ECONOMY AFFAIRS MARCH 2015
- SEBI sets norms for international financial centers
The Securities and Exchange Board of India (SEBI) approved guidelines to govern international financial services centers (IFSC) on 22nd March. Gujarat International Finance Tec-City (GIFT City), coming up near Ahmadabad, is expected to be the first such center. In a slew of reforms……….
The capital market regulator also paved the way for municipal bonds for infrastructure projects in urban areas. In addition, it revised the norms for conversion of the debt of a stressed listed company into equity by banks and financial institutions and tightened disclosure norms.
IFSC Norms:- The new norms for IFSCs aim to ease the setting up of stock exchanges and capital market infrastructure in such centres.
- A stock exchange can be set up with Rs 25 crore capital, against the normal requirement of Rs 100 crore. However, this will have to be raised to Rs 100 crore within three years.
- Such exchanges will also be given three years to complete de-mutualisation. For a clearing corporation, the initial capital requirement will be Rs 50 crore, against the norm of Rs 300 crore, which will have to be achieved in three years.
- The new norms would help create vibrant capital market activities in such centres. This year’s Budget announced that GIFT City, the first such centre, would come up near Ahmedabad.
- To mobilise funds for 100 smart cities and other urban programmes, SEBI has set guidelines for municipal bodies to raise money from the market.
- However, these will be applicable only for bonds issued to the public. Detailed safeguards — for instance, the issuer should not have a negative net worth and should have an investment grade rating — have also been prescribed.
- The money mobilised should be for a specified project, and the revenue generated should be credited into an escrow account.
- Also, a monitoring agency will inform the public and investors from time to time on how the bonds are being serviced.
- A listed firm will now have to disclose its board decisions within 30 minutes, while all other ‘material information’ will need to be made public within 24 hours. Non-compliance will invite strong penal action.
- Information, including details about material events, will need to be compulsorily disclosed through stock exchanges for the benefit of investors.
- Companies will also have to provide “specific and adequate replies” to queries with respect to rumours and media reports.
- The Securities and Exchange Board of India (SEBI) has relaxed norms for conversion of the distressed loans of listed companies into equity by banks and financial institutions.
- The market regulator’s move will allow lenders, particularly public sector banks, which are staring at a 10-year high in bad debts, to reduce the pressure on their balance sheets.
- SEBI decided to adopt a fair price mechanism for conversion in place of the current market pricing formula. The regulator hopes that with the new system, there will be more corporate debt restructuring.
- Bad debts or non-performing assets of all public sector banks rose to 5.64 per cent of advances at the end of December 2014, which is the highest after the 5.73 per cent recorded in 2004-05.
- SEBI will prescribe how the fair value will be decided. There is one comfort that if the fair value is below the face value, at least the face value has to be given
- The new rule will be applied only when banks acquire at least 51 per cent of the equity.
- The relaxation of pricing will be subject to the allotment price being decided as per a fair price formula, which is not less than the face value of shares.
- The other requirements will be applicable if conversions are done as part of the RBI’s proposed Strategic Debt Restructuring scheme.
- Currently, banks can convert debt into equity in case of bad loans but there are regulatory issues with regard to distressed listed companies.
- Centre floats 40-year bonds for borrowing
In 2015-16, the Government will for the first time, use bonds (Government Securities or G-secs) with a 40-year maturity period for its borrowing. Currently, the bonds have a maturity period of up to 30 years.
The Center uses dated securities for long-term borrowing. These securities carry an interest rate (technically known as a coupon rate) and are issued for more than one year. The Finance Ministry, in consultation with the RBI, has decided to borrow Rs 3.60 lakh crore during the first six months of the next fiscal year. This is 60 per cent of the gross borrowing target of Rs 6 lakh crore proposed in the Budget.
However, as a percentage of total borrowing, this is lower than the amount borrowed in previous years. Bonds with longer maturity are popular in various countries. The UK, for instance, has Government bonds with a maturity of up to 60 years.
According to the Finance Secretary said that average weekly borrowing during the first six months would be Rs 17,000-18,000 crore. With repayment of over Rs 1.35 lakh crore, net borrowing would be Rs 2.25 lakh crore.
T-Bills are instruments issued in three tenors — 91 days, 182 days and 364 days. They do not carry any interest, are issued at a discount, and are redeemed at face value on maturity. Borrowing through these instruments is not included in the gross borrowing. - RBI changes Public deposit rules for NBFCS
The Reserve Bank of India (RBI) on 27th March made revisions to the norms for non-banking finance companies (NBFCs).
These now say that if there is a downgrading of credit rating, below the minimum specified investment grade, an NBFC should immediately stop accepting public deposits.
The earlier revised regulatory framework for NBFCs were issued in November 2014. Also, RBI has said, in the event of downgrading of credit rating below the minimum specified investment grade, an NBFC, being an asset finance company or a loan company or an investment company, shall regularize the excess deposit.
Beside, the NBFC should stop renewing existing deposits. All these should run to maturity. The NBFC should also report the position within 15 working days, to the regional office of RBI where the former is registered.
An asset finance company or a loan company or an investment company having a minimum Net Owned Fund (NOF) as stipulated by RBI and complying with prudential norms may accept or renew public deposits. This, together with the amounts remaining due in the books of the company as on the date of acceptance or renewal of such deposit, not exceeding one and a half times its NOF.
However, RBI said this is subject to the condition that an asset finance company holding public deposits in excess of the limit of one and a half times of its NOF shall not renew or accept fresh deposits till such time these reach the revised limit.
An NBFC-Factor shall ensure that its financial assets in the factoring business constitute at least half its total assets. And, the income derived from the factoring business is not less than half its gross income, said RBI. - Railways launches RuPay pre-paid debit card
The rail ministry on 24th March launched a new debit card service for ticket bookings by passengers. The RuPay pre-paid card service has been developed by Indian Railways Tourism and Catering (IRCTC) along with Union Bank of India (UBI) and the National Payments Corporation of India (NPCI). RuPay is India's domestic card payment gateway network develop on the lines of Visa and Master Card and provides an alternative system for banks to provide debit card service. - India to grow at 7.8% in 2015-16; surpass China: ADB
India is all set to overtake China's growth rate by clocking 7.8 pc GDP in 2015-16 and 8.2 pc during the following fiscal on the back of structural reforms and govt's pro-investment attitude, Asian Development Bank said
India is expected to grow faster than China in the next few years, according to ADB Chief Economist Shang-Jin Wei. ADB released the bank's annual publication Asian Development Outlook, 2015 on 24th March.
Indian government's pro-investment attitude, improvement in the fiscal as well as current account deficit situation, and some forward movement on resolving structural bottlenecks have helped improve the business climate, making India attractive again to both domestic and foreign investors
ADB expects India's growth to accelerate to 7.8 percent in 2015-16 and further to 8.2 percent in 2016-17. In case of China, the GDP is expected to decelerate to 7.2 percent in 2015 and 7 percent a year after. In the current fiscal, both the economies are expected to clock a 7.4 percent growth rate. The International Monetary Fund (IMF) has projected a growth rate of 7.5 percent for next fiscal. - Natural calamities: RBI issues loan restructuring norms for banks
To enable banks to take uniform and concerted action expeditiously in areas affected by natural calamities, the Reserve Bank of India has come up with guidelines covering institutional framework, restructuring of existing loans, providing fresh loans and other ancillary relief measures.
Since the area and time of occurrence and intensity of natural calamities cannot be anticipated, it is imperative that banks have a blueprint of action for such eventualities so that the required relief and assistance is provided with utmost speed and without any loss of time
All the branches of commercial banks and their regional and zonal offices will have a set of standing instructions spelling out the action that the branches will have to initiate in the calamity-affected areas immediately after the requisite declaration by the district/State authorities.
Divisional/zonal managers of commercial banks should be vested with certain discretionary powers so that they do not have to seek fresh approvals from their central offices to the line of action agreed to by the district/State level bankers’ committees (SLBCs).
The common thread to extend relief measures is that the crop loss assessed should be 50 per cent or more. The central bank said all short-term loans, except those which are overdue at the time of occurrence of natural calamity, should be eligible for restructuring.
In all cases of restructuring, banks should consider a moratorium period of at least one year. Further, the banks should not insist on additional collateral security for such restructured loans.
The principal amount of the short-term loan as well as interest due for repayment in the year of occurrence of natural calamity can be converted into term loan
Banks can grant consumption loans up to Rs. 10,000 to existing borrowers without any collateral. The limit may, however, be enhanced beyond Rs. 10,000 at the discretion of the bank.
Generally, the restructured period for repayment may be three-five years. However, where the damage arising out of the calamity is severe, banks may, at their discretion, extend the period of repayment ranging up to seven years and in extreme cases of hardship, to a maximum of 10 years in consultation with the task force/State level bankers’ committee.
The central bank said a view needs to be taken by SLBC/DCC depending on the severity of the calamity as to whether a general reschedulement of all other loans (besides agriculture loans) such as loans granted for allied activities and loans given to rural artisans, traders, micro/small industrial units or in case of extremes situations, medium enterprises is required.
The restructured portion of the short-term as well as long-term loans can be treated as current dues and need not be classified as NPA (non-performing asset). Nevertheless, banks are required to make higher provisions for such restructured standard advances.
The accounts that are restructured for the second time or more on account of natural calamities would retain the same asset classification category on restructuring. - NITI Aayog to mediate inter-governmental differences
The newly formed NITI Aayog will play the role of a mediator in case of differences between different wings of the government. The National Institution for Transforming India (NITI) Aayog, which replaced the Planning Commission from January 1 this year, will have a 13-point agenda, according to the revised Allocation of Business Rules, dated March 24, prepared by the Cabinet Secretariat.
The new institution will also have two institutions -- The Unique Identification Authority of India or UIDAI and the National Institute of Labour Economics Research and Development under its wing. The Allocation of Business Rules prescribes work for various Ministries, Departments and government bodies and considered a guidebook for the regular activities of the government.
According to the rules, NITI Aayog is “to offer a platform for resolution of inter-sectoral and inter-departmental issues in order to accelerate the implementation of the development agenda.
Incidentally, the erstwhile Planning Commission, too, used to play the role of mediator in resolving inter-ministerial or inter-departmental issues, especially when a project required approval from various Ministries. But this was not clearly defined in the rules.
In contrast to previous organisation, NITI Aayog will adopt a ‘bottom-up’ approach rather than ‘top-down.’ The rules say the new institution intends to “develop mechanisms to formulate credible plans at the village level and aggregate these progressively at higher level of the Government.” This means that the work for a growth strategy will start at the last mile to make sure that it has been prepared considering the ground reality.
NITI Aayog will also ensure that economic policy focuses not just on growth but also on national security. The new body intends “to ensure, on areas that are specifically referred to it, that the interests of national security are incorporated in economic strategy and policy”, the rules say. Earlier, national security was not specifically mentioned in the business rules for the Planning Commission. - Rationalization of centrally sponsored schemes
The first meeting of the Sub-Group of NITI Aayog on rationalization of Centrally Sponsored Schemes was held under the convenership of the Madhya Pradesh Chief Minister Shivraj Singh Chouhan at NITI Aayog in New Delhi 27th March.
The meeting discussed various aspects of rationalization of the centrally sponsored schemes with a view to improve their impact. The Sub-group on rationalization of Centrally Sponsored Schemes has been constituted as per decision taken in the first meeting of the Governing Council chaired by the Prime Minister last month.Other state Chief Ministers in the committee- Chief Ministers of Arunachal Pradesh, Jammu and Kashmir, Jharkhand, Nagaland, Rajasthan, and Lieutenant Governor of Andaman and Nicobar. - Additional fund for drought hit states
The Center has released additional funds of Rs 337 crore to 16 States including drought affected Andhra Pradesh, Uttar Pradesh, Haryana and water scarcity affected areas of Rajasthan. Minister for Rural Development, Panchayati Raj and Drinking Water Birender Singh has approved release of funds.
The decision came following the request of the States under National Rural Drinking Water Programme. The assistance will help States mitigate drought situation and address drinking water problems in water scarcity areas. - Telangana to set up $100-m start-up fund
In a first-of-its-kind initiative, the Telangana Government is going to set up a $100-million Venture Capital fund to give financial assistance to start-ups that are going to up housed in the upcoming T-Hub.
The State will send a delegation with fund managers to Europe, the Gulf and a few other Asian countries to raise funds for the initiative. The first phase of the hub will go live at the IIIT, Hyderabad, in May.
Selection of start-ups:
With the inauguration deadline approaching fast, officials are sitting with the Directors of the hub to formalise the process of identifying the candidate start-ups. The hub has generated a lot of interest in the start-up ecosystem. - 16 biogas, methane gas plants get nod
The Commerce and Industry Ministry has given permission to setup 16 bio gas-based and three coal-bed methane-based natural gas filling plants to encourage use of alternative fuel in the country.
According to Union Commerce Minister Nirmala Sitaraman, despite being a net crude oil importer, India has also become a net exporter of petroleum products by investing in refineries designed for exports. There is a big opportunity for India as demand for primary energy in India is likely to increase three-fold by 2035 to 1,500 million tonnes of oil equivalent from 563 million tonnes of oil equivalent in 2012. - ADB to lend $300 m to India
The Asian Development Bank (ADB) and the Government of India on 26th March signed a $300 million loan, envisaged to improve road connectivity and increasing domestic and regional trade along the North Eastern region-North Bengal international trade corridor.
According to ADB the loan is the first under a $500 million multi-tranche South Asian Sub-regional Economic Cooperation (SASEC) Road Connectivity Investment Programme. The programme will build about 500 km of roads in the North Bengal and North Eastern region of India, helping to resolve the constraint of ‘last-mile’ connectivity between the in-country trunk road network and neighbouring countries.
The tranche-1 project will construct two national highways totalling about 180 km in Manipur, extending to Myanmar and 150 km in West Bengal and State roads. The project is expected to be completed by December 31, 2021.
The ADB’s loan of $300 million makes up nearly 71 per cent of the total project cost of almost $425 million, with the Central and State governments providing counterpart finance of about $125 million. The loan has a 25-year term, including a five-year grace period with an annual interest rate determined in accordance with ADB’s LIBOR-based lending facility, said sources. - Fund to keep prices of Farm products under control
Seeking to keep prices of perishable farm commodities, especially onion and potato, under control through suitable market interventions, the Center has set up a 'Price Stabilization Fund' (PSF) with a corpus of Rs 500 crore.
The fund will be used to advance interest free loans to state governments and central agencies to support their working capital and other expenses on "procurement and distribution" interventions for such commodities. Initially, the fund is proposed to be used for onion and potato only
The fund has been set up as a follow-up of a budget announcement made by finance minister Arun Jaitley on February 28.
Setting up of the PSF assumes significance in light of reports that horticulture commodities, too, took a big hit due to rains and hailstorms across 14 states during February 28-March16.
According to operational details of the fund The states will set up a "revolving fund" for adequate market interventions. The Center and state will contribute equally (50:50) for the revolving fund. The ratio of Center-state contribution to the state level corpus in respect of north-east states will be 75:25.- The revolving fund is being mooted so that requirements for all future interventions can be decided and met at the state level itself.
- The central agencies will, however, set up their revolving fund entirely with the advance from the Center
- Procurement of these commodities will be undertaken directly from farmers or farmers' organizations at farm gate/mandi and made available at a more reasonable price to the consumers
- It also made it clear that the losses incurred, if any, in the operations will be shared by the Center and the states.
- An eight-member price stabilization fund management committee has been set up under the chairmanship of additional secretary in agriculture ministry to manage the fund at the Center and monitor revolving funds in each state.
- RBI signed Currency Swap Agreement with Central Bank of Sri Lanka
The Reserve Bank of India (RBI) on 25 March 2015 signed a 400 million US dollar currency swap agreement with the Central Bank of Sri Lanka. The agreement is valid for a period of three years from the date of signing. According to the agreement, the Central Bank of Sri Lanka can make withdrawals of US dollar or Euro in multiple tranches up to a maximum of 400 million US dollar or its equivalent. This agreement will further economic co-operation between the two countries and also bring in more financial stability in the region. - Nabard launches digitisation scheme for women SHGs
With an objective to promote financial inclusion, Nabard on 15th March started a pilot project for complete digitisation of women self help groups (SHGs) to improve the quality of interface between members and banks for efficient and hassle free delivery of banking services.
The programme was launched by Minister of State for Finance Jayant Sinha at Ramgarh in Jharkhand. Appreciating the initiative of Nabard, Sinha emphasised the need for higher coverage of women under Prime Minister Jan Dhan Yojana and hoped this will set the architecture for wider participation of women. - India bright spot in global economy, will clock 7.2% growth: IMF
According to IMF Managing Director India is in a a bright spot in the "cloudy" global economy, and she also said that country will clock 7.2 percent growth in the current fiscal and its GDP will exceed combined total of Japan and Germany by 2019
According to Lagarde, the recent policy reforms and improved business confidence have provided a booster shot to economic activity
On introduction of new series of national accounts with base year 2011-12, she said, using India's new GDP series, the IMF expects growth to pick up to 7.2 per cent this fiscal year and accelerate further to 7.5 per cent next year - making India the fastest growing large economy in the world.
She said that- Indeed, a brighter future is being forged right before your eyes. By 2019, the economy will more than double in size compared to 2009.
- When adjusting for differences in purchasing prices between economies, India's GDP will exceed that of Japan and Germany combined, it will also exceed the combined output of the three next largest emerging market economies - Russia, Brazil, and Indonesia.
- Many countries around the world are grappling with low growth, India has been marching in the opposite direction.
- India's growth rate this year is expected to exceed that of China, the country will also become the most populous in the world by 2030.
- PSBs commit Rs. 1.71-lakh cr for green lending
Public sector banks have made ‘green lending’ commitments totaling Rs. 1,70,740crore to help stakeholders put up renewable energy projects over the next five years. At an average project cost of Rs. 5 crore per megawatt (MW), green energy generation in the country is expected to increase by 34,148 MW during this period.
The green lending commitments were recently made by the banks to the Ministry of New & Renewable Energy (MNRE).The sources of green (clean) energy include wind, small hydro, biomass, and solar. They supplement fossil fuel-based electricity generation.
Among the banks that have made large commitments to green energy lending are: State Bank of India ( Rs.75,000 crore/ 15,000 MW); IDBI Bank ( Rs. 14,700 crore/ 2,940 MW); Bank of Baroda ( Rs. 12,500 crore/ 2,500 MW); and Bank of India ( Rs. 10,000 crore/ 2,000 MW).
Some of the other state-owned banks that have made commitments include: Bank of Maharashtra, Punjab National Bank and Union Bank of India ( Rs. 7,500 crore/ 1,500 MW each); and Andhra Bank, Central Bank of India and Corporation Bank ( Rs. 5,000 crore/ 1,000 MW each).
Renewable energy accounted for about 13 per cent of the national installed electricity capacity (of 2,45,268 MW as at March-end 2014). According to the MNRE, applications based on this energy have benefited millions of people in villages by meeting their cooking, lighting and other energy needs in an environment-friendly manner.
As on December-end 2014, India had grid-linked (renewable) power generation capacity of 33,792 MW (31,703 MW as on March-end 2014) and off-grid/ captive (renewable) power of 1,123 MW (1089 MW).
RBI’s report recommended that banks provide loans of up to Rs. 10 crore to borrowers other than households, for purposes such as setting up solar-based power generators, biomass-based power generators, and wind mills as well as non-conventional energy-based public utilities – including street lighting systems and remote village electrification – and include them in the priority sector.For the household sector, the loan limit (for renewable energy) could be set at Rs. 5 lakh, the report said. - SBI’s Composite Index hits 6-month high in March
State Bank of India’s Composite Index for March inched up to a six-month high of 54.6. In February, the Composite Index (CI) was at 53.5. The CI for both February and March indicates moderate growth in the economy. A CI of 52-55 and 55 and above indicates moderate growth and high growth, respectively, in the economy. The index above 50 implies growth over the previous comparable period and less than 50 suggests a contraction.
SBI’s Monthly Index showed a robust growth of 58.5 in March, the highest in the past 48 months. In February 2015, the Monthly Index was at 47.6, implying that the economy was in a ‘low decline’ phase.
SBI has attributed the robust recovery in the month-on-month index to seasonal factors, as March sequential momentum is always higher. India’s largest bank said revival in automobile sales, capital goods and basic goods production and possible upturn in the credit offtake to micro and small corporate segments and real estate highlight possible sustainable recovery in the economic activity in coming months.
Manufacturing activity is becoming robust with growth for the third consecutive month (since November 2014). Index of Industrial Production has averaged 3.2 per cent growth since November 2014. - Hitachi India, Siemens ink pacts with CII to set up smart cities
Hitachi India Ltd and Siemens Ltd on 17th March signed two separate MoUs with the Confederation of Indian Industry (CII) to form a consortium that would create pilots and replicate them throughout the country for setting up 100 smart cities
The two companies will prepare and undertake demonstration projects/ initiatives, prepare prototypes to showcase best practices in various fields related to smart cities
CII has set up a National Mission for such cities as a platform comprising industry leaders and experts and provide policy advocacy and thought leadership to Government and other stakeholders. It would also manage a knowledge repository to provide inputs to the Ministry of Urban Development on best practices. Hitachi India Ltd and Siemens Ltd are the lead industry partners for the Japanese and German consortium, respectively. - Govt launches Rs. 200-cr scheme to promote start-ups in agro industry
The Centre, on 18th March, launched a scheme with a corpus of Rs. 200 crore to promote start-ups in the agro industry sector. Under the scheme, a framework for promoting start-ups will be created through the Small Industries Development Bank of India (SIDBI) by means of finance such as equity, quasi-equity, angel funds, venture capital funds, impact funds, among others.
A fund of funds will be created under SIDBI for the purpose and Rs. 60 crore has been earmarked for the same, the Ministry of Medium, Small and Micro Enterprises (MSME) said.
The Ministry also announced the setting up of 500 new incubation centers across India by next year.
As a first step, the scheme will create a database of technologies available with various Government/private agencies and set up a Network of Technology Centers for hand holding of prospective entrepreneurs of MSME sector
The second component is to develop the required skilled human resources necessary for mentoring and hand holding incubatees. Under this, special efforts will be made to identify, support and expand the role of competitive Indian MSMEs in a global economy.
The third component is to set up Livelihood Business Incubators (LBI) under the National Small Industries Corporation (NSIC), KVIC or Coir Board among others to replicate the NSIC’s model of “Rapid Incubation Centers’, which is a mix of ‘promotion of entrepreneurship and skill development’ and involves setting up of live ‘demo projects’. - ICICI Bank exits Russia
The largest private sector lender ICICI Bank said it has sold its profit making Russian subsidiary ICICI Bank Eurasia Limited Liability Company (IBEL) to Sovcombank -- marking its exit from Russia
It had acquired entire paid-up capital of Investisionno- Kreditny Bank LLC (IKB LLC) which was renamed in 2005 in ICICI Bank Eurasia LLC -- one of the 150 largest Russian banks as per the Interfax data of 2008. It was offering a wide range of corporate and investment finance products, as well as provides services for retail customers. - India among 5 nations accounting for half of world’s hungry
According to International Food Policy Research Institute (IFPRI) Five middle-income countries (MICs) that displayed strong economic growth in 2014 — India, Brazil, China, Mexico and Indonesia — account for 363 million, or a half, of the world’s hungry
The 2014-2015 Global Food Policy Report (GFPR) called on governments of these countries to reshape their food systems to focus on nutrition and health, close the gender gap in agriculture, and improve rural infrastructure to ensure food security for all.
The study noted that distribution specifics needed to be ironed out for India’s National Food Security Act that aims to provide subsidized food to 67 per cent of the population, while it also praised the Pradhan Mantri Jan Dhan Yojana that aimed to open 7.5 crore bank accounts for poor households.
The report highlighted the link between sanitation and nutrition, using findings from Bangladesh to show how reduction in open defecation helped reduce the number of stunted children who were taller than those living in similar areas of the same financial standing in West Bengal.
Of the five countries highlighted in the IFPRI study, India measured poorest in terms of stunted children at 47.9 per cent, as compared to 35.6 per cent in Indonesia, 14 per cent in Mexico, 9.4 per cent in China and 7.1 per cent in Brazil.
The report also included a perception survey undertaken in January comprising responses from 1,000 individuals, most employed with NGOs, academic circles and government/policy sectors, across 55 countries.
Only 8 per cent of young respondents — those under 30 — believed that global hunger could be eliminated by 2025. Nearly 70 per cent of respondents were dissatisfied with food policies in their countries and a significant perception gap existed between sexes with only 23 per cent of women satisfied with prevalent food security measures as compared to 44 per cent of men. - Select committee submits report on Coal and Mines bills in Rajya Sabha
Select committee submits report on Coal and Mines bills in Rajya Sabha and recommends no changes in the coal blocks auction procedure while five members submit dissent note.
Cabinet clears new bill to tackle black money as bill provides for strict action against offenders. Govt fulfills promise of acting on black money issue. The bills provisions, sources say provide for stringent measures to deter offenders and the harshest possible punishment in specific cases.
The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 has a number of provisions that seek to deter and punish many present and would be offenders. There is a provision of rigorous imprisonment up to 10 years for concealment of income and evasion of tax in relation to foreign assets. Offence of stashing unaccounted money abroad will be made non-compoundable. The offenders will not be permitted to approach the Settlement Commission. - Coal, Mines Bills through
The Rajya Sabha cleared two key reform Bills — the Coal Mines (Special Provisions) Bill, 2015 and the Mines and Minerals (Development and Regulation) (Amendment) Bill, 2015 — on 20th March. While the Coal Bill paves the way for commercial mining and facilitates the auction of over 200 cancelled coal blocks, the Mines and Minerals Bill aims to introduce auctions for mines that produce minerals, such as iron ore and bauxite. - Black money bill cleared in LS
Blac kmoney stashed abroad will entail a 10 year rigorous imprisonment and a whopping 90 per cent tax under the proposed stringent law that provides for a limited window of opportunity to offenders to disclose illicit wealth and escape prosecution.
Finance minister Arun Jaitley introduced in the Lok Sabha on 20th March an 88-clause Bill that seeks to unearth black money and assets stashed abroad
The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015', that is proposed to come into effect from April 1, 2016, provides for taxation at the flat rate of 30 per cent without any exemption, deduction, set off or carry forward losses permissible under the Income Tax Act. The Bill provides for a separate taxation of undisclosed income abroad which will be no longer be taxed under the Income Tax Act. - India overtakes US as third biggest steel producer
India has overtaken the US to become the third-largest steel producer in the world with a production of 14.56 million tonnes (MT) in first two months of the year. India has been the fourth-largest steel producer for the past five years, behind China, Japan and the US
According to Data compiled by World Steel Association (WSA)- The country's production growth was the highest during the January-February period at 7.6 per cent as compared to the global average of just 0.6 per cent at 127.6 MT.
- Production in China, which accounts for nearly half of the global steel production, fell during the period by 1.5 per cent. It produced 65 MT steel during the period. Japan, the second-largest producer, reported a total output of 17.4 MT, but production in the country fell 2.2 per cent.
- The US, which was the third-largest steel producer since 2010, produced 13.52 MT during the January-February period, giving away its position to India. On a yearly basis, India may retain the position given the fact that a lot of capacities are set to be commissioned during the year from its present installed manufacturing capacity of a little over 100 MT.
- Production in the US, on the other hand, is heading for a stagnation with no signs of growth in the immediate future. Output in the US has been hovering between 86 MT and 88 MT for the last four years.
- Andhra Pradesh Government Presents Separate Budget for Agriculture
Aiming to give a boost to the farm sector, the Andhra Pradesh government presented a special Agriculture Budget for 2015-16 with an outlay of Rs. 14,184.03 crore.
The agriculture budget, with an outlay for agriculture and allied sectors, has an allocation of Rs. 4,513.45 crore under plan and Rs. 9,670.58 crore under non-plan.
The agriculture budget envisages second phase of debt redemption for farmers, an election promise of ruling TDP, implementation of Primary Sector Mission launched by Chief Minister N Chandrababu Naidu, supply of free power to agriculture, soil health management, increased mechanization of farm sector, linking MGNEG Act with agriculture and support to different agri universities as ways to boost the farm sector among others.
An amount of Rs. 4,689 crore was credited in favour of 40.50 lakh farmers belonging to 23.22 lakh families in the first phase during December 2014. Under second phase, 42.16 lakh accounts are in process, as per the budget.
Asserting that the government is committed to provide seven hours of free power to agricultural sector, the minister proposed a budgetary allocation of Rs. 3,000 crores for power subsidy to the farmers.
There are 14.6 lakh agricultural services (connections) as of February this year. Noting that detailed action plans are prepared for the agriculture and allied sectors under MGNEG Act, the government made an allocation of Rs. 2,717.61 crores for the purpose.
In the Budget, the government proposed allocations to different departments and universities, including sericulture (Rs. 93.61 crore), cooperation department (Rs. 7.88 crores), fisheries (Rs. 187.18 crores), Acharya NG Ranga Agricultural University (Rs. 367.73 crore), YSR Horticultural University (Rs. 53.01 crores), Sri Venkateswara Veterinary University (Rs. 124.48 crore) and livestock sector (Rs. 672.73 crore). - FDI in services sector up 44% during Apr-Dec
With government taking steps to improve the ease of doing business and attracting foreign investments, FDI inflows into the services sector grew by 44 per cent to USD 2.29 billion in the April-December period of the current fiscal. The sector, which includes banking, insurance, outsourcing, R&D, courier and technology testing, had received foreign direct investment (FDI) worth USD 1.59 billion during April-December, 2013-14, according to the Department of Industrial Policy and Promotion (DIPP).
The government has announced a series of steps such as fixing timeliness for approvals to improve ease of doing business in the country and to attract domestic and foreign investments. In step with growth in FDI in important sector like services, overall foreign inflows in the country rose by 27 per cent to USD 21.04 billion during the first nine months of 2014-15. The amount was USD 16.56 billion in the year-ago period. The services sector contributes over 60 percent to India's GDP. In 2012-13, foreign investment in services had fallen to USD 4.83 billion from USD 5.21 billion in 2011-12. FDI in the sector accounts for 18 per cent of the country's total foreign investment inflows.
The government is focusing on enhancing services exports. It is organizing a global services exhibition in April. The other sectors where inflows have recorded growth are: telecom (USD 2.67 billion), automobile (USD 1.58 billion) and power (USD 576 million).
Government has raised the FDI cap in insurance sector to 49 percent from 26 percent. The policy was also relaxed in other sectors such as defense, railways and medical devices. Foreign investments are considered crucial for India, which needs around USD 1 trillion over five years to 2017 for overhauling its infrastructure sector such as ports, airports and highways to boost growth. - ECB launches trillion-euro stimulus
The European Central Bank on 9th March set out on its massive bond purchase programme, its most audacious scheme yet to ward off deflation and stimulate growth in the single currency area. The ECB's scheme, known as quantitative easing or QE, is not new, and has already been used by the US Federal Reserve and the Bank of England to stimulate their economies.
But QE has been a long time coming on mainland Europe and is regarded as the ultimate weapon in the ECB's vast anti-deflation armory, the culmination of a long series of unprecedented measures to bring the eurozone's flat-lining economic recovery back to life.
The main European indices closed mostly down on Monday -- with investors risk averse in the face of more immediate concerns about Greece -- and the euro fell to its lowest level against the dollar in more than 11 years, while bond yields also fell.
The ECB hopes that by buying bonds off investors they will invest the money elsewhere, thus boosting growth and preventing a dangerous cycle of falling prices from setting in.
ECB chief Mario Draghi announced the 18-month plan to buy at least 1.14 trillion euros ($1.2 trillion) in bonds, at a rate of 60 billion euros per month, back in January. - India defended raw sugar export subsidies at WTO
India has managed to ward off criticism at the World Trade Organization (WTO) for its raw sugar export subsidies by once again claiming that it has not made any payments under the programme. However, the country’s defence is unlikely to work for long as subsidy payments are slated to kick-off soon. According to food ministries the Food and Public Distribution Ministry was recently sanctioned the first tranche of subsidy payment due to exporters for last year.
The subsidy payments, claimed by 80 sugar mills from Maharashtra, Karnataka, Tamil Nadu and Gujarat, is likely to be paid out from March 15
Several WTO members, including the European Union, Australia and Colombia, were critical of India for announcing export subsidies for raw sugar in February last year, accusing India of going against the understanding reached at the WTO’s Bali Ministerial meeting in December 2013, which said all export subsidies would be reduced and gradually eliminated.
Since India is a major producer of sugar and also exports from time-to-time, these countries claim that such export subsidies distort the world market.
In the WTO committee of agriculture meeting last week, many countries questioned India about the recent announcement of increasing raw sugar export subsidy to Rs 4,000/tonne in 2015 from Rs 2,277-3,371/tonne between February and September 2014.
India’s representative reiterated the argument made in the last meeting that it was not answerable on the subsidies, as no payments had been made yet. On the EU’s question about its intention to give payments in the future, the Indian representative said it was only providing facts. India had earlier defended its raw sugar export subsidy programme on the grounds of encouraging sugar producers to diversify from refined to raw sugar. - Current account deficit narrows to $8.2 billion in October-December
India’s current account deficit (CAD) narrowed to $8.2 billion, which is 1.6 per cent of GDP, during October-December 2014, compared to $10.1 billion (2 per cent of GDP) in the previous three months. It, however, doubled compared to $4.2 billion or 0.9 per cent of GDP a year earlier, According to the Reserve Bank. On the balance of payments basis there was a surplus of $13.2 billion in foreign exchange reserves during October-December 2014 — the fifth consecutive quarter of surplus. It was also almost double the $6.9 billion surplus in the previous quarter.
Remittances from Indians employed overseas of $17.5 billion continued to support the BoP. The trade deficit during the three months widened slightly to $39.2 billion from $38.6 billion a quarter ago.
The CAD reduction was primarily on a pick-up in net exports of travel and software services and due to lower net outflows under primary income (repatriation of profits, dividends and interest payments). For the nine month period, April-December 2014, the CAD shrank to $26.2 billion (1.7 per cent of GDP) from $31.1 billion (2.3 per cent of GDP) in the same period in the previous year. - IMF warns India about global financial market volatility
The International Monetary Fund (IMF) has warned India about global financial market volatility that may arise from any unexpected developments in the course of US monetary policy normalization. The spillover impact to India from any such volatility could be “very disruptive”, IMF said in its annual consultations with Finance Ministry mandarins under Article IV of its agreement with India.
IMF’s caution comes despite the reduction in India’s external imbalances and strengthening of buffer. It also comes against the backdrop of recent large capital inflows into India.
The observations are also significant as these come at a time when US Fed officials have indicated that they want to move beyond the easy money policies that defined the post-crisis period (after 2008).
Strong US jobs data in recent days also suggests that the US Fed might raise interest rates sooner than expected. External risks also emanate from a prolonged period of weak global growth, which could dampen Indian exports, the IMF said in its report, the contents of which were released in Washington on 11th March.
The report highlighted that India’s near-term growth outlook has improved, and the balance of risks is now more favorable, helped by increased political certainty, several positive policy actions, improved business confidence and reduced external vulnerabilities.
The domestic risks include a supply-driven spike in inflation, further deterioration in bank asset quality and continued stress in corporate financial positions, as well as slower-than-expected progress in addressing supply side bottlenecks, which could weigh on growth and stoke inflation.
On the upside, expedited structural reforms and faster implementation of cleared investment projects could lead to stronger growth, as would sustained low global energy prices, the report said. - RBI issues new norms for sale of bad loans
In a boost to banks, which are facing rising asset quality issues, the Reserve Bank of India, on 11th March, allowed such lenders to reverse the excess provision on sale of bad loans to their profit and loss account, provided the transaction took place before February 26, 2014.
The central bank had on the February 3 monetary policy day had said that it would issue the final guidelines on this front after banks requested it to include the provision to those sales took place before February 26, 2014, as well. The move is aimed at incentivising banks to recover appropriate value in respect of NPAs (non-performing assets).
Almost all banks, including private sector players, have been reporting higher NPAs and lower profits as they have to make more provisions for bad loans, which crossed 5.5 per cent as at the end of December. Together with restructured loans, the total pain on the system is close to 12 per cent. - Telangana Budget with outlay of Rs 115 lakh crore
The finance Minister of Telangana Etela Rajender introduced budget on 11th march in the Legislative Assembly. This is the first full-fledged budget for 2015-16 presented. The budget with a total outlay of Rs 1,15,689.19 crore, has an estimated revenue surplus of Rs 531 crore.
Of the total budget outlay, Rs 63,306 crore was non-plan expenditure, while the remaining Rs 52,383.19 crore was plan expenditure. According to Finance Minister steep increase of Rs 11,316.51 crore in non-plan expenditure was due to the recent decision of the government to give 43 per cent fitment in pay scales to its employees. The amount required for salaries and pensions in 2015-16 was Rs 22,889 crore,
The pet programs of Chief Minister K Chandrasekhar Rao, Mission Kakatiya and Telangana State Drinking Water Project received lion’s share in the budgetary allocations. The State government has allocated Rs 4,000 crore for the Water Grid program, while the Mission Kakatiya received an allocation Rs 2,083 crore for the next fiscal.
Important allocations- 531 crore revenue surplus
- Fiscal deficit of `16,969 crore, which is 3.49 per cent of GSDP
- 2,083 crore for Mission Kakatiya
- 4,000 crore for Water Grid project
- 8,432 crore for agriculture and allied sectors
- 2,200 crore for food security and subsidy
- 4,000 crore for social security pensions under 'Asara' scheme.
- 188 crore for financial assistance of `1,000 per month to beedi workers
- 8,89 crore for SC sub-plan and `5,036 crore for the ST sub-plan
- 2,172 crore for the welfare of backward classes and `1,105 for minorities.
- 11,216 crore for education
- 4,932 crore for health and medical services.
- 22,889 crore for salaries and pensions.
The State government has already taken up tank restoration works at a cost of Rs 1,835.42 crore during the ongoing fiscal. The overall allocation for the irrigation, including Mission Kaktiya, is Rs 8,500 crore. Identifying electricity shortage as one of the major problems confronting the State, the TRS government vowed to make the State power surplus by the end of 2018.
Plans have been drawn up for an additional installed capacity of 6,000 MW by TSGENCO, 2,000 MW by the Singareni Collieries and 4,000 MW through the National Thermal Power Corporation (NTPC)
The total provision for agriculture and allied sectors is Rs 8,432 crore, including Rs 4,250 crore for farmers' debt relief. "Agriculture is the mainstay for close to 50 per cent of the state's population. However, the contribution of agriculture and allied sectors to GSDP is only 18 per cent in 2014-15 at current prices.
Asara pension scheme and development rural infrastructure like roads, has received the highest amount of budgetary allocations of Rs 11,225 crore under the plan category. It is followed by irrigation department (Rs 8,500 crore), SC welfare (Rs 5,547 crore), Transport and Roads and Building Department (Rs 4,739 crore), Tribal Welfare department (Rs 2,878 crore), Health, Medical and Family Welfare Department (Rs 2,459 crore) and Women Development and Child Welfare Department (Rs 1,481 crore) under the same category. The budget also saw a surge in the subsidy burden of the state government.
The State government has set aside Rs 2, 200 crore for food security and subsidy. From January, 6 kg of subsidized rice at Re 1 per kg is being provided per person to 2.8 crore beneficiaries. The government allocated Rs 4,000 crore for social security pensions to eligible aged, widows and physically-disabled under Asara scheme. For the sub-plans for the Scheduled Castes and the Scheduled Tribes, the minister proposed Rs 8,089 crore and Rs 5,036 crore respectively.
The minister has provided Rs 2,172 crore for the welfare of backward classes and Rs 1,105 for the minorities, a marginal increase from the last year’s budget. The finance minister also made a provision of Rs 2,000 crore for the development of Hyderabad city by making budgetary allocations to various civic service providers, including GHMC. Giving out a slogan of ‘Made in Telangana-Made in India,’ to make Telangana state as a brand with global recognition, the state government has allocated Rs 973.74 crore to give incentives to potential investors. - Parliament passes long-pending Insurance Bill
Parliament on 12th February passed the Insurance Amendment Bill 2015, with the Rajya Sabha approving it by voice vote. TMC, BSP, SP and JD(U) walked out just before the Bill was put to vote.
The bill aims at replacing the old and redundant provisions of the Insurance Acts and seeks to enhance Foreign Direct Investment cap from 26 to 49 percent. It will replace ordinance promulgated in this regard. - AP presents a tax-free, deficit budget
Andhra Pradesh Finance Minister Yanamala Ramakrishnudu presented a Rs. 1,13,049 crore tax-free budget for 2015-16, with a modest hike of 1.1 per cent over previous financial year and a fiscal deficit of 3 per cent. This includes Non-plan expenditure of Rs. 78,637 crore and Plan expenditure of Rs. 34,412 crore, resulting in a revenue deficit of Rs. 7,300 crore and fiscal deficit of Rs. 17,584 crore. While the fiscal deficit is pegged at 3 per cent of Gross State Domestic Product (GSDP), the revenue deficit works out to 1.24 per cent.
Given the contribution of agriculture and allied subjects to the State economy, which contribute about 27 per cent, he said that a separate budget would be presented. The budget has proposed allocation of Rs.5,258 crore for irrigation, social welfare ( Rs. 2,123 crore), housing ( Rs. 897 crore), civil supplies ( Rs. 2,459 crore), health ( Rs. 5,728 crore), school education ( Rs. 14,962 crore), higher education ( Rs. 3,049 crore), rural development ( Rs. 8,212 crore), urban development and new capital ( Rs. 3168 crore), roads and buildings ( Rs. 2,960 crore), energy ( Rs. 4,360 crore), IT ( Rs. 370 crore) and tourism and culture ( Rs. 330 crore).
The Government is seeking to cut down non-plan expenditure and increase resources. But there is no scope to tax further. Therefore, the accent would be on tapping various sources for revenue generation such as mining and forest, he said.
The State plans to seek Rs. 2,700 crore aid from the World Bank towards restoration of damage caused by Hudhud cyclone. The proposal is being submitted to the Centre. - AP per capita income up at Rs. 90,517, economy posts 7.21% growth
Andhra Pradesh has registered a growth of 7.21 per cent during 2014-15 as per the advanced estimates, with services sector continuing to be prime driver (8.48 per cent), agriculture (5.9 per cent) and industries (5.25 per cent).
The share of agriculture has increased from 22.96 per cent to 27.59 per cent and services sector’s share has changed marginally from 52.72 per cent to 51.79 per cent and the industries sector was down from 24.33 per cent to 20.62 per cent.
The per capita income of Andhra Pradesh, which has been growing steadily, stood at Rs. 90,517 for 2014-15, up 11.21 per cent over Rs. 81,397 crore in 2013-14 and is projected to double by 2018-19.
As per the socio-economic survey tabled in the House today, agriculture sector reflects a structural shift from traditional production to value addition, contributing to Rs. 15,000 crore to GSDP additionally.
The Gross State Domestic Product (GSDP) at current prices for 2014-15 is estimated at Rs. 5,20,030 crore as against Rs. 4,64,184 crore in 2013-14. The contribution of agriculture is Rs. 1,43,498 crore, industry Rs.1,07,224 crore and services sector Rs. 2,69,307 crore. - RBI eases rules for contact-less cards
The Reserve Bank of India has proposed to ease the authentication process for buying products up to Rs 2,000 using contact-less cards based on Near Field Communication (NFC) technology.
NFC cards enable users to make payment by just waving or touching the card on a terminal kept at the merchant. Unlike credit and debit cards there is no need for a swipe. These card are quite popular in the US and Japan. In India only a few banks like ICICI Bank have launched it. Since the cards come with an in-built security chip there is no need for additional authentication.
The RBI said banks can relax additional factor of authentication (AFA) requirement for transactions for a maximum value of Rs 2,000 per transaction in the case of contact-less chip cards that adhere to the so-called Europay-MasterCard-Visa standards. - DIPP clarifies rules for FDI construction
To bring greater clarity to the foreign direct investment (FDI) norms for the construction sector, the Center has defined the existing rules related to minimum capitalization and exit clause with greater precision.
The Department of Industrial Policy & Promotion (DIPP), in a clarification note issued, specified that the minimum capitalization norm for FDI in construction was project specific and not company specific.
This means that the norm specifying that new FDI will be allowed only if the minimum cap of $5 million is achieved within six months refers to a particular project and not the company making the investment. After the minimum capitalization norms are met, FDI can be brought in for a period of 10 years or till the project is completed.
The note also specified details related to the exit clause. It stated that exit is permitted even before completion of the project or development of trunk infrastructure, with the approval of the Foreign Investment Promotion Board on a case to case basis. After the completion of the project, exit is permitted on an automatic basis.The government allows up to 100 per cent FDI in construction projects including townships, housing and built-up infrastructure subject to specific conditions. - Union Ministry of Corporate Affairs released the data of top ten Corporate of 2014
Union Ministry of Corporate Affairs released data of top ten Corporate of 2014. The pack of top ten corporate comprises of eight public sector undertakings and two private sector undertakings
In term of assets, Reliance Industries Ltd (RIL) is the largest corporate with assets worth 3.68 lakh crore rupees. RIL is followed by state-owned Indian Oil Corporation (IOC) with assets worth 2.52 lakh crore rupees and mortgage lender Housing Development Finance Corp (HDFC) with assets worth 2.25 lakh crore rupees.
Other entities in the top ten are Power Finance Corporation (4), National Thermal Power Corporation (NTPC) (5), Rural Electrification Corporation (devil), Power Grid Corporation (7), LIC Housing Finance (music), Steel Authority of India Limited (9) and Bharat Sanchar Nigam Limited (10).
Power Finance Corp's assets stood at 1.94 lakh crore rupees, NTPC 1.80 lakh crore rupees, Rural Electrification Corp 1.53 lakh crore rupees, Power Grid Corp 1.40 lakh crore rupees, LIC Housing Finance 95777 crore rupees, Steel Authority of India 91962 crore rupees and Bharat Sanchar Nigam Ltd 89333 crore rupees.
The list is based on data from 415886 companies which had filed their balance sheets for the year 2013-14 till November 2014. The total reported value of the assets of all the 415886 companies was 117.08 lakh crore rupees and the share of top ten companies in the total value of assets was 15.3 percent in March 2014. - In monetary policy rejig, India moves to inflation targeting
In a major monetary policy shift, India has adopted inflation-targeting. A Monetary Policy Framework Agreement, signed by the Centre and the Reserve Bank of India on February 20 but made public on 2nd March, veers round to RaghuramRajan’s view that India too should move towards inflation targeting, which is common in developed economies. Currently, the Centre and the RBI give inflation estimates, but don’t set targets.
Now, the Framework Agreement says, “the Reserve Bank will aim to bring inflation below 6 per cent by January 2016. The target for financial year 2016-17 and all subsequent years will be 4 per cent with a band of +/- 2 per cent.” The agreement also said the Governor and in his absence the Deputy Governor (in charge of monetary policy) will determine the policy rate, as well as any other monetary measures, to achieve the target.
The inflation in this case is the Consumer Price Index (CPI) or retail inflation. Post the Centre revising the base year for retail inflation to 2012 from 2010, the CPI for January 2015 was 5.11 per cent, which is almost flat compared to 5 per cent in December.
The Agreement, in line with the recommendations of the RBI’s Urjit Patel committee, will smoothen the monetary policy scene. It will provide a predictable policy stance on inflation, helping investors, especially in the debt market.
The Agreement also binds the Centre to taking proactive measures for price control. The country has suffered the vagaries of price volatility because of, one, its big reliance on imports for fuel and, two, the farm sector’s dependence on the monsoon. The large fiscal deficits because of the Centre’s borrowings to fund its spending too have impacted inflation.
Traditionally, monetary policy formulation is a closed-door RBI affair. But, with the new framework, a committee will take a call on the policy prescription, which the central bank will implement. Based on the recommendations of the Financial Sector Legislative Reforms Commission, the committee will comprise the RBI Governor, a Deputy Governor (in-charge of monetary policy), a Union Government nominee, and five independent members. The committee will vote on its decision, but the government nominee does not get a voting right.
Achieving policy targets
On the process of monetary policy-making, the Agreement said the RBI will put out an operating target and establish a procedure to achieve this target. Any change in the operating target and the procedure in response to evolving macro-financial conditions will also be published. Once every six months, the RBI will explain about the source of inflation besides giving forecasts for six-18 months.
The RBI will give a report to the Center if it fails to meet the target. In a note to their clients, Nomura’s SonalVarma and AmanMohunta said that given India’s history of high inflation, 4 per cent as the mid-point CPI target in the medium term does appear optimistic, but this could perhaps be achieved through a coordinated effort between the RBI and the Center. - Govt funded Hospitals, Universities required to file I-T returns
The Centre has decided to make it mandatory for certain Government funded hospitals, education institutions and universities to file their income tax returns.
This has been stipulated in the latest budget for those education institutions, universities and hospitals that are wholly or substantially financed by the Government and currently availing tax exemptions under income tax law. The new norms will take effect from April 1, 2016 (assessment year 2016-17 and subsequent years), according to the Finance Bill. In the interim budget announced in July 2014, the Finance Bill had explained the meaning of a university or a hospital that could be considered as "substantially financed" by the Government.
Imp points:
The agreement between RBI and Finance Ministry will make flexible inflation targeting the official goal of the central bank. Till January 2016, the RBI will target a consumer price inflation rate of below six per cent; from 2016-17, the target rate will be between two per cent and six per cent.
This has been a long-standing demand of the RBI under Governor Raghuram Rajan, and largely follows the suggestions made by a panel chaired by Deputy Governor Urjit Patel.
It is to be hoped that the composition of the monetary policy committee will reflect the RBI's independence: it should have knowledgeable experts as members and the RBI governor should chair it. In particular, the government should not have a nominee on the committee.
This mechanism brings to India the formal accountability and transparency about future actions that is the hallmark of modern central banking - there are some important caveats that must be made.
In particular, it is far from certain that the RBI can, in fact, sustainably deliver what it is being asked to do. In the Consumer Price Index (CPI) inflation, which is what the RBI will target, the weight of food items is around 50 per cent.
But food inflation in India is usually caused by non-monetary factors. This country suffers from volatility of production and problematic supply chains; and so a failed harvest or a temporary shortage of onions could send the CPI reeling.
Under those circumstances, there is little that monetary policy can do other than make sure that it does not develop into generalized inflation. Of course, the monetary policy transmission mechanism is in any case weak, thanks to India's lack of fully developed and integrated financial markets. That means that, sometimes, the RBI may signal intent with interest rates, but they may not have much real impact.
Overall, thus, the RBI may find delivering on an inflation target harder than central banks in countries where food is not central to inflationary pressure, and where transmission systems are more effective.
It is worth noting that even in advanced economies, single-goal targeting is no longer the only monetary game in town. Since the 2008 crisis, central banks have considered other systems, including targeting nominal gross domestic product (GDP).
The Fiscal Responsibility and Budget Management Act, or FRBM Act, tends to be breached repeatedly by the government. Once a separate debt management office has been created, as promised in this Budget, the RBI will even not be in control of the government's debt programme. Given that, it will just have the interest rate as a lever of control; thus, the constant threat of fiscal excess from the government could mean a continually tough interest rate regime. The effects on growth are easy to imagine.
Four days after the Union Budget was presented and a day after the new monetary policy framework was announced, the Reserve Bank of India (RBI) has responded with its second out-of-cycle policy rate cut. As regards the Budget, the RBI has expressed some concern about the deviation from the Fiscal Responsibility and Budget Management(FRBM) road map. This would have put the fiscal deficit at 3.6 per cent of gross domestic product, or GDP, whereas the government eventually settled at 3.9 per cent.
It further notes that the larger volume of transfers to states, mandated by the 14th Finance Commission, may have contributed to a higher fiscal deficit at the central level, but could well reduce it at the state level. This means that aggregate fiscal consolidation will remain on track.
As for the agreement between the RBI and the government on a new monetary policy framework, the former is clearly confident that this will remove both ambiguity about the goals of monetary policy and the pressure that typically emanates from the government to favour growth over inflation control.
With this added room to man oeuvre, it perhaps thinks it can be a little less conservative than otherwise, using whatever space there is to demonstrate its compliance with the target range laid out in the framework.
The RBI had begun to express concern that the continuing interest-rate differential between India and the rest of the world was leading to what the governor has called an "avalanche" of fund flows. - Task force to plan smart cities
The Centre on 4th March announced the setting up of task forces that will draw up concrete action plans for the development of Ajmer, Allahabad and Visakhapatnam as smart cities. The task forces will have representatives from the Ministries of Urban Development and External Affairs, State governments and cities, and the United States Trade Development Agency, said a Urban Development Ministry official. The task forces are being set up following the decision taken at a recent meeting between Urban Development Minister M. Venkaiah Naidu and U.S. Secretary of Commerce Penny Pritzker. - RBI panel widens scope for priority sector lending
The Reserve Bank of India (RBI) on 2nd March said loans to sanitation, health care and drinking water facilities and renewable energy would come under the priority sector ambit, as would incremental loans made to exports, with certain ceilings.
An RBI panel report on revisiting the existing priority sector guidelines. All foreign banks (irrespective of number of branches they have) may be brought on a par with domestic banks and the same target/sub-targets may be made applicable to them, the report added.
It suggested foreign banks with 20 and above branches may be given time up to March, 2018, in terms of extant guidelines and submit their revised action plans. Other foreign banks, that is, with less than 20 branches, may be given time up to March, 2020, to comply with the revised targets as per action plans submitted by them and approved by the RBI.
The target for lending to agriculture has been retained at 18 per cent of ANBC. But a sub-target of 8 per cent of ANBC has been recommended for small and marginal farmers to be achieved in a phased manner. - Fiscal deficit hits 107% of Budget estimates
Two days after Finance Minister ArunJaitley revised the fiscal deficit estimate, the latest data showed that it was at over 107 per cent of the Budget estimate during the first 10 months (April-January) of the current fiscal year.
Jaitley had revised the deficit estimate to Rs. 5.13 lakh crore from Rs. 5.31 lakh crore during his Budget presentation. However, as a percentage of Gross Domestic Product (GDP), this remains at 4.1 per cent due to the change in absolute numbers in national accounts.
The latest data released by the Controller General of Accounts (CGA) showed that the fiscal deficit had reached over Rs. 5.68 lakh crore in 10 months.
This means, the Center expects higher tax and non-tax receipts in the last two months to bring the fiscal deficit down to the revised estimate of Rs. 5.13 lakh crore.
The deficit is higher because of lower tax collections and higher expenditure. Tax collection in the 10-month period was around 61 per cent of the Budget estimate. - Telangana gets 57 cr AP 319.26 cr
In the budget allocations, Telangana got Rs 57 crore while AP could get Rs 319.26 crore budget allocation
Out of the budget allocation of Rs 57 crore, an amount of Rs 55 crore was allocated for IIT in Hyderabad and the remaining Rs 2 crore for setting up a Tribal University.
Though Telangana could not get its due share in the Union budget this time, the Finance Minister said heritage status would be given to Qutb Shahi Tombs in Hyderabad besides releasing funds to protect the historic tombs.
This is possible through disbursement of 42 per cent of Central sales tax as was sought by the states, he said. Andhra Pradesh got funds for IIM (Rs 40 crore), IIT (Rs 40 crore), NIT (Rs 40 core), IIIT (Rs 45 crore), Central University (Rs 1 crore), Tribal University (Rs 2 crore) and IISCER (Rs 40 crore).
Besides, AP would get Rs 100 crore for the Polavaram Irrigation Project, Rs 5.63 crore for the Vijayawada Metro Rail Project and Rs 5.63 crore for the Visakhapatnam Metro Rail Project. - Panel to incentivise card transactions, check black money
The Finance Ministry has appointed a committee to suggest ways to incentivise use of plastic currency. Guidelines for schemes related with monetisation of gold are also set to be in place by May. The committee will look at what structures can be put in place to encourage use of credit or debit cards
The measures such as incentivising banks by way of sharing transaction cost, reimbursing cost of machine to be placed at shops, expenditure by a person in a five-star hotel aboveRs. 5,000 to be settled by credit or debit card are being considered. - Norms for insurance marketing firms
Enterprising insurance agents and entrepreneurs can soon start their own insurance distribution company. The Insurance Regulatory and Development Authority of India on 3rd March released its final guidelines on insurance marketing firms, which will be a new distribution category for insurance products.
With a minimum capital requirement of Rs. 10 lakh, the insurance marketing firm can distribute products of two life insurers, two general insurers and two health insurance companies at any point in time.
The regulator has said that at the time of initial grant of registration, which will be valid for three years, the insurance marketing firm will be permitted to set up offices only in one district of its choice. However, at the time of renewal of registration the insurance marketing firm can apply for more areas. Under these norms, IMFs can market and service insurance through insurance sales persons or ISP, apart from marketing other financial products through financial service executives. These include products of mutual fund companies, pension products of PFRDA, other financial products distributed by SEBI-licensed investment advisers. - RBI eases lending norms for affordable housing
In a bid to complement the Center's thrust on affordable housing, the Reserve Bank of India relaxed the norms for giving loans for houses that costs under Rs. 10 lakh. It has been decided that in cases where the cost of the house unit does not exceed Rs. 10 lakh, banks may add stamp duty, registration and other documentation charges to the cost of the unit for the purpose of calculating loan-to-value ratio.
This means, banks will now be able to offer finance for paying stamp duty and registration fee, which until now had to be paid by the home buyer.
The RBI said that these additional charges form around 15 per cent of the cost of the house and place a burden on the borrowers from economically weaker sections and low-income groups. - Center gives nod to Adani’s multi-product SEZ at Mundra
The GautamAdani-led Adani Ports and SEZ Ltd (APSEZ) has finally got the Central government’s nod to set up its proposed 1,856-hectare multi-product special economic zone in Mundra, Gujarat, after being kept on hold for years over contiguity (connectivity) and location issues.
The approval, however, comes with a rider that the company secure independent access to the zone within six months so that goods from the SEZ do not get mixed with those from outside.
The Adani Group operates the country’s largest port-based multi-product SEZ, in Mundra, over 6,473 hectares.
Taking cognisance of the Revenue Department’s concern that without a properly sealed independent access route to the proposed zone, which is adjacent to the company’s existing SEZ, there may be revenue leakage due to mixing of SEZ goods with those made outside, the BoA has instructed the developer to put adequate preventive measures in place.
It has asked APSEZ to construct a boundary wall on both sides along the independent access and a dedicated fenced corridor within six months of receiving the approval. A boundary wall needs to be constructed to separate the new SEZ from the existing SEZ and the Domestic Tariff (non-SEZ) area. - RBI cuts Repo rate by 25 basis points
RBI on 4th March made an announcement of repo rate cut, the second in less than two months. Repo rate has been reduced by 25 basis points or 0.25 per cent to 7.5 per cent with immediate effect.
The repo rate cut comes days after Finance Minister Arun Jaitley's Union Budget announcement. In his Budget, Jaitley had loosened the reins on public spending to drive growth, but promised lower-than-expected borrowing despite raising the fiscal deficit target.
Reacting to the RBI rate cut, MoS Finance Jayant Sinha said the rate cut would give a boost to economy in the near terms and EMIs will come down significantly. MoS Finance said that the rate cut was a vote of confidence for the Union Budget presented last week. - From business line analysis
In what seems to be turning into a Raghuram Rajan trademark, the RBI has, for the second time this calendar year, cut the repo rate before its scheduled monetary policy statement. The timing of the second 25 basis point cut in 2015 cannot be faulted and the move signals to the investing community that fiscal and monetary policy actors are on the same page. It also provides a feel of how the envisaged committee-driven monetary policy framework will work. Now, both fiscal and monetary policy are accommodative by design. The Center, realizing a window of opportunity provided by a subdued current account deficit, the sustained dip in oil prices, low inflation, and 10-year yields at 7.5 per cent, has decided to ramp up capital expenditure. Crowding out does not seem likely, with private investment yet to pick up. Yet, there can be no denying the green shoots, with the economy growing this year at 7 per cent. Green shoots require watering, and that explains why Rajan got into the act within days of the Budget, rather than stand on procedural niceties.
All the same, it is important to keep in mind that the somewhat fortuitous combination of favourable factors may not exist, say, six months from now. While inflation at 5 per cent is well below policy expectations, there are indications that the second half of 2015-16 may look different. The effects of the Railway Budget, which has raised rates on coal, steel, grains and pulses, may start to kick in. Add to this a few more rounds of fuel price increases, and we could see a spurt in transportation costs. Any fluctuation in agriculture output could complicate matters. Since the goal is to restrict inflation to 6 per cent by the end of 2015-16, with the Center committed to an investment stimulus at least till private investment picks up, the onus of adjustment may fall on the monetary side.
The moot point is whether banks pass on the repo rate cut. For banks to lend proactively, they will have to recover their NPAs. A revamp of existing bankruptcy laws, as articulated in the Budget, will help this cause. However, in keeping with the Budget spirit, small producers deserve a special credit line, independent of the overall NPA situation. This will ensure quicker monetary transmission, setting up a growth momentum so that a situation of creeping price rise does not derail the economy. Banks need to arrive at a ‘golden mean’ between revival and restructuring on the one hand, and the very logic of lending on the other, so that economic recovery does not remain stillborn. Besides easier lending rates, there should be no let-up in other efforts to ease the conduct of business. Monetary policy can only have a limited impact in an economy where credit outstanding is about half the GDP. The push has to come from supply-side reforms and a fillip to infrastructure. There are positive signs of a coordinated effort in this direction at the top.
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