ECONOMY AFFAIRS MARCH 2014

ECONOMY AFFAIRS MARCH 2014

• The Reserve Bank of India, on 25th March, simplified foreign portfolio investment norms by putting in place an easier registration process and operating framework with an aim to attract inflows. “The portfolio investor registered in accordance with the Securities and Exchange Board of India (SEBI) guidelines shall be called Registered Foreign Portfolio Investor (RFPI),” the RBI said in a notification. It also said the existing portfolio investor class, namely, Foreign Institutional Investor (FII) and Qualified Foreign Investor (QFI) registered with SEBI shall be subsumed under RFPI. The guidelines for Portfolio Investment Scheme for FII and QFI have since been reviewed, and it has been decided to put in place a framework for investments under a new scheme called Foreign Portfolio Investment Scheme, it said.RBI says, RFPI can purchase and sell shares and convertible debentures of Indian companies through a registered broker on recognised stock exchanges in India as well as purchase shares and convertible debentures, which are offered to public in terms of relevant SEBI guidelines. Such investors may also acquire shares or convertible debentures in any bid for, or acquisition of, securities in response to an offer for disinvestment of shares made by the Central Government or any State government. These entities would be eligible to invest in government securities and corporate debt, subject to limits specified by the RBI and SEBI from time to time. However, RBI said, all investments made by that FII/QFI in accordance with the regulations prior to registration as RFPI shall continue to be valid and taken into account for computation of aggregate limit. The RBI said such investors would be permitted to trade in all exchange-traded derivative contracts on the stock exchanges, subject to the position limits as specified by SEBI from time to time. The RBI notification is effective from March 19.
  
• According to official data released on 28th March, India’s total external debt stock stood at $426 billion as on December 31, 2013, or 5.2 per cent higher than that on March 31, 2013. The external debt to gross domestic product (GDP) ratio has marginally worsened to 23.3 per cent from 21.8 per cent. The increase in external debt was due to long-term debt, especially non-resident Indian (NRI) deposits. As a result, long-term debt at the end of December 2013 was $333.3 billion or 8.1 per cent higher than the end-March 2013 level. The short-term debt, however, decreased by 4.1 per cent to $92.7 billion. Short-term debt accounted for 21.8 per cent of the total external debt, the balance (78.2 per cent) was long-term debt. Component-wise, according to the release, commercial borrowings accounted for 31.5 per cent of the total external debt, followed by NRI deposits (23.2 per cent) and multilateral debt (12.3 per cent). Government sovereign external debt stood at $76.4 billion (17.9 per cent of total external debt) on December 31, 2013, against $81.7 billion (20.2 per cent) on March 31, 2013.
  
• President Pranab Mukherjee, on 29th March, cleared the re-promulgation of the SEBI (Securities and Exchange Board of India) Ordinance that had lapsed on January 15, since Parliament could not pass the Securities Laws (Amendment) Bill, 2013, in the winter session. The Ordinance empowers the SEBI Chairman to order searches and seizures and crack downs on Ponzi schemes. The Securities Laws (Amendment) Bill, 2013, seeks to empower SEBI to regulate all money pooling scheme worth Rs.100 crore or more, and also attach assets in cases of non-compliance. It also empowers the SEBI Chairman to order “search and seizure operations.” The Bill also seeks to authorise the markets watchdog to demand information, such as phone calls data records, for aiding its securities transactions investigations. This is the third time the SEBI Ordinance is being re-promulgated. The Ordinance, amending the securities laws, was earlier promulgated by Mr. Mukherjee on July 18, 2013, after the Cabinet gave its approval to amend the SEBI Act, 1992. It was re-promulgated on September 16, 2013. The Finance Ministry has obtained the Cabinet and Election Commission’s approval for the re-promulgation. The move to arm the regulator with more stringent powers comes in the wake of thousands of duped investors reportedly taking to the streets in Siliguri (West Bengal) protesting against the proliferation of chit fund companies there, and the Rs.2, 000-crore Sardhaa chit fund scam.
  
• According to research from HSBC, Exports of high-tech products will grow more quickly than exports of other goods over the next 15 years as emerging Asia moves away from being a low-cost production hub for foreign brands and toward developing value-added local products. High-tech goods would make up more than 25% of goods traded by 2030 compared to 22% in 2013, HSBC said in its latest global trade report released on 18 March, which forecast trade would pick up only slowly in the near term. The value of global goods trade would rise at an average rate of 8% a year from 2014 to 2030, with high-tech goods rising about 9% a year, HSBC said. Mineral fuels would rise 5% a year and raw materials about 6%.World Trade Organisation data show fuels and mining products were the fastest-growing export category between 2009 and 2012, followed by agricultural products. Exports of office and communications equipment rose 27% over the period. HSBC said much of the future increase in high-tech trade would be driven by internationalisation of supply chains, with parts for high-tech products crisscrossing national borders, but Asian firms would also snare market share from Western competitors. HSBC forecast that by 2030, China would account for more than half the global trade in high-tech goods. Hong Kong and the United States would remain in second and third place, although with a lower market share, and Korea would displace Singapore as the fourth-biggest exporter of high-tech goods. The United States and European Union are also pushing China to resume talks on expanding a list of high-tech products covered by a 16-year-old pact that eliminated duties on products including personal computers, laptops and telephones. The HSBC report showed China accounted for 36.5% of high-tech goods exports in 2013, followed by Hong Kong at 13%. The United States was in third place at 9.6%. In 2000, the United States was the world's biggest tech exporter with a market share of 29.2%.HSBC said Asian countries also logged a high share of high-tech imports, as did the United States. The WTO has forecast global goods trade growth of 4.5% in 2014, below the average rate of 5.4% recorded from 1982 to 2012.
  
• Global ratings agency Standard & Poor’s on 18 March, said an increasing focus by India Inc on lowering debt is likely to improve their credit profiles. “More companies are improving their high financial leverage and boosting their credit profiles by adopting measures such as sale of equity and assets or using their free operating cash flows to reduce debt,” S&P said in a report. Focus on lowering debt will likely improve their credit profiles, it added. The routes adopted by domestic companies include raising equity, selling non-core assets and in some cases divesting businesses, it noted. S&P credit analysts saideconomic gloom and high interest rates have affected debt-servicing ability and these are the primary factors pushing companies towards this strategy. In some cases, companies are refocusing on reducing debt after years of investing for growth.
  
• The Hinduja brothers have emerged the third richest family in Britain. According to research published by the charity, Oxfam, in London on 17 March, the latest rich list from Forbes magazine showed that London-based Srichand and Gopichand Hinduja have a combined wealth of $10 billion. The five top U.K. entries are, the family of the Duke of Westminster the richest followed by David and Simon Reuben, the Hindujas, the Cadogan family, and Sports Direct retail boss Mike Ashley who, between them, had property, savings and other assets worth £28.2 billion. It implies that the country’s five richest families now own more wealth than the poorest 20 per cent of the population, with their wealth totalling £28.1 billion — an average of £2,230 each. The development anti-poverty charity said the U.K. government should explore the possibility of a wealth tax after revealing how income gains and the benefits of rising asset prices had disproportionately helped those at the top. The report asserts that widening inequality is creating a “vicious circle where wealth and power are increasingly concentrated in the hands of a few, leaving the rest behind.”
  
• SEBI on 20 March 2014 notified a new set of norms to ease the process of making Know-Your-Client (KYC) for investors. The newly issued set of norms will allow various market entities like brokers and Mutual Funds to get details from the centralized KYC agencies, instead of carrying out a fresh KYC verification procedure. This facility will allow the market intermediary to access the centralized KYC Registration Agency system in the case the client is already KYC complaint to verify and download the client’s details from the Agency’s system. SEBI issued the SEBI, KYC (Know Your Client) Registration Agency (KRA), Regulations, 2011 with a view to bring uniformity in the KYC requirements for the securities markets. For this SEBI initiated usage of uniform KYC by all SEBI registered intermediaries. In pursuant of the above mentioned regulation, SEBI approved the NSDL Database Management Limited (NDML), which is a wholly owned subsidiary of National Securities Depository Ltd (NSDL), to function as a KRA. Overall, the KRA is the institution that maintains the KYC details of the investor and the wholly-owned subsidiaries of stock exchanges and depositories are eligible to act as KRA.
  
• Vodafone Group Plc on 17 March, agreed to buy Spain’s largest cable operator Ono for 7.2 billion euro ($10 billion), in the latest move by the British group to rebuild its European operations with a broadband offering. Vodafone said that the deal would enable it to offer a combination of mobile and fixed-line telephony, pay-TV and broadband in one of its largest European markets, hit hard by fierce competition .The deal for private equity-owned Ono is Vodafone’s third purchase of a European fixed-broadband asset in two years, allowing it to offer an increasing range of services .The British group, which is rebuilding its core European networks with proceeds from the $130 billion sale of its U.S. arm, said it would also save around 240 million euro, before integration costs, by the fourth full year after completion.
  
• British retail major company Tesco on 21 March, announced that it was forming an equal joint venture with Trent Ltd., a part of the Tata Group, by picking up 50 per cent stake in Trent Hypermarket Ltd (THL) for about Rs.850 crore. In December 2013, Tesco and Trent said they had sought regulatory approval to enter into a joint venture where they would both own equal stake in THL. Tesco was the first international retailer to apply for a multi-brand retailing licence when it was opened up for 51 per cent foreign direct investment (FDI) in September 2012 and its proposal was cleared in December 2013.THL operates the Star Bazaar retail business in India.
  
• Indian Oil Corporation (IOC) sold 10 percent of government stake (for 5340 crore rupees) to the Oil India Limited (OIL) and Oil and Natural Gas Corporation (ONGC) on 14 March 2014. Earlier, government shareholding in IOC was 78.92% which has now reduced to 68.92 percent. The aim of this deal was to encourage the disinvestment programme by the government of India. Till date, overall disinvestments have raised about 10434 crore rupees. This transaction was an Off-market transaction. Both the OIL, ONGC together bought 5 percent stake each at 220 rupees per share. This was for the first time for OIL to hold shares in IOC whereas, ONGC’s holding in IOC increased to 13.77 percent from 8.77 percent.
  
• The biggest-ever deal of Rs.26, 000 crore ($4.4 billion) at an Indian air show was signed between Boeing and Spice Jet as the India Aviation-2014 started on 12 March in Hyderabad. Dinesh Keskar, Senior Vice-President of Asia-Pacific and India Sales, Boeing, told reporters that the delivery of the aircraft would begin from 2018. He said 737 MAX was 14 per cent more fuel-efficient and the plane, a variant of the 737-800, came with a new engine and bigger wings. He said the first aircraft would be handed over to South West Airlines in 2017.S. L. Narayanan, Group Chief Financial Officer, The Sun Group, said the induction of 737 MAX would further modernise the airline’s fleet, improve customer experience and ensure that it operated the most efficient fleet well into the future. Inaugurating the event, Mr. Ajit Singh saidallowing 49 per cent foreign direct investment (FDI) into Indian airlines was the biggest game-changer. “This is in addition to the FDI of $350 million by Etihad into Jet Airways,” he said. Besides, work on more than 50 low-cost airports, located in remote and interior areas had already been initiated by the Airports Authority of India (AAI). He announced that a civil aviation university was being set up to enhance capacity to produce world-class skilled manpower. Andhra Pradesh Governor E. S. L. Narasimhan, who was the chief guest, said India’s first Aerospace SEZ, on the outskirts of Hyderabad, would offer a wide range of products to meet the needs of aerospace, nuclear, space and defence sectors. He said the State government was planning to set up a Civil Aviation Board to oversee development of new airports in Tier-II cities. Secretary, Civil Aviation, Ashok Lavasa, said India made tremendous strides in aviation as passenger and cargo throughput registered an impressive CAGR (compounded annual growth rate) of 13 per cent and 10 per cent, respectively during 2003-13. The overall air traffic was expected to grow at 10.1 per cent this decade. He said that in addition to Greenfield airports at Navi Mumbai, Goa, Kannur and Kushainagar, the AAI had identified six airports under the PPP (public private partnership) route.
  
• China said on 11 March, it would allow, for the first time, the setting up of five private banks on a trial basis, and also move to liberalise deposit rates in the next two years, as regulators grapple with the rising pressure on the banking sector from a newly booming online finance industry. The head of the China Banking Regulatory Commission (CBRC), Shang Fulin, told reporters here the first five private banks would be set up in Tianjin, Shanghai and the provinces of Zhejiang and Guangdong as a pilot project. The CBRC would work with ten private firms, including Internet giants Alibaba — the e-commerce giant — and Tencent. He said the banks would be subject to the ‘same regulation and supervision’ as existing state-run banks, but would be focused more on small and medium enterprises. SMEs have complained of the struggle to obtain financing from the major banks, which tend to lend preferentially to other state-owned enterprises — an increasing source of frustration for entrepreneurs here. In another deregulatory move, the governor of the Chinese central bank, Zhou Xiaochuan, said China would also loosen its grip on deposit rates in the next two years and move gradually towards liberalising interest rates. The moves come amid a churn in China’s banking sector, driven in part by an unprecedented expansion of Internet financing products in recent months. Only this week, the Alibaba-created Yu'ebao fund, which offers a 6 per cent annualised yield — almost double that offered by state-run banks — was reported to have garnered a remarkable $500 billion in capital in the nine months since its founding last June.
  
• The Maharashtra government on 3 March launched the first phase of the ambitious Delhi-Mumbai Industrial Corridor project that aims at generating industrial output of Rs 20 lakh crore by 2042. The mega-infrastructure project will be developed in two phases. The first one includes development of Shendre-Bidkin industrial city and an exhibition-cum-convention centre in Aurangabad, along with multi-modal logistics park at Karmad and water supply scheme for Shendre. In the second phase, projects to be taken up include Dighi port industrial area, Dhule mega industrial park, Nashik-Sinnar-Igatpuri investment region, multimodal logistic park and Greenfield mega city in Ahmednagar will be taken up. The state government will take up the development of Shendre-Bidkin industrial city in the first leg, which will have an investment of Rs 17,319 crore. Maharashtra government and the DMIC Trust have formed a joint venture for developing these projects wherein the state will have 51 per cent stake, while the rest will be held by DMIC. Chavan said "Our contribution will be in the form of providing land, while the Centre's contribution would be to the tune of Rs 3,000 crore for each township project. For the rest, we have tied-up with the Japan International Cooperation Agency (JICA)".The Shendre-Bidkin project is expected to generate 5 lakh jobs. The DMIC projects in Maharashtra would cover nearly 29 per cent of land area and 18 per cent project influence area. Around 26 per cent of the state's population would come under the corridor that covers eight districts - Thane, Raigad, Pune, Dhule, Nandurbar, Nashik, Ahmednagar and Aurangabad.
  
• Life Insurance Corporation on 4 March, bought shares worth Rs.1,889 crore, about 4.66 per cent stake, in state-owned power equipment maker BHEL through an open market transaction. LIC has purchased 11.41 crore shares in BHEL at a price of Rs.165.55 a share through a block deal on the BSE. In August, 2011, the Cabinet had cleared the sale of 5 per cent stake in BHEL through a follow-on public offer (FPO). The government holds a 67.72 per cent stake in the Navratna firm. The government has so far raised about Rs.5, 093.87 crore through stake sales in PSUs. As per the revised estimates in the Interim Budget, the disinvestment target was lowered to Rs.16, 027 crore in this financial year from Rs.40, 000 crore.
  
• Reserve Bank of India (RBI) on 3 March 2014 extended the date for exchange of the pre-2005 banknotes to 1 January 2015. RBI in its latest released has advised the banks to facilitate the exchange of these notes for full value and without causing any inconvenience to the public.RBI in its notification has requested people to co-operate actively in the withdrawal process and said that the withdrawal exercise is in conformity with the standard international practice of not having multiple series of notes in circulation at the same time. RBI has claimed that a majority of such notes have already been withdrawn through the banks and only a limited number of notes remain with the public. In its notification, RBI has also clarified that public can continue the use of these notes freely for any transaction as the all such notes continue to remain legal tender. The Reserve Bank of India (RBI) had taken a rationale step of withdrawal of banknotes printed prior to 2005 as these banknotes have fewer security features compared to banknotes printed after 2005. It is standard international practice to withdraw old series notes. Earlier, RBI in its announcement on 22 January 2014 said that after 31 March 2014 all the banknotes issued prior to 2005 will be withdrawn completely from circulation. From 1 April 2014, the public will be required to approach banks for exchanging these notes.
  
• A high powered committee under Financial Stability and Development Council (FSDC) has been set up to find ways for the banking sector to comply with Basel III capital norms. The decision was taken at sub-committee meeting of FSDC in New Delhi on 7th March by RBI Governor Raguram Rajan. “The Sub Committee...discussed the capital requirements of the banking sector over the next five years in view of the Basel III regulations and requirements for supervisory capital and decided to set up a High Powered Inter Regulatory Committee to explore ways of enabling banks to meet these requirements,” an RBI release said on 7th March. Recently, Finance Minister P Chidamabram had said that all banks satisfy the global capital adequacy norms (Basel III) and the government will keep on providing additional capital to the banks.
  
• The government, on 3rd March, received payment of Rs.18,267 crore, about Rs.30 crore less than the bids received from seven companies in the spectrum auction last month because of unavailability of radio waves in some parts of the service areas. The amount received exceeds the government’s target of about Rs.11, 333 crore set for the current fiscal, ending March 31, by about 61 per cent. The government received bids worth Rs.62, 162 crore in the auction for 1800 MHz and 900 MHz bands.The winners — Vodafone, Airtel, Reliance Jio Infocomm, Idea Cellular, Telenor (Uninor), Reliance Communications and Aircel — had the option of paying in instalments — 33 per cent upfront for the 1800 MHz bank and 25 per cent for the 900 MHz band.The rest of the amount is to be paid in yearly instalments after two years with about 10 per cent interest. Vodafone, the biggest winner of spectrum, had to make an upfront payment of about Rs.5,582 crore; Airtel Rs.5,425 crore; Idea Rs.3,240 crore; Reliance Jio Rs.3,648; Telewings (Uninor) Rs.290 crore; Aircel Rs.69 crore and RCom Rs.54 crore.
  
• The Reserve Bank of India (RBI), on 4th March, decided to allow foreign inward remittances received under money transfer service scheme (MTSS) directly into the bank account of the beneficiary through electronic modes such as national electronic funds transfer (NEFT) and immediate payment service (IMPS). However, the RBI said that the recipient bank would credit the amount transferred by the partner bank only to KYC (know-your-customer) compliant bank accounts. Further, it said, with regard to bank accounts that are not KYC compliant, “the recipient bank shall carry out KYC/CDD (customer due diligence) of the recipient before the remittance to such account is credited or allowed to be withdrawn.” The RBI also instructed that the partner bank should appropriately mark the direct-to-account remittances to indicate to the recipient bank that it is a foreign inward remittance.