reserve Bank of India (RBI) on 20 August 2013 further relaxed the Statutory Liquidity Ratio (SLR) to provide more funds to banks for lending. This was in view of the losses suffered by banks in their investment portfolio. Revising its earlier limit, asking banks to reduce their hold-to-maturity bond holdings gradually to 23 per cent of deposits, RBI has now allowed banks to retain those holdings at 24.5 percent. To further ease rupee volatility, RBI will conduct open market operations of long dated government securities worth Rs. 8000 crore on 23 August 2013. RBI stated that depending on evolving market conditions, it will thereafter decide on the amount and frequency of OMOs (Open Market operations). SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. In other words, it is ratio of cash and some other approved securities to liabilities (deposits). It regulates the credit growth in India.
  
• The Union Cabinet on 13th August, approved the proposal for setting up of the Tax Administration Reform Commission (TARC). The Commission will consist of a Chairman, two full time members and four part-time members, of which at least two part-time members will be from the private sector. The Chairman will be an eminent person having wide experience of tax administration and policy making. Full-time members of the Commission will be one member each with a background in revenue service pertaining to Income Tax and Central Excise and Customs respectively.
  
• The term of the Commission will be 18 months. The Commission will review the application of tax policies and tax laws in India in the context of global best practices and recommend measures to strengthen the capacity of the tax system in India that would reflect best global practices. The Commission will help in removing ambiguity in application of tax policy and tax laws, thereby establishing a stable tax regime and a non-adversarial tax administration. The Commission will facilitate an efficient tax administrative system that would enhance the tax base as well as tax payer base.
  
• The Loan and Project Agreements for World Bank (IDA) assistance of US US $100 million for Low Income Housing Finance Project were signed between Government of India, National Housing Bank (NHB) and the World Bank in New Delhi on 14th August. The Loan Agreement was signed by Nilaya Mitash, Joint Secretary, Department of Economic Affairs, Ministry of Finance on behalf of Government of India and Mr. Michael Haney, Operations Advisor of World Bank (India) on behalf of the World Bank. The Objective of the project is to provide access to sustainable housing finance for low income households, to purchase, build or upgrade their dwellings.
  
  Financing under the project aims to create incentives for lenders to focus on lower income households through a net all-in reduction of the lenders’ cost of funds of approximately 200-300 basis points. The project also aims to deliver on its stated objective of reaching a higher proportion of lower income households while maintaining portfolio quality standards. The project expects to develop prudent lending standards to serve the more vulnerable, lower income households, expand the coverage of credit bureaus to include informal income borrowers, develop consumer information and disclosure norms for the project’s target groups, enhance the appraisal capacity of the lenders, as well as pilot new policies and products to overcome the challenges of dwelling informality. It is a financial intermediary loan for an implementation period of 5 years. NHB is the implementing agency.
  
• The Minister of State in the Ministry of Commerce and Industry Dr. E. M. Sudarsana Natchiappan on 14th August, in a written reply in Rajya Sabha informed that, in-principle approval for National Investment and Manufacturing Zones (NIMZs) in Chittoor, Medak and Prakasam districts has been accorded as requested by the Government of Andhra Pradesh.The state governments have to develop the zones before any private investment can take place in the same.
  
• Weighed down by a weak rupee, the Reserve Bank of India (RBI) on 30th July chose to keep all key interest rates unchanged and asked the government to take urgent steps to reign in the high current account deficit. Lowering the GDP growth projection for the current fiscal to 5.5 % from 5.7 %, the central bank said the external sector is the "biggest threat" to economic stability.
  
  It also said that the recent liquidity tightening measures, taken to support the rupee, will be rolled back in a calibrated manner as stability is restored to the foreign exchange market, enabling it to revert to the policy of supporting growth with continuing vigil on inflation. The RBI will endeavour to keep inflation, which is under threat from a depreciating rupee, at 5 % by March end.
  
  "The policy stance is guided by the need for continuous vigil and preparedness to pro-actively respond to risks to the economy from external developments, especially those stemming from global financial markets," RBI Governor D. Subba Rao said in what would be his last policy announcement unveiled here.
  
  Accordingly, the repo rate or the rate at which RBI lends to the system, has been retained at 7.25 % and the cash reserve ratio, the amount of deposits banks park with RBI, has been kept unchanged at 4 %. Giving the policy guidance, the governor said, "Monetary policy going forward will be shaped by the consideration of supporting growth, anchoring inflation expectations and maintaining external sector stability."
  
• The Cabinet Committee on Economic Affairs (CCEA), in accordance with the Government of India’s disinvestment policy on 2 August, has approved the disinvestment of 10 percent paid-up equity in the Indian Oil Corporation Limited (IOCL), out of its equity capital holding of 78.92 percent. The disinvestment will be through Offer for Sale (OFS) method in the domestic market according to the SEBI rules and regulations. After this disinvestment the Government of India shareholding in the company would come down to 68.92 percent.
  
  The paid up equity capital of the company, as on 31st March, 2013 was Rs. 2,428 crore. The Government of India holds 78.92 per cent of the paid up capital in IOCL. The IOCL is a "Maharatna" Public Sector Undertaking under the administrative control of the Ministry of Petroleum and Natural Gas. It is the highest ranked Indian corporate in the prestigious Fortune `Global 500` listing with a ranking of 83 for the year 2012. IOCL is primarily engaged in refining, transportation and marketing of petroleum products and petrochemicals with an installed refining capacity of 54.2 million metric tonnes.
  
• The Ministry of Steel under Government of India has become the first Central Ministry to be awarded ISO 9001:2008, Quality Management System certification. The certification involves laying down the work processes, manage and control them with the aim of continuous improvement. The Bureau of Indian Standards has conferred the Ministry with the certification for three years; w.e.f. 25.06.2013 to 24.06.2016.Ministry is the first amongst Central Government Ministries to have received the certificate. ISO 9001 is quality management system which codifies quality standards in every area of organization’s functioning. Many Governments around the World have made ISO 9001 a mandatory requirement. ISO certification will result in transparent performance of the Ministry and quick delivery of results to the beneficiaries.
  
• The Cabinet Committee on Economic Affairs (CCEA) on 2 August has approved creation of the Special National Investment Fund for the specific objective of meeting the minimum public shareholding of 10 percent requirement in the following six Central Public Sector Enterprises (CPSEs). (i) Andrew Yule & Company Ltd. (ii) Fertilizers & Chemicals (Travancore) Ltd. (iii) Hindustan Photo Films Manufacturing Co. Ltd.(iv) HMT Ltd. (v) ITI Ltd. (vi) Scooters India Ltd. Since these Companies were not financially sound, it was found difficult to meet the minimum public shareholding by following SEBI approved methods. However, Government was keen to comply with the requirement in all Government Companies. The Department of Disinvestment discussed the matter with SEBI and has proposed to meet the minimum public shareholding in the above six Companies.
  
• The Minister for Micro, Small and Medium Enterprises, K. H. Muniyappa inaugurated the Indian School for Entrepreneurs and Enterprise Development iSEED in New Delhi on 1 August. Speaking at the inauguration the Minister stated that in the present competitive world, Innovation driven Entrepreneurship is critical for the growth of the Indian economy”. Worldwide, the micro small and medium enterprises (MSMEs) primarily driven by first generation entrepreneurs have been accepted as the engine of economic growth and for promoting equitable development. The MSME sector is a nursery of entrepreneurship, often driven by individual creativity and innovation. To enable Indian youth in entrepreneurship and innovation, the Minister emphasized that the MSME ministry is conducting Skill Development Programmes for the entire value chain of manufacturing. 10 Tool Rooms under the Ministry are providing both long and short term training for more than one lakh persons the Minister highlighted.
  
• Tariq Anwar, Minister of State for Agriculture and Food Processing Industries in a written reply to a question in the Lok Sabha on 6 August, stated that, as per the Provisional Estimates released by CSO on 31st May, 2013, Agriculure sector is estimated to grow at 1.9% in 2012-13 at 2004-05 prices and the contribution of agriculture to the GDP is likely to decline to 13.7 % in 2012-13. The decline in growth rate and contribution of agriculture to GDP is on account of structural changes due to a shift from a traditional agrarian economy to a service dominated one. In order to bring reforms in agricultural marketing, the Ministry framed a model APMC Act in 2003 and circulated to States/UTs for adoption. Government has launched several schemes to increase the growth rate of agriculture and boost farm production in terms of its contribution to the GDP such as Rashtriya Krishi Vikas Yojana (RKVY), National Food Security Mission (NFSM), Development and Strengthening of Infrastructure facilities for Production and Distribution of Quality Seed, National Horticulture Mission(NHM), Rainfed Area Development Programme (RADP), Integrated Scheme of Oilseeds, Pulses, Oil Palm and Maize (ISOPOM), Gramin Bhandaran Yojana etc. In addition, Government has substantially improved the availability of farm credit; implemented a massive programme of debt waiver; introduced better crop insurance schemes; increased Minimum Support Price (MSP), improved marketing infrastructure, etc.
  
• The Cabinet Committee on Economic Affairs (CCEA) on 8 August 2013 approved the export of additional 2 million tonnes wheat from its godowns. The additional wheat would be traded through public sector trading firms. The proposal for additional export of wheat was proposed by the Union Food Ministry. The decision was taken for clearing the surplus stock and to ease the storage crunch. The additional export is allowed as there is a huge stock of 40 million tonnes of wheat.
  
• Microsoft, on 6 August, launched its Office 365 for full-time and part-time university students in India with a subscription offer. The Office 365 Universityincludes the complete set of Office applications and can be installed on two PCs or Macs. Microsoft has priced it at Rs.4,199 for a four-year subscription and is available for students studying in accredited colleges and universities.
  
• The Parliament has passed the historic Companies Bill 2012, moved by Sachin Pilot, Minister of Corporate Affairs. The Bill was passed by the Rajya Sabha on 8 August, which had already been passed by the Lok Sabha many months ago (in December 2012). Pilot has termed it as a historic day for the country as it will usher in a new era in the Corporate Governance. The new Companies Bill, on its enactment, will allow the country to have a modern legislation for growth and regulation of corporate sector in India. The existing statute for regulation of companies in the country, viz. the Companies Act, 1956 had been under consideration for quite long for comprehensive revision in view of the changing economic and commercial environment nationally as well as internationally. The new law will facilitate business-friendly corporate regulation, improve corporate governance norms, enhance accountability on the part of corporates/ auditors, raise levels of transparency and protect interests of investors, particularly small investors. The salient features of the new Companies law are: Business friendly corporate Regulation/ pro-business initiatives; e-Governance Initiatives; Good Corporate Governance and CSR; Enhanced Disclosure norms; Enhanced accountability of Management; Stricter enforcement; Audit accountability; Protection for minority shareholders; Investor protection and activism; Better framework for insolvency regulation; and Institutional structure.
  
• The Department of Heavy Industry, Ministry of Heavy Industries and Public Enterprises has prepared the Indian Electrical Equipment Industry Mission Plan 2012-22 with the objective to make the rapid development of the domestic electrical equipment industry possible and to enhance its competitiveness, which was launched on 24.07.2013. Giving this information in written reply to a question in the Lok Sabha on 8 August, Praful Patel, Minister of Heavy Industries and Public Enterprises, said that in this Mission Plan, five areas have been identified for strategic and policy interventions, both by the government and the industry. These are (i). industry competitiveness, (ii). technology upgradation, (iii). skills development, (iv). exports and (v). conversion of latent demand.