ECONOMY AFFAIRS JULY 2014

ECONOMY AFFAIRS JULY 2014

• TRAI recommends sharing of all Telecom Spectrum
  (TRAI, Telecom spectrum, sharing telecom spectrum)
  In a move that could help companies significantly reduce cost of mobile services, telecom regulator Trai on 21st July recommended allowing sharing of all categories of airwaves held by operators including spectrum allocated at old price of Rs 1,658 crore or assigned without auction. At present, telecom operators have been allocated airwaves frequency in 800 megahertz (CDMA), 900 Mhz, 1800 Mhz, 2100 Mhz (3G), 2300 Mhz and 2500 Mhz (4G) for wireless telecom services.
  
• New Frame works for big banks
  (New frame works, big banks, RBI announcement)
  The regulator of Banks in India i.e. RBI announced a new framework for identifying and dealing with large banks in the country, termed domestic systemically important banks (D-SIB). The announcements came on 22nd July.
  The parameters to be declared as D-SIB are………….
  • Size, Cross-Jurisdictional activities, Complexity, Lack of Substitutability, Interconnectedness
  These big lenders, perceived as “too big to fail”, will be publicly identified as such by the regulator from August 2015.
  The move comes as remedial measures to the problems faced during the global financial crisis of 2008, when certain large and highly interconnected financial institutions hampered the orderly functioning of the financial system, which in turn, negatively impacted the real economy.
  RBI said from data it had compiled as of March 31, 2013, four to six domestic banks would qualify under the D-SIB category.
  It also said four sub-categories of D-SIB lenders would be created, each with different requirements for additional common equity tier-1 capital requirements that would range from 0.2-0.8 per cent of risk-weighted assets.
  Based on the sample of banks chosen for computation of their systemic importance, a relative composite systemic importance score of the banks will be computed and then RBI will determine a cut-off score beyond which banks will be considered D-SIBs.
  The amount of additional capital requirements for D-SIBs is based on a mix of quantitative calibration and consideration of country-specific factors. D-SIBs will also be subjected to differentiated supervisory requirements and a higher intensity of supervision, based on the risks they pose to the financial system.
  On foreign banks with a branch presence in India, those with a parent which is not a global-SIB but is a D-SIB in India will have to maintain a D-SIB additional capital surcharge.
  Analysis
  Identifying domestic systemically important banks (D-SIBs) is a result of the requirement that all member countries of The Basel Committee of Banking Supervision set up a regulatory framework for banks that ‘are too big to fail’.
  While this needed to be done to complement the existing framework for globally important banks or G-SIBs, it is pertinent to question the merit of subjecting our big banks to capital requirements over and above that stipulated under Basel III.
  Big Indian banks are smaller than most of their global counterparts in both absolute and relative terms. For instance, the eight US G-SIBs have combined assets equal to 70 per cent of the country’s GDP; in India, the combined assets of the likely six D-SIBs add up to only a third of its GDP.
  Moreover, our banks mainly engage in plain-vanilla lending and have very limited inter-connected financial exposures through over-the-counter derivatives and other exotic instruments. As a result, the risk of contagion from credit defaults is substantially lower. Also, bank failures are rare in India, unlike the US or the UK, where the likes of Washington Mutual and Northern Rock have gone belly up in recent times.
  Public sector banks (PSBs), which have implicit state backing, make up roughly three-fourths of all deposits and advances in India. This is why there was very little panic amongst depositors when the United Bank of India reported a surge of bad loans last year. The RBI has proposed that D-SIBs set aside additional common equity capital; the amount will depend on their risk profile.
  Burdening banks with too much capital is counter-productive in a country where credit needs to expand 2.5 to 3 times more than real GDP growth. Additional capital will constrain the ability to lend which, in turn, will impact overall economic growth. It is doubtful whether higher capital adequacy alone can prevent the recurrence of Black Swan events such as the 2008 global financial crisis. Bank runs have to do with public perceptions regarding safety of deposits, going beyond mere capital provisions.
  This is not to understate the risk that large PSBs pose. Their proclivity for lending to risky projects stems from a combination of political pressure and the confidence of a government bailout in the event of a crisis. But the way to deal with this is to tighten prudential norms on lending and conduct stricter assessments of non-performing assets (NPAs).
  The RBI has done well to coerce banks into formulating credit action plans for loans overdue for more than just 60 days — that is, well before they slip into the NPA zone. All in all, the key to prevent banks from going under is prudential lending rather than providing a buffer in the form of greater capital.
  What happened in 2008?
  The global financial crisis (GFC) or global economic crisis is commonly believed to have begun in July 2007 with the credit crunch, when a loss of confidence by US investors in the value of sub-prime mortgages caused a liquidity crisis. This, in turn, resulted in the US Federal Bank injecting a large amount of capital into financial markets. By September 2008, the crisis had worsened as stock markets around the globe crashed and became highly volatile. Consumer confidence hit rock bottom as everyone tightened their belts in fear of what could lie ahead.
  The housing market in the United States suffered greatly as many home owners who had taken out sub-prime loans found they were unable to meet their mortgage repayments. As the value of homes plummeted, the borrowers found themselves with negative equity. With a large number of borrowers defaulting on loans, banks were faced with a situation where the repossessed house and land was worth less on today’s market than the bank had loaned out originally. The banks had a liquidity crisis on their hands, and giving and obtaining loans became increasingly difficult as the fallout from the sub-prime lending bubble burst. This is commonly referred to as the credit crunch.
  
• RBI eases norms for loans against Gold
  (RBI, eases norms, loan against Gold)
  The Reserve Bank of India (RBI) on 22nd July allowed banks to decide upon the ceiling regarding the quantum of loans that might be granted against gold for non-agricultural end uses. However, the regulator said banks would continue to maintain a loan-to-value (LTV) ratio of 75 per cent against the pledged gold.
  RBI also said the tenor of the loans shall not exceed 12 months from the date of sanction. Besides, RBI asked banks to charge interest to the account at monthly rests. According to RBI such loans shall be governed by extant norms pertaining to income recognition, asset classification and provisioning which shall be applicable once the principal and interest become overdue.
  Regarding calculation of LTV, RBI said it should be computed against the total outstanding in the account, including accrued interest, and current value of gold jewellery accepted as security/collateral.
  In the past, RBI had received representations from banks requesting to increase the prescribed ceiling and to review other conditions applicable for non-agricultural loans against pledge of gold ornaments and jewellery, where both interest and principal are payable at maturity of the loan
  
• Six entities get permission to start Airline operations
  (Six entities, permission to start, airline operations)
  The Civil Aviation Ministry has issued No Objection Certificates (NOCs) to six entities whose applications to start airlines in India were pending for long. These six airlines — Air One, Premier Air, Zexus Air (National), Turbo Megha, Air Carnival and Zav Airways (Regional) — are in addition to the Tata-Singapore Airlines joint venture that is likely to start operations by this year-end.
  Another new airline, AirAsia India, commenced domestic operations last month. Air Pegasus is also likely to get Air Operators Permit, the final nod to start operations, soon. Air One, which is now into air charter business, wants to be national scheduled airline.
  Analysis
  • The decision of the Union Civil Aviation Ministry to issue six no objection certificates to applicants both in the national and regional sectors raises a few questions. Air Asia has just taken to the skies in India. The Tata-Singapore Airlines joint venture airline should become operational by the year-end, and Air Pegasus is likely to get the nod soon.
  • India already has eight airlines, providing a dense network of flights linking different parts of the country, though not with a uniform spread. While the public sector Air India gets weighed down with social commitments and the burden of government or political interference, the private airlines get to run on more commercial lines. However, except for Indigo, which turns in a profit most of the time, all the airlines are running up losses, looking to the government to provide some relief or concessions.
  • The charge of the public sector airline is that the government and the authorities are more helpful to the private airlines. Air India has been bleeding consistently, and the government has been injecting funds in small doses to help it survive.
  • It has not been able to acquire all the aircraft it wanted, or reduce the burden of over-staffing. Some of the private airlines are run more efficiently and have unveiled plans to expand operations significantly.
  • This is why it has become critical juncture. It is arguable that does India require another six airlines.
  • And also there is a question on their survival. Since outgo on aviation turbine fuel and staff constitutes the largest share of the operational cost of any airline, how new companies, can survive.
  • However this decision provides job opportunities for young men and women, including qualified commercial pilots who have been without work for some time now.
  • From the point of view of passengers, more airlines and lower fares may once again make air travel cheaper and within the reach of the common person.
  • The Aviation Ministry may say it just issued an NOC for applicants, and it is up to the promoter to work out the economics of the operations and ensure that the new airlines remain viable. The Centre has also to take a call on the norms for allowing private or domestic airlines to fly international routes, because other than the domestic trunk routes the airlines earn their revenue from flights overseas.
  • It is also time for the aviation regulator to get prepared and equipped for the critical task of monitoring the skies and the operators, as well as their aircraft.
    
• RBI tweaks G-SEC limits for foreign investors
  (RBI tweaks, G-SeC, foreign investors)
  The Reserve Bank of India (RBI) has raised the foreign institutional investors' (FIIs') sub-limit in government bonds by $5 billion, after the existing $20-billion limit was almost exhausted. The move is expected to stabilise yields, volatile in the recent past.
  The overall limit for FII investment in government bonds has been kept unchanged at $30 bn. As a result on the rise in the sub-limit, that for long-term investors like insurance and pension funds will be reduced to $5 bn.
  What are Government securities?
  A bond (or debt obligation) issued by a government authority, with a promise of repayment upon maturity that is backed by said government. A government security may be issued by the government itself or by one of the government agencies. These securities are considered low-risk, since they are backed by the taxing power of the government
  Why Government securities?
  Provident funds, by their very nature, need to invest in risk free securities that also provide them a reasonable return. Government securities, also called the gilt edged securities or G-secs, are not only free from default risk but also provide reasonable returns and, therefore, offer the most suitable investment opportunity to provident funds.
  
• TCS created history
  (TCS, created history, market capitalisation)
  Tata Consultancy Services (TCS) on 23rd July became the first Indian company to exceed Rs 5 lakh crore in market capitalisation. The company's share price touched a 52-week high of Rs 2,580.60, taking its market cap to Rs 5.6 lakh crore ($86.5 billion, at 60 a dollar).
  This is more than the combined market cap of rival information technology companies Infosys (Rs 1,92,198 crore), Wipro (Rs 1,40,481 crore) and HCL Technologies (Rs 1,07,878 crore). TCS is also ahead of global competitors like Accenture and is within striking distance of SAP's $100 billion, though it is far behind IBM's $193.70 billion.
  In a list of the world's most valuable companies, TCS has moved up to 103 from 139 at the beginning of the year. SAP is at 100.
  
• TRAI recommended strict norms
  (TRAI, strict norms, regarding DTH and cable)
  Regarding DTH and Cable, Telecom Regulatory Authority of India, has made some important recommendations. These are released on 23rd July. TRAI has suggested that vertically integrated broadcasters (entities which run TV channels as well as distribution platforms) be subjected to additional regulation and be permitted to control only one distribution platform.
  At same time, the TRAI has also recommended a longer licence period and reduction in licence fee for the players. This is expected to create greater stability in the capital-intensive industry.The regulator has suggested that the DTH licence be issued for 20 years instead of current 10 years.It has, however, retained the one-time entry fee at Rs 10 crore.
  It also wants the licence fee reduced to 8 per cent of the adjusted gross revenues (excluding service tax, entertainment tax, sales tax/VAT) from the current system of charging 10 per cent of gross revenues. These recommendations have come after the Ministry of Information & Broadcasting sought TRAI’s views on certain terms and conditions in DTH licence regime.
  The Ministry will now take a final call on these suggestions. Smita Jha, Leader-Entertainment and Media Practice at PwC, said extension of the licence period to 20 years is beneficial as the DTH industry has been recognised as an infrastructure-intensive sector.
  The Government had asked TRAI to examine the issue. In February 2013, the TRAI had issued a consultation paper on subject. The regulator has sought public comments on the need, nature and level of restrictions and safeguards with respect to vertical integration in the broadcasting and distribution sectors and cross-holdings across various media sectors.
  TRAI
  The Telecom Regulatory Authority of India (TRAI) is the independent regulator of the telecommunications business in India.
  The entry of private service providers brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was, thus, established with effect from 20 February 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997, to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government.
  
• Nod for 49% FDI in Insurance sector
  (49% FDI, insurance sector, CCEA)
  The Cabinet Committee on Economic Affairs (CCEA) approved the raising of Foreign Direct Investment (FDI) cap in insurance from 26 per cent to 49 per cent through the Foreign Investment Promotion Board route.
  Opening up the insurance sector by increasing the cap on foreign shareholding to 49 per cent, as proposed by the Cabinet, could bring in inflows worth $3.5 billion or Rs 22,000 crore into the country.
  With this decision more foreign companies who are not yet present in the Indian market may also enter the space.
  The cap increase has come through the Foreign Investment Promotion Board (FIPB) route. The Bill now awaits Parliament's nod. The increase in FDI cap will also attract new foreign players in the country.
  Various routes of FDI’s
  An Indian company may receive Foreign Direct Investment under the two routes as given under:
  Automatic Route
  FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.
  Government Route
  FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance.
  The Indian company having received FDI either under the Automatic route or the Government route is required to comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank
  19 FDI proposals cleared
  FIPB has cleared 19 FDI proposals including that of Walt Disney Company and Reckitt Benckiser (India) entailing total investments of Rs 2,326.72 crore. FIPB has rejected an investment proposal of Multi- Commodity Exchange of India (MCX) for a post-facto approval of the foreign investment made by Alexandra Mauritius Ltd prior to the period when FDI in commodity exchanges was brought under approval route. It also rejected foreign investment application of George Institute for Global Health (Hyderabad), BIESSE Manufacturing Company (Bangalore) and three others.
  The government gave its nod to the proposal of Walt Disney Company (Southeast Asia) Pte Ltd, Singapore to infuse additional capital in UTV Software Communication by way of subscription to equity capital up to Rs 1,100 crore and also make additional investments from time to time.
  
• Government to appoint panel for Gas pricing
  (Gas pricing, panel for gas pricing, workshop with stock holders)
  The gas price committee likely to be formed by the government could hold a workshop with stakeholders on the possible guidelines.The panel’s recommendations would overwrite the controversial Rangarajan formula that had favoured doubling of natural gas prices from the current $4.2 per million British thermal units (mBtu). The committee’s modalities include holding workshops and inviting comments through the internet for preparation of its final report
  Its report could come by August 31, allowing the government a month to announce the new pricing formula and the reviewed guidelines by the deadline of end-September. The panel would also consider the observations made by Parliament’s standing committee on the sector, apart from the contractual and legal requirements if an alternative to the Rangarajan formula is suggested.
  According to the latter formula, gas prices were to be revised every quarter. The higher rates would have raised the cost of power by about Rs 2 a unit, urea production cost by Rs 6,228 a tonne, piped gas by Rs 8.5 a kg and compressed natural gas by Rs 12 a kg.
  The committee is likely to have as members former Union power minister Suresh Prabhu, Pratap Bhanu Mehta, head of the Centre for Policy Research, and Bibek Debroy, also from the latter body. The earlier government had on January 10 notified a new domestic gas pricing formula based on the Rangarajan recommendations.
  
• Bill cleared to empower SEBI to deal with Ponzi schemes
  (SEBI, Ponzi schemes, Bill cleared)
  The Union Cabinet cleared the Securities Laws (Amendment) Bill on 24th July, to empower the Securities & Exchange Board of India (Sebi) to effectively check illegal deposit taking and Ponzi schemes, with a corpus of at least Rs 100 crore. In March, the President had re-promulgated the ordinance. It had strengthened the enforcement powers of Sebi, while allowing it to conduct searches and seizures.
  The Bill seeks to give Sebi sweeping powers like attachment of properties, launch of recovery proceedings, seeking call data records to investigate cases and ordering search and seizure against manipulators and fraudsters.
  To tackle Ponzi schemes being floated as Collective Investment Schemes (CIS), any money collection of Rs 100 crore or more will be classified as a CIS and thus would fall under Sebi’s domain. This will bring chit funds with a corpus of more than Rs 100 crore under Sebi’s ambit; these were earlier exempt.
  
• RIL Fined
  The government has imposed an additional penalty of Rs. 3,475 crore on Reliance Industries for producing less than the targeted natural gas from its KG-D6 block in 2013-14.
  
• ADB projects 6.3% growth for India in 2015-16
  Manila-based Asian Development Bank (ADB) has upgraded India’s economic growth forecast to 6.3 per cent in 2015-16 on hopes of speedy reform process. The multilateral funding agency, however, has retained forecast of 5.5 per cent growth for this year. Earlier, ADB had projected a 6 per cent growth for India in the financial year.
  It said growth in China was moderating in line with earlier expectations and should achieve the forecast of 7.5 per cent in 2014 and 7.4 per cent in 2015. In Southeast Asia, growth softened in the first-half of 2014 largely because of country-specific factors in Indonesia, Thailand, and Vietnam.
  ADB: The Asian Development Bank (ADB) is a regional development bank established on 22 August 1966 which is headquartered inMetro Manila, Philippines to facilitate economic development of countries in Asia. The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly known as the United Nations Economic Commission for Asia and the Far East) and non-regional developed countries. From 31 members at its establishment, ADB now has 67 members - of which 48 are from within Asia and the Pacific and 19 outside. ADB was modeled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with member's capital subscriptions.
  
• SEBI draft norms for infrastructure investment trusts
  The Securities and Exchange Board of India, on 17th July, released draft guidelines for Infrastructure Investment Trusts (InvITs), which will enable creation of a new investment product for arranging long-term financing for infrastructure projects.
  These InvITs can be listed on the stock exchanges, will get tax benefits and will invest the funds collected from investors in infrastructure projects, including PPP (public private partnership).
  InvITs would allow investors to invest in specific products linked to infrastructure projects, while providing necessary safeguards. Besides, it would help the corporates raise significant amounts of capital for their projects.
  According to draft papers, an InvIT which proposes to invest at least 80 per cent of the value of the assets in the completed and revenue generating infrastructure assets, would have to raise funds only through public issue of units and the minimum subscription size and trading lot for such product would be Rs.5 lakh. The remaining 20 per cent may be invested in under construction infrastructure projects.
  SEBI said an InvIT, which proposes to invest more than 10 per cent of the value of their assets in under construction infrastructure projects, would require to raise funds through private placement from qualified institutional buyers and the minimum investment and trading lot for such InvITs would be of Rs.1 crore.An InvIT would be a trust with parties such as sponsor, investment manager, trustee and project manager.
  
• Centre sets up expert panel on Cost and Audit rules
  Amid concerns raised by cost accountants over some provisions in the new Cost Records and Audit Rules, the government on 19th July set up an expert committee to look into this matter.
  State-run energy giant ONGC’s former Chairman and Managing Director R. S. Sharma will head the committee, which will study the recently notified rules and issues relevant to cost auditing.
  The other members of the committee will be R. K. Jain, Additional Secretary in the Ministry of Health and Family Welfare, former ICWAI (Institute of Cost and Works Accountants of India) President Chandra Wadhwa, and Aruna Sethi, Adviser (Cost), Ministry of Corporate Affairs. The committee can also co-opt up to two members, the Corporate Affairs Ministry said in a statement.
  Following the notification of the Companies (Cost Records and Audit) Rules 2014, the Council of the Institute of Cost Accountants of India had expressed concerns over certain provisions of the rules, particularly coverage of sectors of economy under the rules. The Ministry further said that “it is hoped that the recommendations of the committee will help create a competitive and efficient business environment.”
  
• Satyam Case: SEBI bars Raju, 4 others for 14 years
  Five-and-a-half years after the Satyam Computer Services scam broke, the erstwhile top management — B Ramalinga Raju, ex-Chairman; B Rama Raju, ex-Managing Director; Vadlamani Srinivas, ex-CFO; G Ramakrishna, ex-VP (Finance); VS Prabhakara Gupta, ex-Head (Internal Audit) — has been banned from the securities market for 14 years.
  In an order on 15th July, market regulator SEBI also directed the five to return unlawful gains of ?1,849 crore within 45 days, with 12 per cent interest from January 7, 2009, to date. The order comes into force immediately and the amount will have to be paid to SEBI through a demand draft. The SEBI order comes just ahead of a verdict expected on July 28 from a special court, which is handling the multi-crore accounting fraud case. SEBI found that the five failed to produce any material to contest the allegations/charges leveled against them despite having several opportunities to do so.
  
• 19 FDI proposals worth Rs. 2,327 crore approved
  The government has cleared 19 foreign investment proposals, including that of Walt Disney Company and Reckitt Benckiser (India), entailing a total investment of Rs 2,326.72 crore. The FIPB, however, rejected an investment proposal of MCX for a post-facto approval of the FDI made by Alexandra Mauritius Ltd prior to the period when FDI in commodity exchanges was brought under approval route.
  
• Jaitley’s Maiden Budget
  Finance Minister Arun Jaitley introduced his maiden budget in Lok Sabha on 10th July. The important points of budget are as follows:
  • Plan expenditure pegged at Rs 5.75 lakh crore and non-plan at Rs 12.19 lakh crore.
  There are two components of expenditure - plan and non-plan. Of these, plan expenditures are estimated after discussions between each of the ministries concerned and the Planning Commission.
  Non-plan revenue expenditure is accounted for by interest payments, subsidies mainly on food and fertilisers, wage and salary payments to government employees, grants to States and Union Territories governments, pensions, police, economic services in various sectors, other general services such as tax collection, social services, and grants to foreign governments. Non-plan capital expenditure mainly includes defence, loans to public enterprises, loans to States, Union Territories and foreign governments
  • Accepts fiscal deficit target of 4.1 percent of GDP for 2014/15. Fiscal deficit seen at 3.6 percent of GDP in 2015/16. Finance Minister aimed Aims for sustained growth of 7-8 percent in the next 3-4 years
  • Aims to approve goods and services tax by end of this year. Will not change rules on retrospective taxation. All pending cases of retrospective tax for indirect transfers to be examined by a high-level committee before action is taken
  The Goods and Services Tax (GST) is a Value Added Tax (VAT) to be implemented in India, the decision on which is pending. It will replace all direct taxes levied on goods and services by the Indian Central and State governments. It is aimed at being comprehensive for most goods and services. India is a federal republic, and the GST will thus be implemented concurrently by the central and state governments as the Central GST and the State GST respectively. Exports will be zero-rated and imports will be levied the same taxes as domestic goods and services adhering to the destination principle.
  Retrospective tax is certain amendment or provision which is made applicable from past date is called effective retrospectively.
  • Raises limit on foreign direct investment in defence sector from 26 per cent to 49 per cent; raises FDI limit in insurance sector to 49 percent. Proposes Rs 4000 crore for affordable housing through national housing bank and extends tax incentives for housing loans Exemption limit for investment in financial instruments under 80C raised to Rs 1.5 lakh from Rs 1 lakh. Investment limit in PPF raised to Rs 1.5 lakh from Rs 1 lakh.
  • Proposes changes in transfer pricing mechanism
  • Extends 5 percent withholding tax on corporate bonds until June 30 2017
  • Income tax exemption limit raised by Rs 50,000 to Rs 2.5 lakh and for senior citizens to Rs 3 lakh
  • Government expects Rs 9.77 lakh crore revenue crore from taxes
  • Long term capital gain tax for mutual funds doubled to 20 per cent; lock-in period increased to three years
  • Excise duty on footwear reduced from 12 per cent to 6 per cent
  • Net effect of direct tax proposals is revenue loss of Rs 22,200 crore
  • Tax proposals on indirect tax front would yield Rs. 7,525 crore
  • Capital outlay for defence raised by 50 billion rupees over interim budget
  • Earmarks Rs 7000 crore to create 100 "smart cities"
  • Proposes Rs 5000 crore for warehousing capacity; 100 billion rupees of private capital for start-up companies; and 378 billion rupees of investment in national and state highways
  • Rs 4000 crore for affordable housing proposed through national housing bank and extends tax incentives for housing loans
  • Proposes Rs 8000 crore for rural housing scheme
  • Plans to make food and petroleum subsidies more targeted
  • Rural job-guarantee scheme, which provides 100 days of paid employment a year, will become more focused on asset creation
  • Proposes Rs 8000 crore for rural housing scheme
  • Will focus on achieving 4 growth per year in agriculture
  • Proposes a long-term rural credit fund with an initial corpus of Rs 5000 crore
  • Rs 100 crore for development of organic farming
  • Pension Scheme to be revived for a year (Aug 15-14) for citizens above 60
  • Rs 50,548 crore for SC welfare schemes.
  • Rs 32,387 crore for ST welfare schemes.
  • Earmarks Rs 500 crore for 24x7 uninterrupted power in all homes
  • Rs 100 crore for metro projects in Lucknow and Ahmedabad
  • Rs 2,037 crore set aside for Integrated Ganga Conservation Mission called 'Namami Gange'
  • Rs 200 crore for world-class sports stadium in Jammu and Kasmir
  • Trade Facilitation Centre in Varanasi Handloom and Crafts Museum
  • Rs 1000 crore to enhance rail connectivity in the Northeast
  • Rs 2250 crore for the development and modernization of the border infrastructure
  • A project on the river Ganga called 'Jal Marg Vikas' for inland waterways between Allahabad and Haldia; Rs 4,200 crore set aside for the purpose
  • War memorial to be set up along with a war museum; Rs 100 crore set aside for this
  • Five more IIMs to be opened in HP, Punjab, Bihar, Odisha and Rajasthan
  • Five more IITs in Jammu, Chattisgarh, Goa, Andhra Pradesh and Kerala.
  • Four more AIIMS like institutions to come up in Andhra Pradesh, West Bengal, Vidarbha in Maharashtra and Poorvanchal in Uttar Pradesh
  • E-Visas to be introduced at 9 airports
  • Finance Minister says tourism helps in job creation and e-visas will encourage more tourists to visit India , A provision of Rs 500 crore for five tourism sector.
  • Deduction limit on interest on loan for self-occupied house raised to Rs 2 lakh from Rs 1.5 lakh.
  • Set aside Rs 11,200 crore for PSU banks capitalization
  • Government in favour of consolidation of PSU banks ,li> Government considering giving greater autonomy to PSU banks while making them accountable
  • PSUs to invest to over Rs 2.47 lakh crore this fiscal
  • Earmarks Rs 200 crore for Sardar Patel statue ,li> Proposes Rs 150 crore for improving women safety
  • Government proposes to launch Digital India' programme to ensure broad band connectivity at village level
  • Rs 100 crore scheme to support about 600 new and existing Community Radio Stations
  • Rs 150 crore for Communication facilities in Andaman and Nicobar Islands
  • Rs 188 crore for disaster preparedness in Puducherry
  • Rs 3,600 crore for providing safe drinking water
  • North-stop 24-hour channel is proposed to be introduced
  • Farmer TV channel will be launched for the benefit of farmers.
  • Rs 200 crore to make Delhi a world class city for social welfare and Rs 500 crore for energy
  • Kisan Vikas Patra to be reintroduced, National Savings Certificate with insurance cover to be launched
  • Pandit Madan Mohan Malviya New Teachers Training Programme' launched with initial sum of Rs 500 crore
  • Government provides Rs 500 crore for rehabilitation of displaced Kashmiri migrants
  • Indian Custom Single Window Project to be taken up for facilitating trade
    
• Economic Survey has pegged that India’s GDP growth rate would be around 5.4% to 5.9% in the current financial year. The important points of the economic survey are as follows
  • Need new Fiscal Responsibility Budgetary Management (FRBM) act with more powers
  • There are concerns over El Nino emergence this year
  • FY 15 GDP likely to be on lower side of projection
  • Raising tax GDP ratio key to fiscal consolidation
  • MNREGA has created labour shortage and hiked wages
  • Industrial growth likely to revive in next 2 years
  • Fiscal deficit needs to move downwards in next 2 years
  • WPI inflation likely to moderate by 2014 end
  • Agricultural allied sector registered 4.7% growth in FY 14
  • Long term debt accounts for 78.2 percent of total external debt
  • India's service sector CAGR at 9 percent in 2011-12
  • FY 15 current account deficit may be limited to 2.1 percent of GDP
  • Sharp fall in trade deficit, closes in by 27.8percent to $ 137.5 billion
  • FY 2014-15 first quarter trade deficit declined by another 42.4percent
  • Exports grew by 4.1percent over negative growth of 1.8percent in 2012-13
  • Exports log double digit growth in May, 2014 after a gap of 6 months
  • Imports drop by 8.3percent, after steep slowdown during the previous FY 2012-13
  • Trend continues in April-May, 2014 as imports fell by 13.2percent
  • Following government intervention, gold and silver imports fell by 40.1 percent to $33.4 billion in 2013-14
  Agriculture Sector
  • Record food grains production of 264.4 mt in the year 2013-14
  • Record production of oilseeds of 32.4 mt in the year 2013-14
  • Record production of pulses of 19.6 mt in the year 2013-14
  • Groundnut shows the largest increase in productivity i.e., 73.17% in the year 2013-14.
  • India ranks first in the world in productivity of grapes, banana, cassava, peas, and papaya
  • Agriculture sector growth rate 4.7% in the year 2013-14
  • Area under foodgrains increased by 4.47% to 126.2 million ha in the year 2013-14
  • Area under oilseeds increased by 6.42% to 28.2 million ha in the year 2013-14
  • Stocks of foodgrains in the Central Pool stood at 69.84 million tonnes as on June 1, 2014
  • Net availability of foodgrains increased by 15% to 229.1 million tonnes in 2013
  • Per capita net availability of foodgrains increased to 186.4 kg per year in 2013
  • Agriculture exports grow by 5.1% in the year 2013-14
  • Exports of marine products show a growth rate of 45% in the year 2013-14
  • Milk production touches a record high of 132.43 mt in the year 2012-13
  • Contribution of livestock sector to total GDP was 4.1% in the year 2012-13
  • Year-on-year growth rate of milk production in India is 4.04% vis-a-vis world average of 2.2%
  • Credit to agriculture sector exceeds target of Rs. 7,00,000 crore in the year 2013-14
  • Share of agriculture and allied sectors in GDP declines to 13.9% in 2013-14
  • Number of cultivators decline from 127.3 million in 2001 to 118.7 million in 2011
  Industrial Performance
  • Industry grew by just 1.0 percent in 2012-13 and slowed further in 2013-14, posting a modest increase of 0.4 percent.
  • During 2013-14, FDI inflow (including equity inflows, reinvested earnings and other capital) was USD 36.4 billion.
  • Overall gross bank credit flow to industry has increased by 14.9 percent in 2013-14.
  Service Sector
  • India ranked 12th in terms of services GDP among the world’s top 15 countries
  • India has the second fastest growing services sector with its CAGR at 9.0 percent, just below China
  • The growth rate of the combined category of trade, hotels, restaurants, transport, storage, and communications decelerated to 3.0 percent
  • Financing, insurance, real estate, and business services grew robustly at 12.9 percent
  • Services constitute a 57 percent share in GDP at factor cost in 2013-14
  • India’s share in world inbound tourist arrivals increased to 0.63 percent in 2013
  • The size of domestic tourism has also crossed an estimated 1.1 billion annual travel visits
  • The IT–Business Process Management (BPM) sector grew by an estimated 10.3 percent, reaching US$ 105 billion in 2013-14
  • Services like software and telecom were big ticket items that gave India a brand image in services
  Fiscal Health
  • Fiscal consolidations remains imperative for the economy, says the Economic Survey
  • Economy Survey recommends fiscal consolidation through higher tax-GDP ratio then merely reducing the expenditure to GDP ratio
  • Proactive policy action helped government remain in fiscal consolidation mode in 2013-14
  • Fiscal deficit for 2013-14 contained at 4.5% of the GDP
  • Total outstanding liabilities of the central and state governments decline as a proportion of GDP
    
• IMF Cuts Global Growth Forecast
  International Monetary Fund reduced growth forecasts, saying investment is still weak and that risks remain in the U.S. even as its rebound accelerates. The IMF is preparing to update its economic forecasts this month after predicting April 8 that the global economy will expand 3.6 percent this year and 3.9 percent in 2015.
  
  Growth in the U.S., the world’s largest economy, is set to accelerate in coming months and Asia’s emerging market economies will avoid a hard landing, though the European recovery is still not as strong as it should be, Lagarde said.
  All about IMF
  • The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries.
  • The IMF is organization of 188 countries
  • Its headquarters are in Washington, D.C., United States.
  • At present the head is Christine Lagarde
    
• RBI initiates swap of old gold with new one
  The Reserve Bank of India has undertaken an exercise to swap old gold in its reserves with a new one with a view to standardize the yellow metal stock. The central bank has asked nominated banks to give quotes for swap with the objective to optimise the management of its reserves.
  
  The nominated banks, including State Bank of India, would import gold on behalf of RBI and subsequently the metal would be swapped. Under the scheme, RBI would exchange relatively impure gold including some dating back pre-independence era from its Nagpur vault and get the equivalent worth of purer yellow metal.
  
  Gold imports declined 72 per cent to $2.19 billion in May due to restrictions imposed by the government on inbound shipments of the precious metal to narrow the CAD. India's CAD, which is the excess of foreign exchange outflows over inflows, touched a historic high of 4.8 per cent of GDP in 2012-13, mainly due to rising imports of petroleum products and gold. A high CAD puts pressure on the rupee, which in turn makes imports expensive and fuels inflation.
  
• 29.5 % of Indians are poor: Rangarajan Committee
  A panel set up by Union Government of India, has said that at present 29.5% of the Indians are poor. The panel was headed by former Chairman of Prime Minister Economic Advisory council. Earlier, the Committee under the chairmanship of Suresh Tendulkar submitted a report; however it has faced a severe criticism, about its methodology of estimation of poverty. At that moment Government appointed Rangarajan committee.
  
  For 2009-10, the Suresh Tendulkar methodology had pegged the poverty line at Rs 22 in villages and Rs 29 in urban areas. These were raised to Rs 27 and Rs 40, respectively, by the Rangarajan committee.
  
  As many as 91.6 million people were lifted out of poverty, according to the Rangarajan panel report, during the period as there were 454.6 million poor in 2009-10.
  Other important points:
  • The estimation based on the Suresh Tendulkar methodology had earlier shown that 84.9 million people came out of poverty since the number of poor stood at 354.7 million in 2009-10.
  • The poverty rate fell by 8.7 percentage points in this period under the Rangarajan formula against a 7.9 percentage point fall under the Tendulkar methodology.
  • By the new methodology, poverty in absolute numbers was almost twice as high at 102.5 million, constituting 26.4 per cent of the urban population.
  • The poverty numbers are based on the National Sample Survey Office (NSSO) report on the consumption expenditure for 2009-10 and 2011-12.
    
• Railway Budget 2014-15: Highlights
  Except in operations, in all other spheres Foreign Direct Investments were invited by Railway Minister Sadananda Gouda, in his maiden Railway Budget. Introduction of bullet trains, bio toilets, Wifi technology… etc are the important proposals in the budget introduced on 8th July.
  • Foreign Direct Investments in Railways is subject to cabinet’s approval. According to Minister, funds are insufficient within the railways, it has become inevitable to invite investments through FDI, he also said that PPP model of funding in railways is so far has not got any success.
  • On June 22nd, Railway Ministry increased fares, hence in budget the fares were not touched
  • Railway Minister announced plans to introduce a bullet train in Mumbai- Ahmedabad sector and setting up of a Diamond Quadrilateral network of high speed rail connecting major metros and growth centres. A sum of Rs 100 crore has been provided for initiating the project. Increasing the speed of trains to 160 to 200 km per hour on nine select sectors was another highlight of the budget, which proposes to allow all experimental stoppages to lapse after September this year.
  • Rs. 8000 crore additional revenue to be generated through fare revision
  • Rs. 9 lakh crore is required to complete Golden Quadrilateral net work
  • Out sourcing cleaning activities to professional agencies
  • Highest ever plan outlay of Rs. 65,455 crore for 2014-15
  • Expenditure in 2014-15 pegged at Rs. 149,176 crore.
  • 58 new trains and extension of 11; 864 additional EMUs to be introduced in Mumbai over 2 years
  • Online booking to support 7,200 tickets/minute; to allow 1.2 lakh users log in simultaneously
  • Reservation system to be revamped, ticket-booking through mobile phones, post offices to be popularised .
  • Online platform, unreserved tickets
  • Combo parking-platform tickets at stations
  • Women RPF Constables to escort ladies coaches; 4,000 women constables to be inducted
  • Retiring room facility to be extended to all stations
  • Battery operated cars for differently-abled and senior citizens at major stations
  • Feedback services through IVRS on quality of food
  • Food can be ordered through SMS, phone; Food courts at major stations
  • Cleanliness budget up by 40 percent over last year
  • CCTVs to be used at stations for monitoring cleanliness
  • Setting up of corpus fund for stations' upkeep; RO drinking water at stations and trains
  • Automatic door closing in mainline and sub-urban coaches
  • Office-on-Wheels: Internet & Workstation facilities on select trains
  • Wi-Fi in A-1, A category stations and in select trains
  • Rail university for technical and non-technical subjects
  • Some stations to be developed to international standards through PPP model
  • Parcel traffic to be segregated to separate terminals to make passenger traffic unhindered
  • Loss per passenger per kilometre up from 10p (in 2000-01) to 23p (2012-13)
  • Solar energy to be tapped at major stations
    
• Monthly Pension Approved
  The National Democratic Alliance (NDA) government has given a much-awaited nod to minimum monthly pension of Rs 1,000 for Employees' Provident Fund Organisation (EPFO) subscribers benefiting 2.8 million pensioners. This would immediately benefit 2.8 million out of the total 4.4 million pensioners covered under the EPS-95 scheme.
  
• Rangarajan recommended Tendulkar methodoly
  An expert group headed by C Rangarajan has recommended a new mechanism for estimation of poverty in the country. The report was submitted to Minister of State for Planning Rao Inderjit Singh on 30th June. According to Plan panel estimates based on Tendulkar methodology, the poverty ratio declined to 21.9 per cent in 2011-12 from 37.2 per cent in 2004-05.
  
  Tendulakar Methodology
  The Tendulkar Committee for the first time recommended use of implicit prices derived from quantity and value data collected in household consumer expenditure surveys for computing and updating the poverty lines. Tendulkar Committee developed a methodology using implicit prices for estimating state wise poverty lines for the year 2004-05. Using these poverty lines and distribution of monthly per capita consumption expenditure based on mixed reference period (MRP), the Tendulkar Committee estimated poverty ratios for the year 2004-05.In its Report, Tendulkar Committee recommended a methodology for updating 2004-05 poverty lines derived by it.
  • According to Tendulkar’s panel estimation, number of poor are 270 million
    
• Rangarajan Committee
  The Rangarajan Committee’s approach is to delink the estimation of poverty from a fixed level of consumption. The Committee’s recommendation is that the bottom 35 per cent of rural Indians at any given time (based on monthly consumption) be defined as poor
  • If Rangarajan committee formula accepted the number of poor will go to 370 million
    
• State Bank launches six digital banking branches
  The State Bank of India on 1st June launched six digital branches across the country as part of its programme to offer next generation banking solutions to the growing mobile phone and internet savvy customer base.
  
  These branches, named sbiINTOUCH, will facilitate services such as instant account opening with personalised debit cards, instant loan approval for car and home, remote expert advisors available via video links, along with interactive walls and table displays.
  
  Branches are in Delhi, Mumbai, Bangalore, Chennai and Ahmedabad.
  SBI INTOUCH branches are primarily targeted at servicing the youth in the country.
  
• Centre brings Onion, Potato under Essential Commodities Act
  In an apparent bid to douse the raging fire of rising onion and potato prices, the Centre on 3rd July brought these two vegetables within the purview of stockholding limits under the Essential Commodities Act, 1955.With this move, the ball is clearly in the court of State governments to take up de-hoarding operations and control the prices of onions and potatoes and improve availability.
  
  The move followed a decision earlier in the day to hike the minimum export price (MEP) of onions to $500 a tonne from $300 a tonne. A higher MEP would mean that exports will become costlier and no longer profitable for traders. On June 26, the Government had imposed an MEP of $450/tonne for potato. The CCEA also gave its nod for additional allocation of 50 lakh tonnes of rice for distribution to Below Poverty Line and Above Poverty Line families for the July 2014 to March 2015 period.
  
  About Act:
  The Essential Commodities Act is an act of Parliament of India which was established to ensure the delivery of certain commodities or products, the supply of which if obstructed owing to hoarding or blackmarketing would affect the normal life of the people. This includes foodstuff, drugs, fuel (petroleum products) etc
  
• Initiatives to check onion prices
  Union Government has taken certain decisions to check the prices of onion and potato prices. On 3rd July, Government brought these two vegetables within the purview of essential commodities act, 1955.
  
  The purpose of this act is to ensure the easy availability of essential commodities to consumers and to protect them from exploitation by unscrupulous traders. The Act provides for the regulation and control of production, distribution and pricing of commodities which are declared as essential for maintaining or increasing supplies or for securing their equitable distribution and availability at fair prices. Exercising powers under the Act, various Ministries/Departments of the Central Government and under the delegated powers, the State Governments/UT Administrations have issued orders for regulating production, distribution, pricing and other aspects of trading in respect of the commodities declared as essential. The enforcement/ implementation of the provisions of the Essential Commodies Act, 1955 lies with the State Governments and UT Administrations.
  
  Earlier in the day, the government also decided to hike the minimum export price (MEP) of onions to $500 a tonne from $300 a tonne.
  
  A higher MEP would mean that exports will become costlier and no longer profitable for traders. On June 26, the Government had imposed an MEP of $450/tonne for potato.
  
  The CCEA also gave its nod for additional allocation of 50 lakh tonnes of rice for distribution to Below Poverty Line and Above Poverty Line families for the July 2014 to March 2015 period.
  
  The Essential Commodities Act is an act of Parliament of India which was established to ensure the delivery of certain commodities or products, the supply of which if obstructed owing to hoarding or blackmarketing would affect the normal life of the people. This includes foodstuff, drugs, fuel (petroleum products) etc
  
  Analysis:
  The rising cost of onion and potato are posing a major challenge now, there is little doubt that there is cause for concern mainly because the monsoon is playing truant. After its poor performance in June, the revival in July has been patchy, fuelling inflationary expectations in food grains and vegetables. The government believes that the expectation of a poor monsoon and consequent fall in harvests has encouraged traders and middlemen to hoard food staples such as onion and potato. The decision to bring the two vegetables under the purview of the Essential Commodities Act and imposing stock limits on them is a direct result of this reading. Simultaneously, the government has increased the minimum export price of onion to $500 a tonne; the earlier level of $300 a tonne has not been effective enough. India is one of the largest onion exporters in the world, and last year it shipped out about 1.3 million tonnes of the bulb — which was a little less than 10 per cent of the country’s total output.
  
  The move to set stock limits could also be a strategy to co-opt State governments in the fight against inflation because the role of the Centre is limited to notifying the commodity under the Essential Commodities Act. Setting of actual stock limits and cracking down on hoarders are entirely under the purview of the States.
  
  The Centre will need to work in tandem with State governments on the issue of fighting food inflation because most levers to reform the supply chain are with them. Whether it is reforming procurement practices or minimising the role of middlemen or amending the Agricultural Produce Marketing Committee Act, the power is all with the States.
  
  The fight against food inflation is critical for the government as it will have an impact on the monetary policy of the Reserve Bank of India. Food inflation rebounded in May to 9.50 per cent after a slight dip in April, and the June data are unlikely to be encouraging — which means that easier interest rates to spur growth are now that much more distant.
  
  If one sees the other side, most steps announced so far aim largely at lowering consumer prices without taking adequate steps to stimulate production or ease the supply crunch, the root cause for this recurring menace. The moves – such as increasing minimum export prices, bringing onions and potatoes under the repressiveEssential Commodities Act, capping stockholdings and launching drives to prevent hoarding – normally tend to send the wrong signals to farmers and reduce incentives for expanding acreage under these crops.
  
  Raising minimum export prices of onions, for instance, at this stage is meaningless, as there is hardly any incentive for exports when the domestic prices rule so high. Similar is the case with anti-hoarding measures as vegetables and fruit cannot be kept for long without incurring losses due to spoilage and moisture loss.
  
  The measure that can soften the prices and spur higher production is removal of all restrictions on the movement of farm goods. Some states – notably the major potato-grower West Bengal – often stop the flow of vegetables to other states. This hurts the interests of local farmers, as well as consumers, in importing states. Thus, an enduring solution to frequent spurts in the prices of vegetables and fruit lies in boosting supplies and reducing marketing costs. Otherwise, their prices will remain volatile.
  
• RRBs, CO-OP BANKS GET NEW GOLD LOAN NORMS
  The Reserve Bank of India said loans sanctioned by Regional Rural Banks and State/Central Co-operative Banks for the purpose of medical expenses and meeting unforeseen liabilities should not exceed 75 per cent of the value of gold ornaments and jewellery.
  
• India should avoid Fiscal Slippage: World Bank
  World Bank has suggested to the new Indian government to avoid fiscal slippage.
  When the planned annual budget does not meet the actual spending because of something that affects the tax money collectors
  Inflation is still uncomfortably high in India hence World Bank has made this suggesition
  In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time
  The previous government's interim budget in February set a deficit target of 4.1% of GDP for the current financial year. The gap has already hit $40 billion, or nearly half of the target for the full fiscal year that started in April.
  
  Fiscal deficit is the difference between the government’s expenditures and its revenues (excluding the money it’s borrowed). A country’s fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP)
  
  The World Bank said in a 2014 report that India has one of the world's most rigid labour markets, where regulations often end up encouraging firms to stay small and dodge labour laws.
  
  The World Bank last month said India will likely grow 5.5% in the current fiscal year and 6.3% in the 2015-16 fiscal year.
  
  The fiscal deficit during the first two months of fiscal 2014-15 exceeds 45 per cent of the amount budgeted for the whole year in the February interim budget.
  
  Union Finance Ministry faces the unenviable task of reining in the fiscal deficit, the excess of aggregate government expenditure over total income. Along with reviving growth and boosting infrastructure, controlling the deficit should be a focus area.
  
  According to figures released by the Controller General of Accounts, the fiscal deficit during the first two months of fiscal 2014-15 exceeds 45 per cent of the amount budgeted for the whole year in the February interim budget. In contrast, during the first two months of 2013-14 the figure was slightly over 33 per cent.
  
  An unanticipated increase in the fiscal deficit obviously reduces the elbow room available to stimulate growth. Another factor adding to the complexity of the forthcoming budget exercise is the fact that the interim budget’s estimates of key fiscal numbers have been based on unrealistic assumptions, which, as the early deficit numbers for the current year show, do not stand scrutiny.
  
  In the interim budget for the current year, the then Finance Minister P. Chidambaram estimated the fiscal deficit for 2013-14 at 4.5 per cent of the GDP, significantly lower than the budget estimate of 4.8 per cent and even lower than the revised estimate of 4.6 per cent. For the current year, the target was pegged at 4.1 per cent. Quite obviously, the attainment of such an ambitious target is dependent on how realistic the underlying assumptions have been.
  
• Government clears six FDI proposals worth Rs.551 crore
  The Finance Ministry has cleared six foreign direct investment (FDI) proposals with estimated investments of Rs 551 crore. The proposals cleared include Mauritius-based Destimoney Enterprises Limited’s Rs 489.99 crore proposal for subscribing to 3,76,92,300 partly paid equity shares of PNB Housing Finance Ltd.
  
  What are FDI’s?
  The Foreign Direct Investment means “cross border investment made by a resident in one economy in an enterprise in another economy, with the objective of establishing a lasting interest in the investee economy
  Procedure for receiving foreign direct investment in an Indian company:
  An Indian company may receive Foreign Direct Investment under the two routes as given under:
  Automatic Route:
  FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.
  Government Route:
  FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Application