ECONOMY AFFAIRS FEBRUARY 2014

ECONOMY AFFAIRS FEBRUARY 2014

• India has moved a step closer to issuing fresh bank licenses, after a high-level advisory committee headed by former Reserve Bank of India (RBI) Governor Bimal Jalan submitted its recommendations to the central bank on 25 February. Indications are that bank licenses will be awarded in phases this time around. The Jalan panel, which scrutinized 25 applications, is understood to have completed the background verification of all the applicants and recommended a roadmap to award licenses to the eligible entities. The advisory panel, appointed by the RBI, had begun evaluating the applications at its first meeting on November 1, 2013.The Finance Minister may hold a meeting on the Jalan panel’s recommendations on March 10.The Election Commission’s Code of Conduct will have no bearing on the process of awarding of bank licenses, official sources said. The entire process of giving in-principle approval for the bank licensees may get completed by end March. The four-member Jalan panel looked into the reports of all government agencies, including the Central Bureau of Investigation.
  
• The Union Cabinet on 28 February gave its approval for signing of the Host Country Agreement (HCA) between India and the International Fund for Agricultural Development (IFAD) for establishing the IFAD Country Office in India. The opening of IFAD`s Office in India would expedite co-ordination, facilitation and supervision by the IFAD team as well as best practices dissemination in India.
  
• The Cabinet Committee on Economic Affairs on 28 February, approved central assistance of Rs. 871.246 crore towards construction of 100 MLD sea water desalination plant and external product water conveyance facilities in January, 2009 with the objective to augment 100 MLD water supply to the southern part of Chennai city as well as to meet industrial demand. The plant has been commissioned in February, 2013 and is supplying water to the beneficiaries. During implementation of the project, it was decided by the State Government for laying a separate feeder main from Nemmeli plant to Porur with a view to provide water supply to the western part of Chennai city, particularly during a drought situation due to failure of monsoon. This work is in progress and likely to be completed shortly. The revised project cost has been estimated to the tune of Rs. 854.52 crore. Chennai is an important economic centre in the country and has been fast developing as an IT hub. Drinking water supply sources of Chennai city are monsoon dependent and the city experiences water scarcity frequently. In order to provide drinking water security to Chennai city, water supply to Chennai city is made from the Poondi, Cholavaram, Red Hills lake system, Veeranam source and Krishna/Telugu Ganga scheme and a desalination plant at Minjur.
  
• Notifications were issued on 27 February to give effect to Section 135 and Schedule VII of the Companies Act, 2013, which relate to CSR (Corporate Social Responsibility) related spending by companies. Sachin Pilot, Minister for Corporate Affairs, has said that the concerned rules have been finalized after extensive consultations with all stakeholders. He elaborated that the Rules provide for the manner in which CSR Committee shall formulate and monitor the CSR Policy, manner of undertaking CSR activities, role of the Board of directors therein and format of disclosure of such activities in the Board’s report. After issuance, the Notifications have been sent for publication in the Official Gazette. They are available on the website of the Ministry of Corporate Affairs and would be effective from 1st April, 2014.
  The following important new activities have been included in Schedule VII:
  (a) Promoting preventive health care and sanitation and making available safe drinking water;
  (b) Setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
  (c) Ensuring ecological balance, protection of flora and fauna, animal welfare, agro-forestry, conservation of natural resources and maintaining quality of soil, air and water;
  (d) Livelihood enhancement projects;
  (e) Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts;
  (f) Measures for the benefit of armed forces veterans, war widows and their dependents;
  (g) Training to promote rural sports, nationally recognized sports, paralympic sports and Olympic sports;
  (h) Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government;
  (i) Rural development projects.
  
• Rural development agency NABARD is to roll out a new concept called Joint Liability Group (JLG) to provide institutional credit to small farmers like share croppers, oral lessees and agricultural labourers. Conceived on the pattern of Self Help Groups (SHG), Nabard will provide refinance facility to banks for providing lending to small and marginal farmers who are normally deprived of finance. Nabard CMD H K Bhanwala told that, JLG is aimed at meeting the credit needs of share croppers and farm labourers who would form a group by joining together. He also said JLG scheme will be highly beneficial for states like Punjab and Haryana where average land holdings are shrinking and strength of such farmers is large in these states. Nabard has already 41 lakh SHGs which are credit linked. Asked about new warehouse creation for farm commodities, Bhanwala said that it has already sanctioned Rs 2,200 crore of funds for setting up infrastructure for storage of agricultural items. Finance Ministry had allocated Rs 5,000 crore to Nabard in budget 2013-14 for supporting creation of godowns and warehouses.
  
• The foundation stone of NTPC’s 2640 MW Bundelkhand Super Thermal Power Project was laid by Jyotiraditya Scindia, Union Minister of State of Power (I/C) at Barethi, Chattarpur District of Madhya Pradesh on 2 February. Comprising of 4 units of 660 MW each and with environment friendly super critical technology, the project is expected to contribute significantly to the economic and social development of the region. Fifty percent of the power generated from the project will be supplied to the state of Madhya Pradesh.
  
  The estimated cost of the project is approx Rs 18000 crore and is envisaged to be commissioned in the 13th Plan linked to development of coal mine. Total land requirement of the project is 2841 Acres. The coal requirement of the project will be met from Banai coal block and water from proposed Majhgaon Dam and Shyamari Project for which land acquisition is in progress. NTPC presently meets about 24 % of the total power requirement of Madhya Pradesh allocated from its various stations and has its largest power station in the country Vindhyachal Super Thermal Power Station of 4,260 MW installed capacity, situated in Singrauli district.
  
• The overall Tele-density in India increased from 73.69 at the end of November, 2013 to 74.02 at the end of December, 2013. As per the latest data on telecom subscribers released by TRAI in New Delhi on 17 February, subscription in the urban areas increased from 546.64 million in November, 2013 to 549.40 million at the end of December, 2013. Subscription in rural areas increased from 363.50 million to 365.79 million during the same period. The monthly growth rate of urban and rural subscription is 0.51% and 0.63% respectively. The overall urban Tele-density has increased from 144.46 to 144.95 and Rural Tele-density increased from 42.43 to 42.67 in this month. The number of telephone subscribers in the country increased from 910.14 million at the end of November, 2013 to 915.19 million at the end of December 2013, thereby showing a monthly growth of 0.56%. As per the latest data on telecom subscribers released by TRAI, the share of urban subscribers has marginally declined from 60.06% to 60.03% whereas share of rural subscribers has marginally increased from 39.94% to 39.97% in the month of December 2013.
  
• Interim Budget 2014-15 was presented in the Lok Sabha by Union Finance Minister, P Chidambaram on 17 February 2014. This was the 9th personal budget by Chidambaram as Finance Minister. In the union budget, Chidambaram left direct taxes. The 2014-15 interim budget has implemented a surcharge of 10 percent on super-rich people (having income above 1 crore rupees in a year). Excise duty on cars, two-wheelers, SUVs and capital goods and consumer durables has been slashed to boost the manufacturing and growth.
  The Highlights of the Union Budget 2014-15 are as follows
  • To sustain the pace of plan expenditure, it has been kept at the same level in 2014-15 with 555322 crore rupees has been provided under the plan expenditure as it was budgeted in 2013-14.
  • The non-plan expenditure in 2014-15 has been estimated at 1207892 crore rupees
  • Spending raised to 2.24 trillion rupees in 2014-15, up 10 percent year on year
  • 29000 crore rupees has been given to the railways as budgetary support
  • 33725 crore rupees has been given to Ministry of Health and Family Welfare
  • 67398 crore rupees has been given to Ministry of HRD
  • 15260 crore rupees has been given to Drinking water and sanitation ministry
  • 6730 crore rupees has been given to Social Justice and Empowerment Ministry
  • Government to provide 112 billion rupees capital infusion in state run banks in 2014-15
  • 6000 crore rupees has been given to the Union Ministry of Housing and Poverty Allegation
  • 21000 crore has been given to the Ministry of Women and Child Development
  • Government has announced one-rank-one-pension scheme for defence personnel from 2015
  • 246397 crore rupees has been sanctioned for subsidies
  • 116000 crore rupees has been allocated for food subsidy
  • Defence allocation has been enhanced by 10 percent to 224000 crore rupees for 2014-15 from 203672 crore rupees of 2013-14
  • To strengthen the capacity of Central Armed Police Forces by modernization and providing state-of-the-art equipment and technology, the government has allocated 11009 crore rupees
  • To formulate and promote the scheme of community radio station, the government has sanctioned a fund of 100 crore rupees
  • The interim budget has sanctioned 6730 crore rupees to the Social Justice Ministry
  • 7000 crore rupees has been sanctioned for the Panchayati Raj Ministry
  • The finance minister claimed that 140 million Indian people are out of poverty
  • 246397 crore rupees has been allocated for food, fertilizer and fuel subsidy
  • No changes has been introduced under the tax laws but changes has been introduced for the indirect taxes
  • To stimulate growth, the government has slashed excise duty to 10 percent from 12 percent
  • The government has decided to waive 2600 crore rupees on outstanding loans taken by students up to 31 March 2009. It has declared a moratorium on these loans.
  • Two projects sanctioned under Nirbhaya Fund of which the original was of 1000 crore rupees that was non-lapsable and another 1000 crore rupees has been granted
  • A ten point agenda has been created by Chidambaram to make India the third largest economy after US and China
    10 Tasks as part of the road map ahead include-
  • Fiscal consolidation: To achieve the target of fiscal deficit of 3 percent of GDP by 2016-17 and remain below that level always.
  • Current Account Deficit: CAD will be inevitable for some more years which can be financed only by foreign investment. Hence, there is no room for any aversion to foreign investment.
  • Price Stability and Growth: In a developing economy, a high growth target entails a moderate level of inflation. RBI must strike a balance between price stability and growth while formulating the monetary policy.
  • Financial Sector reforms to be completed as laid down by Financial Sector Legislative Reforms Commission.
  • Massive investment in infrastructure: to be mobilized through the Public Private Partnership.
  • Manufacturing sector to be the base of India’s development: All taxes, Central and State that go into an exported product should be waived or rebated. There should be a minimum tariff protection to incentivize domestic manufacturing.
  • Subsidies, which are absolutely necessary should be chosen and targeted only to the absolutely deserving.
  • Urbanization to be managed to make cities governable and livable.
  • Skill development must be given priority at par with secondary and university education, sanitation and universal health care.
  • States to partner in development so as to enable the Centre to focus on Defence, Railways, National Highways and Tele-communication.
  
  
• International Monetary Fund (IMF) on 20 February 2014 released its annual report on the state of the Indian economy and projected that India’s economic growth for 2014-15 will be 5.4 percent. In its release it said that India has restored macroeconomic and financial stability but structural impediments to growth and persistently high inflation is the major areas of concern. In its forecast, IMF said that inflation driven food prices seems to remain near double digits in 2014-15. It also said that the tight monetary policy would slow the growth recovery. In its forecast for the fiscal year 2013-14, it projected that India’s growth will be 4.6 percent and will pick up to 5.4 percent in 2014-15 at factor cost. These projections of India were a conclusion of its annual discussions with India. India’s National Food Security Act has been described by IMF as landmark legislation which will ensure that a majority of population of the country will have access to adequate quantities of food at affordable prices. IMF also said that the Consumer Price Index (CPI) could push up due to weaker rupees and ongoing energy price increases.
  
• The Union Cabinet approved the setting up of Coal Regulatory Authority (CRA) on 20 February 2014. The proposal for setting up CRA was made by the Union Coal Ministry. The regulator is a non-statutory entity. Its orders will be advisory and not mandatory in nature.
  It will be empowered to specify the principles and methodology to determine the price of raw and washed coal and any other by-product generated during washing. The regulator will not have the power to decide the price in the domestic market, and Coal India will continue to enjoy its freedom to set the rates. It will not have the power and functions that are vested with the Coal Controller under the present law. Powers, such as the settlement of disputes over quality, will be transferred to the regulator once the bill is passed. However, it will regulate testing methods to declare grades or quality, specify the procedure for automatic sampling and adjudicate upon disputes. It will also monitor the closure of mines and the approval of mining plans.
  
• With a production of 269 million tones in 2012-13, the horticulture sector has emerged as a major contributor to the food basket of the country. Ministry of Agriculture said on 22 February, Horticulture production grew by more than 8% during the last decade. As compared to the production of 257 million tones in the previous year and 215 million tones about five years ago, there has been significant jump in the horticulture production, thereby leading to higher per capita availability of horticulture produce like fruits and vegetables having high domestic consumption, besides other commodities like spices, cashew etc. having high export potential. India is now the world`s largest producer of Mango, Banana, Papaya, Pomegranate, Sapota, Aonla and Okra and has the second highest position in Brinjal, Cabbage, Cauliflower, Onion, Potato and Peas. Tomatoes are also produced in sizable quantity. This has been possible on account of the Governmental interventions under the schemes of National Horticulture Mission (NHM), Horticulture Mission for North East and Himalayas States (HMNEH), National Mission on Micro Irrigation (NMMI), National Horticulture Board (NHB), Coconut Development Board (CDB) and Vegetable Initiative for Urban Clusters (VIUC).
  
• India is likely to produce record 263.2 million tonne food grains this year (includes Kharif 2013 and Rabi crops in the field at present). The earlier food grain production record of 259.3 MT was achieved in 2011-12. As per the latest crop sowing data available, major crops have been sown in more area than in Rabi last year. Wheat has been sown in 315.3 lakh hectare as compared to 298.2 lakh hectare in the last Rabi; pulses in 161.9 lakh hectare as compared to 152.7 lakh hectare in the last Rabi; and oilseeds in 90.1 lakh hectare as compared to 87.3 lakh hectare in the last Rabi. This will translate into higher production this Rabi. India is now the top exporter of rice and second top exporter of wheat and cotton. Overall agricultural exports stood at Rs. 2, 01,000 crore in 2012-13. India is also one of the top producers of milk, fruits and vegetables.
  
• The Cabinet, on 12 February, approved setting up of two semiconductor units, entailing investments of Rs.51, 550 crore. Two consortia — one led by Jaiprakash Associates and the other by Hindustan Semiconductor — has proposed to set up units in the country. In September, the Cabinet had given in-principle approval to the projects.
  
• The Cabinet Committee on Economic Affairs on 5 February approved the implementation of the National Mission on Agricultural Extension and Technology (NMAET) during the 12th Plan period. The extension of NMAET and its components will be expanded and up-scaled appropriately and implemented in a more coordinated and convergent manner. The Mission will have a total outlay of Rs. 13073.08 crore, with Government of India’s share of Rs. 11390.68 crore and State share of Rs.1682.40 crore. NMAET consists of 4 Sub Missions:
  (i) Sub Mission on Agricultural Extension (SMAE)(ii) Sub-Mission on Seed and Planting Material (SMSP)(iii)Sub Mission on Agricultural Mechanization (SMAM)(iv)Sub Mission on Plant Protection and Plant Quarantine (SMPP) Agricultural Technology, including the adoption/ promotion of critical inputs, and improved agronomic practices were being disseminated under 17 different schemes of the Department of Agriculture & Cooperation during the 11th Plan. The Modified Extension Reforms Scheme was introduced in 2010 with the objective of strengthening extension machinery and utilizing it for synergizing interventions under these schemes under the umbrella of the Agriculture Technology Management Agency (ATMA). The aim of the Mission is to restructure and strengthen agricultural extension to enable delivery of appropriate technology and improved agronomic practices to farmers.
  
• Union Minister of Housing & Urban Poverty Alleviation (HUPA), Dr. Girija Vyas states in the Lok Sabha on 5 February that, as per the estimates of Planning Commission, the percentage of people living below the poverty line as computed using the Tendulkar methodology has come down by 15.3 percentage points from 37.2% in 2004-05 to 21.9% in 2011-12. The Minister further stated that the percentage of persons below the Poverty Line in 2011-12 has been estimated as 25.7% in rural areas and 13.7% in urban areas. The respective ratios for the rural and urban areas were 41.8% and 25.7% in 2004-05. During the period 2004-05 to 2011-12, the decline in the rural poverty ratio is 16.1 percentage points which is higher than the 12 percentage points decline in the urban poverty ratio.
  
• The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation on 7 February released the advance estimates of national income at constant (2004-05) and current prices, for the financial year 2013-14. These advance estimates are based on anticipated level of agricultural production from the Ministry of Agriculture, Department of Agriculture & Cooperation(DAC), Index of Industrial Production (IIP), monthly accounts of Union Government Expenditure maintained by Controller General of Accounts (CGA) and of State Government expenditure maintained by Comptroller and Auditor general of India (CAG). Performance of key sectors like transport including railways, road , air and water transport etc, communication, banking and insurance have also been taken into account while compiling the estimates. The advance estimates at current prices are derived by estimating the implicit price deflators (IPDs) at sectoral level from the relevant price indices*. The salient features of these estimates are detailed below:
  
  ESTIMATES OF NATIONAL INCOME AT FACTOR COST
  A. Estimates at Constant (2004-05) PricesGross Domestic ProductGross Domestic Product (GDP) at factor cost at constant (2004-05) prices in the year 2013-14 is likely to attain a level of Rs. 57.5 lakh crore, as against the First Revised Estimate of GDP for the year 2012-13 of Rs. 54.8 lakh crore, released on 31st January 2014. The growth in GDP during 2013-14 is estimated at 4.9 per cent as compared to the growth rate of 4.5 per cent in 2012-13.
  The sectors which registered growth rate of over 5 percent are, `financing, insurance, real estate and business services`, `community, social and personal services` and ‘electricity, gas & water supply. The growth in the ‘agriculture, forestry and fishing’, ‘manufacturing’ ‘mining and quarrying’, ‘construction’ and ‘trade, hotels, transport and communication’ is estimated to be 4.6 per cent, (-) 0.2, (-) 1.9 per cent, 1.7 per cent, and 3.5 per cent respectively.
  
  AgricultureThe ‘agriculture, forestry and fishing’ sector is likely to show a growth of 4.6 per cent in its GDP during 2013-14, as against the previous year’s growth rate of 1.4 per cent. According to the information furnished by the Department of Agriculture and Cooperation (DAC), which has been used in compiling the estimate of GDP from agriculture in 2013-14, production of food grains is expected to grow by 2.3 per cent as compared to decline of 0.8 per cent in the previous agriculture year. The production of cotton and sugarcane is expected to grow by 6.7 per cent and 1.1 per cent as compared to decline of 2.8 per cent and 5.5 percent respectively in the previous agriculture year. Among the horticultural crops, production of fruits and vegetables is expected to increase by 3.9 per cent and 4.1 per cent during the year 2013-14 as compared to previous agriculture year.
  
  IndustryThe estimated growth in the ‘manufacturing’ ‘mining and quarrying’, ‘electricity, gas and water supply’, and ‘construction’ is estimated to be (-) 0.2 per cent, (-) 1.9 per cent, 6.0 percent and 1.7 per cent, respectively, during 2013-14 as compared to growth of 1.1 percent, (-) 2.2 per cent, 2.3 per cent and 1.1 per cent, respectively, in 2012-13. According to the latest estimates available on the Index of Industrial Production (IIP), the index of mining, manufacturing and electricity registered growth rates of (-)2.2 per cent, (-)0.6 per cent and 5.4 per cent, respectively during April-November, 2013-14, as compared to the growth rates of (-)1.6 per cent, 0.8 per cent and 4.5 per cent, respectively during April-November, 2012-13. The key indicators of construction sector, namely, cement production and steel consumption have registered growth rates of 3.7 per cent and 0.5 per cent, respectively, during April-December, 2013-14.
  
  ServicesThe estimated growth in GDP for the trade, hotels, transport and communication sectors during 2013-14 is placed at 3.5 per cent as against growth of 5.1 percent in the previous year. This is mainly on account of decline of 18.4 per cent in the sales of commercial vehicles during April-December 2013 as compared to decline of 2 percent during April to December 2012-13. Cargo handled at major sea ports increased by 1.9 per cent during April-December, 2013-14 while passengers and cargo handled by civil aviation increased by 8.2 per cent and 0.9 per cent respectively during April-November, 2013-14. The sector, `financing, insurance, real estate and business services`, is expected to show a growth rate of 11.2 per cent during 2013-14 as compared to growth rate of 10.9 per cent in 2012-13, on account of 15.9 per cent growth in aggregate deposits and 14.5 per cent growth in bank credit as on December 2013 (against the respective growth rates of 11.0 per cent and 15.1 per cent in the corresponding period of previous year). The growth rate of `community, social and personal services` during 2013-14 is estimated to be 7.4 per cent.
  
  National IncomeThe net national income (NNI) at factor cost, also known as national income, at 2004-05 prices is likely to be Rs. 49.3 lakh crore during 2013-14, as against the previous year`s First Revised Estimate of Rs. 47.3 lakh crore. In terms of growth rates, the national income registered a growth rate of 4.2 per cent in 2013-14 as against the previous year’s growth rate of 3.4 per cent.
  
  Per Capita IncomeThe per capita income in real terms (at 2004-05 prices) during 2013-14 is likely to attain a level of Rs. 39,961 as compared to the First Revised Estimate for the year 2012-13 of Rs. 38,856. The growth rate in per capita income is estimated at 2.8 per cent during 2013-14, as against the previous year`s estimate of 2.1 per cent.
  
  ESTIMATES AT CURRENT PRICES
  Gross Domestic ProductGDP at factor cost at current prices in the year 2013-14 is likely to attain a level of Rs.105.4 lakh crore, showing a growth rate of 12.3 per cent over the First Revised Estimate of GDP for the year 2012-13 of Rs. 93.9 lakh crore.
  
  National IncomeThe NNI at factor cost at current prices is anticipated to be Rs. 92.4 lakh crore during 2013-14, as compared to Rs. 82.6 lakh crore during 2012-13, showing a rise of 11.9 per cent.
  
  Per Capita IncomeThe per capita income at current prices during 2013-14 is estimated to be Rs. 74,920 as compared to Rs. 67,839 during 2012-13, showing a rise of 10.4 percent.