ECONOMY AFFAIRS DECEMBER 2013

ECONOMY AFFAIRS DECEMBER 2013

• As part of a CSR initiative, energy major Oil India has decided to step into dairy sector and has signed an agreement with Institute of Rural Management, Anand (IRMA) to carry out a feasibility study. According to company sources, a detailed project report (DPR) will be prepared after the study in two districts of Assam where Oil India Ltd (OIL) has significant presence. "It is going to be significant CSR initiative of the company. This project is aimed at filling the gap in milk production in North East and giving employment opportunity to the youths of Assam," a source said on 28 December. The state-run OIL has signed an MoU with IRMA in Gujarat around 10 days ago for the study that will cover select villages in Dibrugarh and Tinsukia districts of the state. The project is planned to be developed on the lines of the 'Amul' model. The study funded by OIL will focus on the prospects of developing a cooperative dairy project in Assam. The feasibility study will focus on quantitative, qualitative and participatory methods of enquiry where secondary data will be collected from various sources, helping the company to identify dairying as an alternative source of livelihood, he added. Earlier in July this year, OIL Chairman and MD Sunil Kumar Srivastava had said the company plans to tie up with the Assam government to start a cooperative dairy business in the lines of Gujarat's successful 'Amul' model. The project named 'Kamdhenu' envisaged setting up a milk production facility in Upper Assam to establish the dairy business in 3 to 5 years, he had said.
  
• A three-way joint venture between Steel Authority of India (SAIL), Rashtriya Ispat Nigam Ltd. (RINL) and MOIL (formerly known as Manganese Ore India Ltd.) to produce ferro alloys is on the cards with the earlier two separately proposed between SAIL-MOIL and MOIL-RINL having virtually been scrapped. MOIL had inked two separate joint venture pacts with SAIL and RINL to set up two ferro alloy plants with a total outlay of Rs.600 crore. Ferro alloys are used in steel-making for de-oxidising purposes. The Rs.400-crore joint venture between SAIL and MOIL was proposed to be set up in Chhattisgarh with an annual capacity of one lakh tonne per annum. The Rs.200 crore venture between RINL-MOIL in Andhra Pradesh was supposed to manufacture 50,000 tonnes of ferro alloys a year. While power shortage was the primary reason for scrapping the RINL-MOIL joint venture; till recently SAIL was maintaining that the proposed venture with MOIL was not yet scrapped. Meanwhile, a committee has been set up comprising members from all the three state-run firms under the Steel Ministry to work on the shareholding pattern, proposed capacity and likely investment for the three-way venture, a top management in one of the three firms said.
  
• The Union Cabinet on 19th December approved the stand taken by India at the Ninth Ministerial Conference of the WTO held in Bali, Indonesia during 3-7 December 2013.
  
  The two key issues for the Ninth Ministerial Conference of the WTO were Trade Facilitation and a proposal on Food Security. While the accumulation and holding of public stocks for food security purposes is classified as non trade-distorting, procurement at administered prices (Minimum Support Prices in India) is considered to be implicitly trade distorting and is, therefore, subject to a limit under WTO rules. Since the limit can be a constraint on the procurement operations of developing countries, India, along with other developing countries submitted a proposal in the WTO for a suitable amendment in the rules to address this issue. During the conference, ministers agreed on a decision that provides for an interim period of protection to public stockholding programmes for food security purposes of developing country members from being challenged in the WTO, on the grounds of exceeding the support which they are entitled to provide. It further provides that members must agree on a permanent solution on this issue for adoption by the 11th Ministerial Conference of the WTO.
  
  This Decision ensures that trade rules in respect of agriculture do not come in the way of initiatives aimed at self-sufficiency in food and stabilization of domestic prices. As a result of the decision, procurement operations of developing countries will not be constrained by their existing farm support limits. Developing countries will be able to run food security programmes for their under-nourished and hungry populations without the fear of violating WTO rules under the Agreement on Agriculture. Prior to the Bali Ministerial Conference, the Cabinet had provided directions to the Commerce and Industry Minister on the stand to be taken by India. Acting on these directions, India took the position from the beginning that food security was non-negotiable and maintained its position that until a permanent solution to the issue was found, the interim mechanism must not be terminated. As a result of its unwavering stand and the support it was able to muster, India succeeded in getting the text on Food Security appropriately amended.
  
  The final agreed text addresses India`s core concerns. It has a firm commitment from members to work on a permanent resolution. In the interim, until a permanent solution is found, eligible members will be protected against challenge in the WTO, under the Agreement on Agriculture in respect of public stockholding programmes for food security purposes. By implication, until a permanent solution is found, countries like India will have the flexibility of providing support to its farmers without the apprehension of breaching its entitlements. Since most of India`s demands and concerns were appropriately addressed in the Trade Facilitation Agreement, India endorsed the proposed Trade Facilitation Agreement. The new agreement will create a set of disciplines that would ensure that all WTO Members not only simplify their rules and procedures, but also follow modern techniques for facilitating clearance of goods across international borders. This was a landmark Ministerial Conference as the WTO has been able to conclude a multilateral agreement for the first time since its establishment.
  
• The Cabinet on 19th December approved a free trade agreement (FTA) in trade and services with the Association of Southeast Asian Nations (ASEAN). The proposal was approved after a discussion between Finance Minister P. Chidambaram and Commerce and Industry Minister Anand Sharma. The Agreement on Trade in Services and Agreement is to be signed under the Comprehensive Economic Cooperation (CECA) between India and the Asean. The CECA between India and ASEAN was signed in 2003. The Cabinet approved the Agreement on Trade Goods under the CECA with the ASEAN in July 2009. The agreement the Cabinet approved on Thursday is aimed at boosting the movement of Indian professionals in the 10-nation ASEAN. Member countries include countries like Singapore, Malaysia and Indonesia. The Agreement on Investment the Cabinet approved on 19th December would protect, promote and increase foreign investment flows into the country and also removes and barriers, said the sources. The pact was to be signed in Bali earlier this month during Mr. Sharma’s visit to the Indonesian island for the Ninth World Trade Organization (WTO) Ministerial Conference.
  
• The Cabinet Committee on Economic Affairs (CCEA) approved 6600 crore rupees interest-free loans to cash starved sugar industry on 19 December 2013. The loans will be provided by banks to sugar mills exclusively for making payments to sugarcane farmers, including arrears. The loans are equivalent to the excise duty paid by the mills in the past three years. The Interest subvention will be 12 percent which will be borne by the Centre and Sugar Development Fund. Mills have to repay the loans in five years and can avail of a moratorium on repayment for the first two years. The loans will help the industry reduce around 500 crore rupees annually of interest burden in the next 5 years. The informal Group of Ministers (GoM) set up by the Prime Minister under the chairmanship of Union Agriculture Minister Sharad Pawar recommended the proposal to address the cash crunch of the sugar industry.
  
• The Government of India on 18th December approved the enhancement of the bilateral -currency swap arrangement between the Reserve Bank of India (RBI) and Bank of Japan from US $ 15 billion to US $ 50 billion. The terms of the Agreement have been agreed between the Indian and the Japanese side in this regard. The Government of India has authorized Reserve Bank of India (RBI) to sign the agreement. This measure will further strengthen the bilateral financial cooperation between Japan and India.
  
• Reserve Bank of India Governor Raghuram Rajan surprised markets in his maiden policy review on 20th December, by raising interest rates to ward off rising inflation while scaling back some emergency measures put in place to support the rupee. Following are highlights from the monetary policy statement:
  
  POLICY MEASURES
  * Lowers marginal standing facility rate by 75 bps to 9.50 per cent
  * Raises repo rate (lending rate) by 25 bps to 7.50 per cent
  * Reverse repo rises to 6.50 per cent.
  * Cash reserve ratio (CRR) unchanged at 4.00 per cent
  * Partially relaxes minimum daily cash balance requirement to 95 per cent of deposits from 99 per cent
  
  POLICY STANCE
  * Bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately
  * To contemplate easing cash tightening measures in a calibrated manner
  * Policy steps to mitigate exchange market pressures, create a conducive environment for revitalisation of sustainable growth
  * Steps intended to address inflationary pressures so as to provide a stable nominal anchor for the economy.
  
• The Cabinet Committee on Economic Affairs (CCEA) on 12th December, has approved a Mission for Integrated Development of Horticulture (MIDH) for implementation during the 12th Plan with an outlay of Rs. 16,840 crore, a centrally sponsored scheme. Out of this, State governments will be contributing a sum of Rs. 866 crore in the States where the National Horticulture Mission (NHM) sub-scheme is implemented. Implementation of MIDH is expected to achieve a growth rate of 7.2 percent in the horticulture sector during the 12th Plan, besides generating skilled and unskilled employment opportunities in rural and urban areas. The scheme will cover all States and Union Territories (UTs) of India. While the NHM scheme will be focusing on 18 States and UTs, the Horticulture Mission for North East and Himalayan States (HMNEH) scheme will cover all States in the North East and Himalayan region of the country. While these schemes will be focusing on small and marginal farmers, National Horticulture Board (NHB) scheme will address developmental issues on commercial horticulture through entrepreneurs involving institutional financing. The National Bamboo Mission (NBM) will address developmental issues on bamboo, whereas the Coconut Development Board (CDB) schemes will focus on development of the coconut sector. Implementation of NHM, HMNEH, NHB, CDB and CIH schemes during the 11th Plan has enabled the bringing of an additional area of 23.5 lakh hectares under horticultural crops with supporting infrastructure in term of 2306 nurseries, 78 tissue culture units, 9156 post harvest management units and 221 markets. Horticulture production of 257.3 million MT was achieved by end of the 11th Plan.
  
• The Cabinet Committee on Economic Affairs (CCEA)on 12 December has approved the proposal of IDFC Trustee Company Limited to set up the India Infrastructure Fund-II, to be registered as the Alternative Investment Fund (AIF) Category I with the Securities and Exchange Board of India (SEBI) as recommended by the Foreign Investment Promotion Board (FIPB). The Indian Infrastructure Fund-II is aimed at making investment primarily in the sectors of energy utilities, transportation, aviation, telecom infrastructure, other urban infrastructure and public utilities. The fund is targeted to receive contribution from international investors up to Rs.5500 crore.
  
• Software major Tata Consultancy Services (TCS) has emerged as the biggest wealth creator over the past five years, while Reliance Industries and RCom tops the list of companies where investors lost the most in terms of market capitalisation, says a study 13 December. A wealth creation study conducted by financial services company Motilal Oswal analyzed wealth created by 100 companies between 2008 and 2013 in terms of their market capitalization, after adjusting for mergers, demergers, fresh issuance of capital and buy back of shares. The list of the "top 10 wealth destroyers" during 2008-13 are Reliance Industries, Reliance Communications, MMTC, NMDC, DLF, Reliance Power, BHEL, SAIL, Bharti Airtel and NTPC, the study said. TCS pushed ITC to the second slot to occupy the top position. The tobacco major was the biggest wealth creator in the last year's report calculated for 2007-12, Motilal Oswal's 18th annual wealth creation study said.Others in the 'Top 10' list of biggest wealth creators are HDFC Bank, Infosys, Sun Pharma, ONGC, HDFC, Tata Motors, HUL and Wipro. According to the study, seven out of the top 10 biggest wealth creators during the period are non-cyclical, two consumer goods companies and five are global non-cyclicals.TTK Prestige retained its place as the fastest wealth creator again during the period, as its stock price multiplied 28 times, translating into annualized return of 95 per cent, the study said. Nine of the top 10 fastest wealth creators had a market cap of under Rs 5,000 crore in 2008 and seven of the top 10 were below 15 times their price earnings ratio in 2008.The study noted that endurance of the value creator is mainly threatened by disruptive innovation or competition, major regulatory changes and capital misallocation. Agarwal believes that the worst is over for equities and the risk-reward equation is favorable for long-term investing.
  
• Air India is set to join Star Alliance, with the 28-member global airlines' grouping on 13 December, deciding to clear the entry of the national carrier. At a meeting in Vienna, the Star Alliance unanimously decided to lift the earlier suspension of the process for Air India entry into the grouping, Air India officials said at New Delhi. He Alliance had put the proposal for Air India's entry into the grouping on hold since July 2011 on the grounds that the airline had not fulfilled major conditions to join it, a charge the Indian carrier had then denied. Once the airline becomes a member, its passengers would enjoy major benefits, including seamless transfers on travel across the world, more frequent flyer mileage points, code- sharing leading to a wider choice of flights and access to over 1,000 lounges at airports worldwide. The Star Alliance network offers 21,900 daily flights to 1,328 airports in 195 countries. Its 28 members include top airlines like Lufthansa, Singapore Airlines, Air Canada, Air China, Air New Zealand, ANA, South African Airways, Austrian, THAI, Turkish Airlines, United Airlines and US Airways. At one stage, Jet Airways was also vying with Air India to join the grouping.
  
• The High Level Committee to Review the SEBI (Prohibition of Insider Trading) Regulations, 1992 constituted under the Chairmanship of Justice N.K. Sodhi on 7th December 2013 submitted its report to SEBI Chairman, UK Sinha at Chandigarh. Justice Sodhi has been the former chief justice of Karnataka and Kerala High Courts and has been the former presiding officer of the Securities Appellate Tribunal. The Committee has made many recommendations to the legal framework for prohibition of insider trading in India. It has also focused on making this area of regulation more predictable, precise and clear by suggesting a combination of principles-based regulations and rules that are backed by principles. The Committee has also suggested that each regulatory provision may be backed by a note on legislative intent.
  
• The Department of Posts, Ministry of Communications & IT, on 2 December, launched an ‘Express Parcel’ service. The service was launched by Smt. P. Gopinath, Secretary, Department of Posts, at a function organized at New Delhi G.P.O. Speaking on the occasion Smt. Gopinath said that ‘Express Parcel’ is a premium parcel service for retail as well as bulk customers. It offered time bound safe and secure home delivery of parcels. To have minimal transit time these parcels will be given airlift wherever needed. Bulk customers would also have an economical option of surface transported ‘Business Parcel’. These two new parcel services aim to promote the e-commerce market in India by offering reliable and cost efficient delivery solutions. Whereas ‘Express Parcel’ is an air mail service providing guaranteed time bound delivery of parcels, ‘Business Parcel’ will provide fast, secure and cost efficient transmission of parcels through surface. These services will have ‘Cash on Delivery’ facility which has become a pre-requisite today for e-commerce parcels. Though ‘Business Parcels’ will have a nationwide coverage, the ‘Express Parcel’ service will initially be available between 20 identified cities: Agra, Banglore, Bhubaneshwar, Chennai, Delhi (NCR), Patna, Guwahati, Hyderabad, Indoor, Jaipur, Jammu, Kolkata, Lucknow, Ludhiana, Mumbai, Pune, Parwanoo, Shillong, Surat and Thiruvanthapuram. This service will be expanded nationwide in phased manner. Bothe these services are being offered at a very attractive tariff, said Smt. Gopinath.
  
• The Prime Minister of India, Dr. Manmohan Singh on 3 December, dedicated to the Nation GAIL (India) Limited’s 1,000 km-long natural gas pipeline from Dabhol in Maharashtra to Bangaluru in Karnataka during the inaugural ceremony of the 8th Asia Gas Partnership Summit (AGPS) in the presence of Minister for Petroleum & Natural Gas, Dr. M. Veerappa Moily and Minister of State for Petroleum and Natural Gas & Textiles Smt. Panabaaka Lakshmi. Speaking on the occasion, Dr. Manmohan Singh said GAIL had witnessed rapid growth over the years to become a diversified conglomerate. “Today, GAIL is one of our best Public Sector Enterprises and has been categorized as a Maharatna,” he said. The Dabhol – Bangaluru pipeline dedicated by the Prime Minister has connected South India to the national gas grid for the first time. It has been constructed at an investment of Rs 4,500 crore with a design capacity of 16 MMSCMD of natural gas which can produce 3,000 MW of clean energy. The pipeline passes through Belgaum, Dharwad, Gadag, Bellary, Devanagere, Chitradurga, Tumkur, Ramanagaram, Bengaluru Rural and Bengaluru Urban districts. It traverses through 18 National Highways, 382 other road crossings, 20 railway crossings, 83 cased crossings, 11 major river crossings and 276 water body crossings including Asia’s largest river crossing in rocky terrain at Ghatprabha. The construction operations which continued round-the-clock for 19 months involved pipeline laying in some of the world’s steepest slopes of 60 to 70 degrees and sharp elevations of upto700 metres in a 3.5 km stretch.
  
• Boosted by healthy farm output and narrowing current account deficit, India is the seventh most economically confident country in the world, a study by global research firm Ipsos has said on 5 December. Saudi Arabia is the most economically confident country, followed by Germany, Sweden, Canada, China and Australia in that order, according to the study. India's economic confidence jumped sharply by 11 points to 51 per cent in November from the previous month. According to the study 'Ipsos Economic Pulse of the World', India's economic confidence revived substantially due to healthy farm output, a sharp boost in exports and narrowing of current account deficit. Saudi Arabia continues to dominate the global ratings of national economies as 85 per cent of respondents in Saudi Arabia are confident about their country's economy, followed by Germany (68 percent), Sweden (67 percent), Canada (66 percent), China (65 percent) and Australia (64 percent). Three in ten (32 percent) Indians believe that the local economy which impacts their personal finance is good. Moreover, Indians are very hopeful about stability and growth in future with general election in the first half of 2014 as four in ten people expects that the economy in their local area will be stronger in next six months. "Indian economy has bottomed out after a two-year slump and it is likely to see a positive growth trend from here on with positive indicators like narrowing CAD, revival of exports, growth of manufacturing sector and increasing investor confidence," Mick Gordon, CEO, Ipsos in India said.
  
• A ministerial panel set up by Prime Minister Manmohan Singh on 6 December, recommended a bailout package for the sugar industry that includes Rs. 7,200 crore of interest-free bank loans to pay dues to sugarcane growers. The panel headed by Agriculture Minister Sharad Pawar was formed to address the liquidity crunch faced by sugar mills unable to pay higher cane prices this season and saddled with dues of Rs 3,400 crore to farmers. The Indian Sugar Mills Association (ISMA) hailed the proposed measures, saying they would help to clear cane arrears and improve their cash flow. Reuters The ministers also suggested recasting of loans taken by mills as per Reserve Bank norms, incentives to produce 4 million tonnes of raw sugar and setting up of buffer stock, besides doubling ethanol-blending in petrol to 10 percent. Briefing the media after the meeting, Pawar said: "Rs 7,200 crore will be the loan provided by banks to the sugar industry. It will be used exclusively for payment of sugarcane and the interest portion of the loan will be borne by the Government of India and Sugar Development Fund (SDF). "Total interest will be 12 percent. Interest subvention will be provided for 12 percent. Of that, 7 percent will be from the SDF, while 5 percent from the GoI." Mills will have to repay the loans in five years and can avail of a moratorium on repayment in the first two years, Pawar said, adding that the final call on these measures would be taken by the Cabinet in the next two weeks. The government created the SDF to provide short-term loans to mills at cheaper rates. The fund comprises part of excise duty and cess collected by the Centre on sale of sugar.