ECONOMY AFFAIRS MAY 2013

ECONOMY AFFAIRS MAY 2013

• Following the intervention of Prime Minister Manmohan Singh, the Finance Ministry on May, has been pushed to release nearly Rs.1 lakh crore in petroleum subsidy for 2012-13 for the three oil marketing companies (OMCs)with a caveat that the Petroleum Ministry would shift to export parity price (EPP) for pricing of petroleum products. This move is likely to save Rs.18,000 crore in subsidy outgo. The move to shift to a new formula for pricing of petroleum products would be done soon after the submission of a report by Kirit Parekh panel, which is looking into the issue. The Finance Ministry is of the view that petrol and diesel should be priced at a rate they can get in export market, rather than the present practice of pricing the fuels after adding transportation cost and customs duty to the international price. The subsidy issue was resolved after a meeting between the Finance Minister, P. Chidambaram, and Petroleum and Natural Gas Minister Veerappa Moily in the presence of Dr. Singh.
  
• Indian Oil Corporation (IOC) and Ceylon Petroleum Corporation (CPC) are set to form a joint venture (JV) for taking up various initiatives in the oil and gas sector, including supply of LNG to Sri Lanka by Petronet LNG Limited (PLL) to feed power plants in that country. The decision to form the joint venture was taken following a meeting between the Petroleum Secretary, Vivek Rae, and the Ministry of Finance and Planning and Secretary, Ministry of Economic Development, Sri Lanka, P. B. Jayasundara, recently. Seeking to put the co-operation in the oil and gas sector on the fast track, the government has asked IOC to formalize a proposal within this month, and submit the same to CPC to facilitate further discussions. While acknowledging that there were pending issues of Lanka IOC, the Sri Lankan side suggested that the best way forward was to carry the initiative for enhancing co-operation between the two countries. It was decided during the meeting that IOC would submit a comprehensive proposal on the structure of the proposed JV that would address all concerns of IOC.
  
• In a surprise rejig at the top on 1 June, N.R. Narayana Murthy is back in Infosys as Executive Chairman at a time when the IT major has lost ground to rivals, and the stock has been among the worst performers in its league. The company, which Narayana Murthy co-founded with six others for $250, is now$7-billion software major but has been going through a rough patch the last two years. With Murthy’s appointment as Executive Chairman of the board and Additional Director for the next five years, the country’s third largest software exporter hopes to make up the lost ground. The board proposes to extend the retirement age for the Executive Chairman to 75 years. “This is my second innings and an exciting, yet somewhat new level of challenges awaits me,” said Murthy who got to know of his role this morning. However, the shareholders have to give their nod to the appointment of Murthy, who retired from Infosys in August 2011 and has not held an executive role the last seven years. K.V. Kamath, who was appointed Chairman after Murthy’s exit, will step down this month. .
  
• According to data released by the Central Statistical Organization (CSO) on 31 May 2013, economic growth slowed to 4.8 % in the January-March quarter and fell to a decade's low of 5 % for the entire 2012-13 fiscal due to poor performance of farm, manufacturing and mining sectors. The economic growth or GDP had expanded by 5.1 % in January-March quarter of 2012-13.The Indian economy had grown by 5.4 per cent, 5.2 % and 4.7 & in the first, second and third quarters, respectively, of 2012-13.
  
• The country had clocked 6.2 % growth in 2011-12 fiscal. In January-March quarter of 2012-13, manufacturing sector grew marginally by 2.6 %, against 0.1 % growth in the same period of the earlier fiscal. During 2012-13, the sector grew by a meagre one per cent compared to 2.7 % in the previous fiscal. Mining and quarrying sector contracted by 3.1 % during the fourth quarter of last fiscal. Farm sector output expanded by just 1.4 % in January-March this year, as against 2 % in the same quarter of 2011-12. The agriculture sector also grew at a slower rate of just 1.9 % in 2012-13 compared to 3.6 % in 2011-12.
  
• The Reserve Bank of India on 27 May 2013 imposed restrictions on banks and NBFCs for providing loans against gold coins as well as units of gold ETFs and mutual funds to curb demands for gold. Also banks were asked to ensure that the amount of loan to any customer against gold ornaments, gold jewellery and gold coins (weighing up to 50 grams) should be within the board approved limit. Banks are currently permitted to grant advances against gold ornaments and other jewellery and against specially minted gold coins sold by banks. However, no advances can be granted by banks for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange traded funds and units of gold mutual funds. Government has taken several steps recently, including raising import duty, to curb the inbound shipments of gold. RBI too had put restrictions on banks on gold imports, which has led to forex outflow and widening of the Current Account Deficit.
  
• The International Monetary Fund (IMF) lowered its forecast for China’s economic growth at 7.75 % for the year 2013, citing a weak world economy and exports in Washington on May 29th. Earlier, it had forecasted 8 % growth. Annual economic growth of China fell to 7.8 % in 2012, the slowest since 1999 because of its decreasing export demand and increasing costs, the euro-zone debt crisis and uncertainty over the US economic recovery. China is world’s second largest economy. The IMF advised that China should put priority on reining in social financing growth, or else the country's fast credit supply may fuel inflation in future.
  
• The Planning Commission approved Project Ananta, an Rs. 8,000 crore programme that looks for pulling Anantapur district out of the control of the perennial drought. The Planning Commission has approved an Rs. 53,000 crore Plan for the State, up by 8.2 per cent, compared to 48,935 crore Rupees in year 2012. The project will take a complete approach to achieve the target. The Commission is supposed to send its team to study the feasibility of the scheme. Both the State and the Centre would fund the Project. After getting the Planning Commission nod, the State would consider starting similar programmes for other backward districts such as Medak, Adilabad and Srikakulam. A high-level team of scientists suggested that the district required a five year plan to take stock of the situation and prepare a plan to address issues such as natural resource management, crops and livestock.
• Pursuant to the announcement made in the Union Budget for 2013-14, the Government of India in consultation with Reserve Bank of India (RBI) has decided to launch Inflation Index Bonds (IIBs) as instruments that will protect savings of the poor and middle classes from inflation and incentivise the household sector to save in financial instruments rather than buy gold. An official press release on 16 May said that, for appropriate price discovery and market development, however, it is necessary to issue comparable instruments through auctions to the institutional investors such as Pension Funds, Insurance, and Mutual Funds."This will create demand for IIBs and help in making them tradable in the secondary market. It is therefore proposed to issue initial series for institutional investors (including 20% to retail investors) and later, another series, exclusively for retail investors. First series of IIBs would be issued in H1 of the current FY. With a view to target greater retail participation for this series also, it has been decided to enhance the non-competitive segment for retail investors to 20%, from the present level of 5%," the release said.
  
• Pursuant to the announcement made in the Union Budget for 2013-14, the Government of India in consultation with Reserve Bank of India (RBI) has decided to launch Inflation Index Bonds (IIBs) as instruments that will protect savings of the poor and middle classes from inflation and incentivise the household sector to save in financial instruments rather than buy gold. An official press release on 16 May said that, for appropriate price discovery and market development, however, it is necessary to issue comparable instruments through auctions to the institutional investors such as Pension Funds, Insurance, and Mutual Funds."This will create demand for IIBs and help in making them tradable in the secondary market. It is therefore proposed to issue initial series for institutional investors (including 20% to retail investors) and later, another series, exclusively for retail investors. First series of IIBs would be issued in H1 of the current FY. With a view to target greater retail participation for this series also, it has been decided to enhance the non-competitive segment for retail investors to 20%, from the present level of 5%," the release said.
  
• Opening up the prospects of export of shale gas to energy-starved India, the U.S. on 17 May, has granted conditional authorisation to export domestically-produced liquefied natural gas (LNG) to countries that do not have a free trade agreement (FTA) with it. In a decision, which has major implications for India, the Department of Energy (DoE), on 17 May, announced that it had conditionally authorised Freeport LNG Expansion, LP and FLNG Liquefaction, LLC (Freeport) to export domestically-produced LNG to non-FTA countries from the Freeport Terminal on Quintana Island in Texas. Given that the companies from countries such as China, Japan and Britain have already an overwhelming stake in this Texas company, India is unlikely to benefit immediately from this grant of licence. But the decision paves the way for India, which does not have a free trade agreement with the U.S., to get its companies seek similar licences for import of the much-needed gas from the U.S. in large quantities from other terminals. The existing federal law generally requires approval of natural gas exports to countries that have an FTA with the U.S. For countries that do not have an FTA with the U.S., the Natural Gas Act directs the Department of Energy to grant export authorisations unless the Department finds that the proposed exports “will not be consistent with the public interest.”
  
• The RBI on 12 May 2013 imposed restrictions on gold import by banks in order to moderate the demand of gold for domestic use. The RBI decided to restrict the import of gold on consignment basis by banks, only to meet the genuine needs of exporters of gold jewellery. The RBI stated that the decision is based on the recommendations of the Working Group on Gold that had suggested aligning gold import regulations with the rest of the imports for creating a level playing field between gold imports and other imports. The restrictions have come into effect immediately.
  
• The Union Government in Month of May 2013 has proposed stronger powers to Securities and Exchange Board of India (SEBI) enabling it to carry out search and seizure operations and for attachment of assets. With this a Special power has also been proposed to SEBI with which it can seek information on telephone call data records, from any persons or entities in respect to any securities transaction being examined by it. It is worth mentioning here that Proposals to make required amendments in the SEBI Act and other relevant regulations have been finalized after detailed consultations with the market regulator and are being presented before the Union Cabinet for its approval. The Government is planning to introduce the Securities Laws (Amendment) Bill, 2013 in Parliament to carry out the proposed changes for grant of stronger powers to SEBI. The Government has come up with the decision of accepting most of the proposals made by SEBI in this regard and the amendments would be carried out after the Cabinet approves them and the required amendment Bill is passed by Parliament.
  
• The Union Government on 13 May 2013 hiked the monetary assistance by 25,000 rupees under the Indira Awas Yojana (IAY), the housing scheme for the poor, giving priority to the scheduled castes, tribes and minorities. The cost for 250 square foot housing unit has gone up to 70,000 rupees in plain areas and 75,000 rupees in hilly and difficult areas from 45,000 rupees. The Union Government under the new guidelines of the Indira Awas Yojna has decided to transfer the share of its funds to the State Governments rather than making a district based allocation. The Union Government’s assistance got procurement of a homestead site to the states has been doubled for landless poor from 10,000 rupees to 20,000 rupees. The changes has been brought in following the agreement reached between the Government and the Jan Satyagraha on 11 October 2012 at Agra, also known as the Agra Agreement on Land Reforms in which 10-point agreement was signed by the Rural Development Minister Jairam Ramesh at Agra.
• In connection with Cobrapost, Red Spider 2 Expose which was released on 6 May, Rajiv Takru, Secretary, Department of Financial Services (DFS) and Ministry of Finance have ordered the Chairman cum Managing Directors (CMDs) of various Public Sector Banks and Life Insurance Corporation of India an immediate action in the matter. The Secretary of DFS had also sought compliance and action taken report to be submitted on utmost priority. As a result, certain PSBs have already taken action and in some cases, the work is still in progress. So far, fifteen (15) officers/employees of various Public Sector Banks have been suspended including one from insurance sector. Beside it, ten officers of PSBs have been divested of their work and six have been asked to proceed on leave. More action taken reports are expected in near future.
  
• An Inter-ministerial Group on 9 May, has approved 10 per cent equity sale in Coal India which is expected to fetch over Rs 17,000 crore to the government. At present, the government holds 90 per cent stake in Coal India Ltd. The Group headed by Disinvestment Secretary Ravi Mathur is guiding the process of disinvestment of government's equity in CIL. Besides, the panel has members drawn from Ministry of Coal, Departments of Legal Affairs, Economic Affairs, Corporate Affairs and Chairman-cum-Managing Director of CIL. Coal India, which has a cash balance of about Rs 60,000 crore, will be the biggest disinvestment for the government in the 2013-14 fiscal. The government would like to earn Rs. 40,000 crore through PSU stake sale in this fiscal.
  
• The Cabinet Committee on Economic Affairs (CCEA) on 9 May 2013 approved the proposal of the Ministry of Shipping for setting up of two major ports in the country. The two ports will come up in Andhra Pradesh and West Bengal each through Public Private Partnership mode. As per the proposal approved, one port is expected to come up atDugarajapatnam, Nellore district in Andhra Pradesh and looked forward to find out the techno-economic feasibility report for commissioning of the port. Another port will be developed at Sagar Island in West Bengal after obtaining environmental clearances and following exact procedures for development of the project. The cabinet also agreed for appointment of the transaction advisers and legal consultants and finalization of the project structure in consultation with the State Government of West Bengal and the Planning Commission.
  
• National Stock Exchange launched the country’s first dedicated debt trading platform on 11 May, 2013. The new Platform launched is awaiting the market regulator Securities and Exchanges Board of Indis’s (SEBI) guidelines for allowing participation of mutual funds, insurance companies and pension funds. NSE had recently received approval from SEBI to launch the debt segment. The debt trading platform is supposed to provide retail investors an opportunity to invest in corporate bonds on a liquid and transparent exchange platform. Banks and primary dealers are the first to enter and they will provide enough liquidity in the debt segment. The mutual funds, insurance companies and pension funds are also expected to participate after guidelines for the same are issued. The Debt Trading exchange platform is an innovation, which has been launched after intensive feedback from market participants. It is similar to RBI’s NDS-OM, where Government securities are traded on a transparent platform.
  
• The Cabinet Committee on Economic Affairs on 2 May, gave its approval to the proposal of Ingka Holding B.V., Netherlands, as recommended by the Foreign Investment Promotion Board (FIPB). The approval would result in FDI inflows amounting to Rs.10, 500 crore approximately into the country.
  
• The Cabinet Committee on Economic Affairs on 2 May, approved the setting up of a Central Public Sector Enterprises (CPSE) Exchange Traded Fund (ETF), which would comprise CPSE stocks (from amongst the listed CPSE stocks). Each stock would have a fixed weightage in the basket. The composition of the basket, the launch of the New Fund Offer (NFO), the discount to be provided and other issues relating to contribution and pricing of the ETF would be decided by the Empowered Group of Ministers (EGoM). This will help in minimizing market disruptions seen in public offerings of listed CPSEs; increase ability of the Government to monetize partial stakes in listed CPSEs, some of which have low liquidity and free float; broad base retails participation of shares of CPSEs, and moreover, help to deepen the market for equity-based products; beneficial to the Government from a pricing perspective as part of the discounts could be back-ended; in the perspective of success of ETFs globally, a CPSE ETF will boost the ETF product in the country, and will help fulfill the domestic investors’ appetite for an equity ETF products as the domestic Indian investor is vastly under-served vis-a-vis the foreign investor community. CPSE ETF is made up of a basket of shares of different CPSEs that tracks an index fund, but trades like a stock on the exchange.
  
• Asian Development Bank (ADB)on 5 May 2013 announced that it is going to provide about 6 billion dollars loan to India over the next three years which was decided at the concluding day of the 46th annual meeting of the funding agency. Although, the ADB is facing the challenge of raising resources, the basic idea behind providing loan is to maintain its lending level to India. The bank is working on partnership strategy and is planning to maintain the level of lending to India. It is important here to note that India is the biggest borrower of ADB and ADB had extended a 2.4 billion dollars loan to India in 2012 across sectors like transport, energy, commerce, industry, trade and finance. The bank will also continue to lend10 billion dollars a year across the member-nations despite generating lower return from investments.
  
• The Supreme Court of India on 1 May 2013 upheld the constitutional validity of Government’s decision allowing 51 percent foreign direct Investment in the multi-brand retail sector. A bench of Justices R M Lodha, Madan B Lokur and Kurian Joseph gave the ruling. The bench observed that there was no harm in giving the policy a chance. It saw merit in the policy that it would eliminate intermediaries and help provide farmers a better price for their produce. It dismissed the petition filed against the 51 percent FDI in multi-brand retail. As per the court, the policy will affect the lives of only 13.3% of the country's population living in 53 cities.
  
• According to TRAI data, Uttar Pradesh, accounted for the largest number of mobile subscribers in India followed by Tamil Nadu, Maharashtra, Andhra Pradesh and Bihar. Uttar Pradesh has a total of 121.60 million mobile phone connections, while, Tamil Nadu has 71.81 million subscribers. Maharashtra is at the third position, with a subscriber base of 67.73 million followed by Andhra Pradesh and Bihar at 64.12 million and 60.73 million, respectively. These five states together account 366 million mobile subscribers, which is 45 per cent of the total cell phone connections in the country. Karnataka stands sixth with 52.45 million mobile subscribers followed by the central Indian state of Madhya Pradesh with 51.43 million subscribers. Gujarat, fast rising as the most industry-friendly state, came eighth with 51.23 million cell phone connections, while Rajasthan, the largest state in terms of area, has 47.83 million mobile subscribers. India, which is the world's second largest mobile phone market in terms of subscribers, had 861.66 million mobile connections as on February 2013, data from telecom regulator Telecom Regulatory Authority of India (TRAI) showed. Mobile subscriber base in the country declined by 0.11 percent to 861.66 million at the end of February 2013 from 862.6 million in January 2013 India's total telecom subscriber base, which includes mobile and landline connections, declined marginally to 892 million in February 2013 from 893.1 million at the end of January this year. India's telecom subscriber base had touched an all-time high of 965.5 million in June 2012.
  
• Infrastructure financier IDFC on 2 May has announced that its current Managing Director & Chief Executive Officer Rajiv Lal would replace outgoing chairman Deepak Parekh. Mr. Parekh will leave the government-promoted IDFC to chair the IDFC advisory council - consultative body that will be formed within the next few months. Mr. Parekh has been the chairman of the government promoted infrastructure financier for the last fifteen years.IDFC said in a statement, "Parekh has relinquished his post as Chairman. The board has appointed Rajiv Lall (55) as the Executive Chairman and Vikram Limaye as the Managing Director and CEO."
  
• Sticking to its cautious stance, the Reserve Bank of India (RBI) on 3 May cut the key interest rate by just 0.25 per cent to 7.25 per cent and kept the liquidity enhancing cash reserve requirement unchanged, disappointing the industry and stock market. The RBI in its annual monetary policy statement said there would be modest improvement in the country’s economic growth to 5.7 per cent in the current fiscal, as against the decade’s low of 5 per cent in 2012-13. Justifying the limited easing, RBI Governor D. Subbarao said the “monetary policy action, by itself, cannot revive growth. It needs to be supplemented by efforts towards easing the supply bottlenecks, improving governance and stepping public investment”. The upside risks to inflation, which cooled to a three-year low in March, “still remain significant” in the near term on suppressed inflation on the energy front, Mr. Subbarao added. “Overall, the balance of risks stemming from the Reserve Bank’s assessment of the growth-inflation dynamic yields little space for further policy easing,” he said. The decision to leave the CRR unchanged seems to have been driven by an improvement in the liquidity deficit, as the banks are now drawing around Rs. 84,000 crore from the overnight window compared to Rs. 1.8 lakh crore late last fiscal. RBI expects inflation to hover broadly around the 5.5 per cent mark in the current fiscal and said it will deploy “all instruments at command” to bring it down to 5 per cent by March next year.