ECONOMY AFFAIRS DECEMBER 2012

ECONOMY AFFAIRS DECEMBER 2012

• The government on 26 December, announced Rs 65 per quintal hike in the support price of wheat to Rs 1,350 per quintal and allowed additional exports of 2.5 million tonnes of wheat from its godowns to clear surplus stock and ease storage crunch. The Cabinet Committee on Economic Affairs (CCEA) approved these two decisions in its meeting held in New Delhi. The increase in wheat MSP would enthuse farmers to cover more area under crop. Till last week, farmers have sown wheat in 25.3 million hectare, marginally lower than 25.7 million hectare in the same period last year. The CCEA also approved a proposal of the Food Ministry to allow export of an additional 2.5 million tonnes of wheat from the FCI godowns.
  
• The Cabinet Committee on Economic Affairs on 26 December approved the disinvestment of 12.5 percent paid up equity capital of the Rashtriya Chemicals and Fertilizers Ltd., that is 6,89,61,012 shares each of face value of Rs. 10/- each, out of Government of India’s shareholding of 92.5 percent, in the domestic market, as per SEBI Rules and Regulations. Rashtriya Chemicals and Fertilizers Ltd. is a Schedule 'A' listed Mini-Ratna Central Public Sector Enterprise (CPSE) under the administrative control of the Ministry of Chemicals & Fertilizers, Department of Fertilizers. It is engaged in the business of manufacturing and marketing fertilizers, industrial chemicals such as methanol, methylamines, ammonium bicarbonate, ammonium nitrate etc. from its two operating units at Trombay and Thal in Maharashtra and marketing of these products through its Zonal/ Regional Marketing/Area offices located in different States of the country.
  
• The Union Minister for Commerce, Industry and Textiles Anand Sharma announced additional incentives to boost exports in New Delhi on 26 December. These incentives came in the backdrop of the Annual Supplement of the Foreign Trade Policy announced on June 5, 2012. Sharma said that the 2% Interest Subvention Scheme on rupee export credit which is available to certain specific sectors including handicrafts, carpets, handloom, readymade garments, processed agriculture products, sports goods and toys, has been given an extension up to March 31, 2014. At present, the Scheme is scheduled to end on 31st March 2013. Along with this, Small and Medium Enterprises (SMEs) for all sectors will now be able to avail the benefits of the Scheme. Sharma, while highlighting that the engineering sector has been a major contributor for both job creation and value addition of Indian manufacturing, extended the benefits of 2% interest subvention to certain specific sub-sectors of the engineering sector. He also announced the introduction of a “pilot scheme” of 2% Interest Subvention for Project Exports through EXIM Bank for countries of SAARC region, Africa and Myanmar. Apart from these, Sharma announced that five new countries have been added under the Focus Market Scheme while Eritrea has been added under the Special Focus Market Scheme. The five countries being added under FMS are New Zealand, Cayman Islands, Latvia, Lithuania and Bulgaria. Under FMS Duty Credit of 3 per cent is given on the FoB value of exports while inder the Duty Credit is 4 per cent. Sharma further announced that sixty new products which include Engineering, Rubber, Textiles, Drugs & Pharmaceuticals products among others, and three countries (Taiwan, Thailand and Czech Republic) have been incorporated under the Market Linked Focus Product Scheme. Under the Focus Product Scheme, Sharma said that more than 100 new products have been added from sectors including Engineering, Textiles, Chemicals, Drugs, Pharmaceuticals, Paper, Books, Publication and Printed Material. The products will be benefitted by 2 per cent Duty Credit.
  
• The Union Finance Minister P. Chidambaram has expressed optimism that the Indian economy will continue to grow at a healthy rate even as the global economies face recession. This, he said, is because our economy has strong fundamentals and factors such as high savings rate, growing services sector, a large middle class which continues to create demand and technical and qualified manpower and the youth. The Finance Minister was speaking at the National Development Council meeting in New Delhi, on 27 December. The Finance Minister said that it was imperative to contain the fiscal deficit by augmenting resources and controlling expenditure. He said that some measures may cause immediate pain but this was necessary to ensure that the fiscal deficit came down to 3 per cent in the next three years. Steps were also being taken to contain the Current Account Deficit (CAD). He said that there was need to control gold imports which contributed US $ 64 billion to the CAD. Chidambaram lauded the States for containing the fiscal deficit to 2.1 per cent of the GDP and also for generating revenue surplus of 0.75 per cent. He urged all States to adopt the Direct Benefit Transfer scheme as it provided a technology enabled platform to transfer benefits in an efficient manner directly to the people. He said that in the initial phase subsidies relating to petroleum, food and fertilizer would not be distributed through this scheme and only those schemes which are amenable will be taken up. The Direct Benefit Transfer will be a game changer and it will be a transform the way in which subsidies are managed and will be past breaking for governance, said the Minister.
  
• ITC's Deveshwar, 7 other Indians in Harvard Business Review's list of top 100 CEOs
  Eight Indian CEOs have made it to the list of 100 global chief executives, compiled by Harvard Business Review (HBR), with ITC's Y C Deveshwar and late Subir Raha of ONGC finding a place in the top 20. Mr. Deveshwar was first among the Indian CEOs featured in this list, and cornered the seventh place overall. Under his leadership, ITC delivered industry-adjusted shareholder returns of 1,574 per cent and saw its value increase by $45 billion. The other Indians on the list include late Subir Raha of ONGC, at 13th place, ahead of Reliance Industries' Mukesh Ambani who was ranked 28th. Larsen and Toubro's A M Naik was ranked 32nd, followed by BHEL's A K Puri (38), Bharti Airtel's Sunil Bharti Mittal (65), Jindal Steel and Power's Naveen Jindal (87) and Steel Authority of India's V S Jain (89). Meanwhile, the best-performing CEO over the past 17 years globally was Steve Jobs of Apple. From 1997 to 2011, Apple's market value increased by $359 billion, and its shareholder return experienced average compound annual growth of 35 per cent. "That remarkable accomplishment is likely to go unbeaten for a long time," HBR said. Jeff Bezos of Amazon.com was at the second place. Others in the top 10 include, Samsung Electronics' Yun Jong-Yong (3rd), followed by Vale's Roger Agnelli (4), Gilead Sciences' John C Martin (5), Hyundai Motor Company's Chung Mong-Koo (6), ITC's Y C Deveshwar (7), Simon Property Group's David Simon (8), eBay's Margaret C Whitman (9) and Cisco Systems John T Chambers (10). The highest-ranked woman on the list is Meg Whitman, currently the CEO of beleaguered HP, whose performance as the CEO of eBay from 1998 to 2008 earned her the 9th spot. Interestingly, overall, only 1.9 per cent of all the CEOs studied were women. The HBR 100 best performing CEOs in the world list, assessed the long-term performance of each CEO, from the first day on the job to the last and for CEOs still in office, until August 31, 2012. The list accessed how much total shareholder returns had changed over the tenure of the respective CEO, and the overall increase in market capitalisation.
  
• Union Government exempted Service Tax for Janashree and Aam Aadmi Bima Yojana
  Union Government of India on 24 December granted service tax exemption on the services of life insurance business provided under the Aam Aadmi Bima Yojana (AABY) and Janashree Bima Yojana (JBY). Aam Aadmi Bima Yojana (AABY) was launched in August 2007and it basically covers death and disability insurance for the benefit of rural landless households.
  
• The Government expects the economy to grow between 5.7-5.9 per cent in the current fiscal, which is much lower than 7.6 per cent projected in the Economic Survey. This estimate has come out in the Mid-Year Economic Review tabled in Parliament on 17 december. The Finance Ministry also estimates inflation to moderate to 6.8-7 per cent by March 2013. It also says that trade deficit would not be significantly higher than last year. The economy, it added, would have to record a growth rate of 6 per cent in the second half of the current financial year to reach the desired growth rate. It grew 5.4 per cent during April-September 2012-13. The Economic Survey had pegged the growth rate at 7.6 per cent for this fiscal. The economic growth rate during 2011-12 had slipped to a nine-year low of 6.5 per cent due to both domestic and global factors. Earlier, the RBI had lowered the growth rate to 5.8 per cent for 2012-13. Referring to inflation, it said, further moderation in price rise is likely to commence from the fourth quarter of the fiscal. As regards fiscal deficit, the analysis said the Government would endeavour to restrict it to 5.3 per cent of GDP against 5.1 per cent envisaged in the budget. It said agriculture is expected to improve because of better prospects with rabi crops benefiting from greater moisture content in the soil and dominance of irrigated wheat and rice crops. The document further said that most services, particularly the trade, transport, communication and financial services, will also have a better growth.
  
• UN Slashed World Growth Forecast to 2.4 Percent for year 2013
  United Nations on 18 December 2012 slashed its global growth predictions to 2.4 percent for 2013 and 3.2 percent for the following year and warned of a lasting employment crisis for western countries. The UN's World Economic Situation and Prospects 2013 report warned that the Debt crises in Europe and the United States and a slowdown in China could all throw the world economy into recession. Earlier in the t month of June 2012 UN had predicted a growth forecast 2.7 percent for 2013 and 3.9 percent for the year after. As per the Report, With existing policies and growth trends, it is going to take at least another five years for Europe and the United States to make up for the job losses caused by the Great Recession of year 2008-2009. sThe report also predicted growth in South Asia averaging 5 percent in 2013, up from 4.4 percent in 2012, led by a moderate recovery in India.
  
• Centre mulls gold-backed schemes to curb imports
  Attributing the surge in gold imports to high current account deficit, the government on 17 December said it was considering schemes such as gold deposits, accumulation plans, gold-linked accounts and pension products to curb demand for the precious metal. In its mid-year economic analysis tabled in Parliament on Monday, the government said gold-backed products would help investors enjoy benefits of investment in the metal without investing in the physical commodity. “Now gold backed financial instruments in the form of modified gold deposits and gold accumulation plans, besides gold-linked accounts and pension products linked with the precious metal are some measures being considered to reduce the attraction of a direct investment in bullion and jewellery in the domestic market and check a substantial rise in imports,” the review said. However, gold-linked investments would have to be monitored to see whether the overall demand for the metal actually falls, it added.
  
• RBI maintains status quo on interest rates; FM skips customary statement
  The Reserve Bank of India (RBI) maintained status quo on interest rates despite calls from the finance ministry for measures to support growth, but the prospects of cuts beginning January have increased because of easing price pressures and signs that the fiscal situation is on the mend. RBI Governor Duvvuri Subbarao's rigid anti-inflationary stance for more than a year appeared to be easing, even though he disappointed investors by not even reducing the cash reserve ratio (CRR) to ease liquidity pressures. Subbarao left the key repo rate - the rate at which RBI lends to banks - at 8%, and CRR - the proportion of deposits banks need to keep with the central bank - at 4.25% as inflation remains elevated despite signs of moderation.
  
• Parliament passes banking Bill
  Parliament on 20 December paved the way for corporate houses to enter the banking sector by approving the banking bill, a key reform legislation pending for long. Parliament also passed the amendments to the debt recovery laws or Sarfesi law after a reply by Finance Minister P Chidambaram on the combined discussion on the two bills in Rajya Sabha. These two Bills -- Banking Laws (Amendment) Bill, 2012, and Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2012, -- he said, will strengthen the financial sector and help in establishing large-sized banks, besides promoting financial inclusion. “We need 2-3 world-sized banks. China has three among the world’s top 20. We have none. We need more banks,” he said. “Banks have opened 6,489 branches in 2011-12 alone, that is around 18-19 per day. We don’t have the capacity to open more branch. We need banks,” he said. The Lok Sabha had already passed these two Bills. Mr. Chidambaram said the amendment was not intended to give banking licences to big corporate houses alone, but also to allow eligible public sector entities to enter the sector. The Banking Bill was approved by the Lower House earlier this week after the government dropped the controversial clause concerning allowing banks to trade in commodity futures. Referring to today’s strike by bank unions against reforms, Mr. Chidambaram said he could only request the bank employees to refrain from such activities.
  
• Standard and Poor's expects India's economic growth at 6.5% in 2013
  Global rating agency Standard and Poor's (S&P) has said it expects India to grow by 6.5 per cent during 2013, amidst the possibility of global economic recovery continuing during the year. For China, S&P expects the growth rate to move back to eight per cent level in 2013, after it slipped to 7.4 per cent in the third quarter of 2012. In a report on global credit outlook for 2013, S&P said that "the ball is in the policymakers' court" to sustain the recovery in global economy
  
• US intelligence community in its report called Global Trends 2030: Alternative Worlds which was released on 10 December 2012 declared that India would straddle international commerce and will also dominate the economy of the whole world by 2030. This would happen with decelerating Chinese economy as well as declining West. India’s chance of powering would begin only after 2015 as China’s fortunes would start diminishing. By the year 2030, Asia (mainly India) would return back to its position of being the powerhouse of the world, like it was before 1500. Pakistan might not exist at all.India will rush forward after 2020 as China would begin decelerating, primarily on certain demographic trends. It was however made clear that the journey of economic development of both India as well as China will not be smooth. But if the difficulties were handled well, India as well as China would be dominating the world in 2030.The latest National Intelligence Council's (NIC) Global Trends Report was released on 10 December 2012 by the Office of the Director of National Intelligence. This report is called Global Trends 2030: Alternative Worlds. First Global Trends Report was released back in 1997. New global trends report is being published after every four years after the U.S. presidential elections. For the production of Global Trends 2030, a range of analytical tools, in-depth research as well as detailed modeling was employed.
  
• India and the United States on 12 december have started an initiative to develop solar energythrough photovoltaic (PV) projects and concentrated solar power (CSP), also known as solar thermal.This comes four months after India experienced one of the world’s biggest blackouts, which affected more than 680 million people.Titled ‘SERIIUS’ (Solar Energy Research Initiative of India and the United States), the $50 million project would be conducted by the Bangalore-based Indian Institute of Science and the Washington-based National Renewable Energy Laboratory.Unlike traditional solar panels, CSP projects concentrate a large area of sunlight onto a small area of contained liquid. The liquid heats up, emits steam, and a generator converts the steam into electricity.
  
• The Cabinet Committee on Economic Affairs (CCEA), on 13 December, approved a urea investment policy, which is likely to incentivise fertilizer companies to set up new plants and expand existing capacity.India imports over 30 per cent of its urea requirement and the policy aims at reducing that. But it is unlikely to have any impact on existing prices.The policy, which aims to attract fresh investment of about Rs.35,000 crore to increase domestic production by eight million tonnes, has been cleared as the previous policy failed to attract the much needed funds.Under the new policy, the government will give 12-20 per cent post-tax return on fresh capital infused by the manufacturers for setting up of new plants as well as for expansion and revamp of the existing ones.To ensure this return, the government would cover the entire cost of natural gas, which is the main feedstock of urea, and accounts for 80 per cent of the cost. The government controls the urea sector and has fixed the maximum retail price (MRP) at Rs.5,360 a tonne.The difference between the MRP and the cost of production is given as subsidy to manufacturers.The new investment policy was approved, by the Group of Ministers (GoM) headed by the then Finance Minister Pranab Mukherjee, on February 24.However, sources said the Ministry made some changes in the draft policy after inter-ministerial consultation. It proposed covering entire cost of natural gas, while the GoM had favoured providing subsidy on gas price within the range of $6.5-14 mmBtu.The country produces 22 million tonnes of urea, against the requirement of 32 million tonnes.
  
• Indian Oil Corporation (IOC) is the biggest company in terms of revenue, followed by Reliance Industries, according to the Fortune 500 list of Indian companies for 2012.This year’s list of the country’s 500 largest corporations, compiled by the business magazine Fortune’s Indian edition, features as many as 55 new entities.IOC is the biggest company with annual revenue of Rs.4,20,287 crore, followed by Mukesh Ambani-led RIL with a full-year revenue of Rs.3,67,539 crore. Bharat Petroleum Corporation is at the third spot with a revenue of Rs.2,14,866 crore.The three firms — IOC, RIL and BPCL have retained their last year’s respective ranks.Hindustan Petroleum Corporation is ranked fourth with annual revenue of Rs.1,87,693 crore and State Bank of India is ranked fifth with Rs.1,77,033 crore revenue.Among others in the top 10 are Tata Motors (sixth), ONGC (seventh), Tata Steel (eighth), Coal India (ninth) and Hindalco Industries (10th).The magazine said that total sales of Fortune 500 companies had grown at 23.77 per cent year-on-year.The government continued to play a big role in business, with a total of 83 state-owned firms on this year’s list, Fortune India said.
  
• Andhra Pradesh HC orders fresh scrutiny of Satyam, Tech Mahindra merger
  In a fresh blow to the proposed merger of Satyam Computer Services with Tech Mahindra, the Andhra Pradesh High Court has ordered a fresh scrutiny of the scheme of amalgamation and accounts of Satyam through an independent auditor. AP High Court judge PV Sanjay Kumar on 6 December passed the orders when the Official Liquidator expressed inability to offer views on the merger scheme, given the complexities around two suspense accounts in the balance sheet of Satyam involving about Rs 2,370 crore. Nearly three years after Satyam's founder Ramalinga Raju confessed to falsifying accounts at what was then India's fourth-largest software exporter and pushed it to the verge of total collapse, the company, now known as Mahindra Satyam is close to being merged with Tech Mahindra. Both Satyam and Tech MahindraBSE 0.53 % have obtained the approvals of their respective shareholders, stock exchanges, Mumbai High Court and also the Competition Commission of India. The only approval pending is from the AP High Court. The AP High Court is currently hearing objections from various parties, including certain minority shareholders on the merger swap ratios and unsecured creditors who are claiming that the company owes them Rs 1,230 crore. The minority shareholders, including IL&FS, were opposing the swap ratio and timing of the merger. According to the merger scheme approved by the majority shareholders, the shareholders of Satyam will get two Tech Mahindra shares of Rs 10 each for every 17 shares of Rs 2 each of Satyam. Moving the AP High Court, 37 entities belonging to the Raju family and IL&FS urged the court to reject the scheme of amalgamation in its current form and direct the company to obtain approvals from unsecured creditors for the proposed merger. After taking into account the submissions of the Official Liquidator on the scheme, the Court has directed for appointing an independent auditor to scrutinise the merger scheme and accounts and submit a report within four weeks. The court's orders would further delay the merger process, a Satyam spokesperson said.
  
• RBI moots photos on debit cards
  Debit cards will soon contain photographs of the accountholder with the Reserve Bank of India asking banks to consider incorporating photos as a security feature. Although the requirement of a photograph is not a diktat yet, banks say that RBI recommendations usually end up being a requirement for in the banking industry. However, by making this a recommendation banks are given enough time to migrate their systems to one where debit cards can be issued with photograph. Among lenders, Axis Bank has been incorporating photographs in its debit cards.
  
• Telecom Commission approved 1500 crore Rupees subsidy for BSNL
  The Inter Ministerial body Telecom Commission of India on 12 December 2012 gave its nod to a 1500 crore Rupees subsidy to state owned BSNL for supporting its landline operations in rural areas. The approval came in line with the TRAI recommendation which had suggested that 2700 crore rupees should be given to BSNL as operations in rural areas don’t generate enough revenues. TRAI had suggested that subsidy be given in two installments-1500 crore for 2011-12 and for 2012-13 1250 crore rupees. The subsidy is going to be paid out of the Universal Service Obligation (USO) Fund. BSNL had demanded 2580 crore rupees per from the government to support its rural operations. As per the Chairman and Secretary of Telecom R Chandrashekhar, commission’s recommendations have been forwarded to Department of Telecommunications (DoT). The commission also had preliminary discussions on Telecom Security Policy but did not take any decision.
  
• The government, on 2 December, decided that all foreign investments in existing domestic pharma firms should be allowed only after clearance by the Foreign Investment Promotion Board (FIPB), amid mounting concerns over availability of affordable essential drugs in the wake of multinationals acquiring local companies.According to sources, the decision was taken at a high-level meeting chaired by Prime Minister Manmohan Singh. The meeting was attended by Finance Minister P. Chidambaram, Commerce and Industry Minister Anand Sharma and Health Minister Ghulam Nabi Azad, among others.The source further said that any foreign company acquiring an Indian firm, which had been producing essential medicines, would have to continue to do so till the time the Competition Commission of India was empowered to vet such deals.
  
• The Supreme Court on 5 december, gave a sigh of relief to the Sahara group by directing it to deposit Rs.5,120 crore immediately and pay its investors in two instalments, the first instalment of Rs.10,000 crore in the first week of January 2013 and the balance amount, including interest, in the first week of February.A three-judge Bench of Chief Justice Altamas Kabir and Justices S. S. Nijjar and J. Chelameswar passed this order on a submission made by senior counsel Gopal Subramanimum, appearing for the Sahara group, requesting for more time to repay the amount to the investors —money they had collected through optionally fully convertible debentures (OFCD).He told the court that Sahara India Real Estate Corporation and Sahara Housing Investment Corporation, the appellant companies, were ready with demand draft for Rs.5,120 crore and he needed more time for repaying the balance amount.
  
• The Asian Development Bank (ADB), on 7 December, cut India’s growth forecast to 5.4 per cent in 2012-13, barely two months after it had made a projection of 5.6 per cent growth for the Asia’s third largest economy. The ADB says in its supplement to the ‘Asian Development Outlook (ADO) 2012’that,India’s growth forecast is revised from 5.6 per cent to 5.4 per cent in fiscal year 2012 and from 6.7 per cent to 6.5 per cent in 2012-13. This is the fourth time that the India’s economy has slowed in the recent years on the back of domestic and global factors.
  
• Three-year disclosure must for promoter share transfer: SEBI
  Promoters of a listed company need to have made their shareholding disclosures at least three years before any transfer of shares between themselves without triggering an open offer for public investors, SEBI has said. The capital markets regulator has said disclosure as promoters in the shareholding pattern filing is a must for at least three years to get exemption from open offer, even if the company has been listed for a shorter period of time. If the shareholding of any entity hits the 25 per cent threshold limit in a listed company, it is required to make an open offer for an additional 26 per cent shares from public shareholders of the company. However, the open offer is not triggered if the threshold is hit because of transfer of shares between two promoters who have been listed as promoter entities in the company’s shareholding pattern filings for at least three years, besides some other conditions, SEBI has said. The observations have been made by SEBI in an ‘interpretive letter’ sought by a company, Commercial Engineers and Body Builders Company Ltd, which has been listed on the BSE and the NSE since October 18, 2010.
  
• The Andhra Pradesh Assembly on 2 December 2012 passed “Andhra Pradesh SC, ST Sub-Plans Bill 2012” providing statutory status for implementation of the sub-plans for Scheduled Castes and Scheduled Tribes. The legislation will ensure fund allocation proportionate to the SC and ST population and is expected to prevent diversion of sub-plan funds for other activities and not allowing them unspent. There is also a mandatory provision for allocation of almost a fourth of the State’s annual plan of the budget for SC, ST. The bill was introduced on the recommendations of the Cabinet Sub-Committee.The demand for according legal status to the Sub-Plans was made on states for a long time by the Planning Commission of India and National Development Council (NDC). With this, Andhra Pradesh has become the first state in India to enact such legislation.