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ECONOMY
THE RUPEE PLUNGED TO A RECORD LOW OF 56.90
Indian Rupee plunged to an all time low
of 56.90 rupees against the US dollar on 22
June 2012 on global risk aversion and de-
mand for dollar. Indias slipping domestic
growth, declining industrial output figure,
RBIs stringent monetary policy stance, per-
sistent high rate of inflation and credit rating
downgrade by international rating agencies
like Fitch and Standard and Poors have
prompted the worsening of Indian rupee
against the dollar. Given the current economic
and political situation of the country, rupee
may fall further at 57-58 levels in June 2012.
Rupee, given its current trading status, is
proving to be Asias worst performing cur-
rency. The currency has also been the poor-
est performer among the all Asian currencies
this week, on a 5-day basis. So far the Indian
currency had tumbled 6.7 per cent in the year
2012.
PATENTED DRUG PRICES TO BE LINKED WITH PER-
CAPITA INCOME
An inter-ministerial group formed in
2007 and entrusted with the responsibility of
regulating prices of patented medicines rec-
ommended using a per capita income-linked
reference pricing mechanism. The proposal
by the group is expected to reduce prices of
several patented dugs by up to one-third.
However it will hit the profitability of for-
eign companies. The committee suggested
fixing the price of patented drugs by com-
paring the price at which these drugs are pro-
cured by governments in the UK, Canada,
France, Australia and New Zealand. The
committee recommended that the retail price
is to be fixed by adjusting it to the per capita
income of the country. The new mechanism
is to be applicable for patented drugs that
dont have any therapeutic equivalents in the
market.
For patented drugs that have similar al-
ternatives in the market, the price is to be
fixed in such a manner that it should not lead
to an overall increase in the treatment cost.
If the global launch of the patented drug takes
place in India, the retail price will have to be
based on the cost of developing the drugs and
other factors. Prices of patented drugs are
currently unregulated. Patented drugs account
for 1% of the $13-billion domestic market.
This share is expected to grow to 5% of the
estimated $50-60 billion drug market by
2020. The Indian Pharmaceutical Alliance,
the representative body of big Indian drug
makers, supported the reference-based sys-
tem. The Organisation of Pharmaceutical
Producers of India (OPPI), the lobby body of
multinationals however stated that the cross-
country per capita income-linked proposal is
fundamentally flawed. India had adopted a
new product patent regime in 2005 after it
became a signatory to TRIPS, an international
intellectual property protection agreement,
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providing 20 years of marketing exclusivity
to the patent holder. Global innovator com-
panies such as GSK, Bayer AG, Novartis,
Merck & Co and Bristol Myers Squibb who
started launching their drugs in India continue
to remain jittery about the governments poli-
cies aimed at reducing healthcare costs. They
complain that Indias implementation of in-
tellectual property rights has been unsatisfac-
tory.
SEBI ALLOWED PARTIAL FLEXIBILITY IN IDRS
Indias market regulator Security and
Exchange Board of India (SEBI) on 28 Au-
gust 2012 allowed partial flexibility in the
conversion of Indian Depository Receipts
(IDRs) into equity shares by investors. The
SEBI move is aimed at retaining domestic
liquidity besides, it is also expected to attract
foreign entities to enroll their IDRs on India
stock exchanges. In another circular released
by the RBI, the central bank put an overall
cap of 5 billion dollar for raising of capital
through IDRs by foreign companies in Indian
markets. The RBI measure will help Indian
investors to convert their depository receipts
into equity shares of the issuer company and
vice versa.
49 PERCENT FDI IN INSURANCE AND PENSION
SECTOR APPROVED
In a move aimed at encouraging invest-
ment sentiment in the country, the Union Fi-
nance Ministry on 22 August 2012 approved
49 percent foreign direct investment in in-
surance and pension sector. Earlier the per-
mitted level of FDI in the insurance and pen-
sion sector was 26 percent. The proposal for
49 percent FDI in insurance and pension sec-
tor was made during Pranab Mukherjees ten-
ure at the finance minister office. However,
the decision on the same was delayed because
of resistance from the cronies. With the ap-
proval of Union Finance Ministry, the bill will
now be discussed in the cabinet and will re-
quire to be approved by the parliament. The
chances of the bill getting through in the
monsoon session of the parliament are very
low as opposition parties have been consis-
tently stalling the house on the issue of coal
scam. The monsoon session is set to end on
27 August 2012.
As per the Insurance Regulatory and
Development Authority (IRDA) estimates,
over the next five years, the insurance sector
requires a capital infusion of more than 12
billion dollar. The Union Government has
been trying hard to introduce the major re-
forms to revive the ailing economy. The mea-
sures such as FDI in multi -brand retail and
civil avaiation, implementation of Goods and
Services Tax (GST) have , however, faced
fierce opposition from different political par-
ties. Indian economy is rapidly moving to-
wards the grim economic situation similar
faced during the recession. The economy
needs some big ticket reforms to reverse the
pessimistic economic environment. Indias
GDP growth fell to 6.5 percent during 2011-
12 but the fourth quarter growth rate dropped
to 5.3 percent, the slowest in past nine years.
Business confidence among the investors and
business leaders has touched the historic low
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as industrial output and trade figures are con-
stantly going down.
The tight monetary policy measures
adopted by the central bank to check infla-
tion has actually aggravated the situation as
high interest rates are hugely impacting the
overall growth scenario. Indian industries
have been reiterating that there is an urgent
need to create conditions for revival of pri-
vate investment. The FDI in insurance might
prove to be a start of the long pending re-
form but the Union Finance Minister P
Chidambaram will have to work hard on po-
litical front to make it possible. Earlier the
government had to defer the decision on the
bill as it faced opposition from its allies such
as Trinammol Congress.
E-VOTING IS MANDATORY FOR TOP 500 LISTED
COMPANIES OF BSE & NSE
The capital market regulator Securities
and Exchange Board of India (SEBI) made it
mandatory for top 500 listed companies to
hold e-voting with an objective to widen
shareholder participation in key decisions.
SEBIs decision on e-voting is to be imple-
mented in a phased manner. The implemen-
tation will begin by subjecting the top 500
listed companies at the Bombay Stock Ex-
change and the National Stock Exchange
based on market capitalization to e-voting.
The structural changes like scrutiny of audit
reports as well as e-voting are expected to
benefit the capital market in the medium
term. SEBI also decided to create a Quali-
fied Audit Report review Commit tee
(QARC) represented by accounting regula-
tor ICAI (Institute of Chartered Accountants
of India) and stock exchanges. The commit-
tee would be responsible for processing quali-
fied annual audit reports filed by the listed
entities with stock exchanges. The commit-
tee will be expected to study reports where
accounting irregularities have been pointed
out by Financial Reporting Review Board of
the Institute of Chartered Accountants of In-
dia (ICAI-FRRB).
The regulator relaxed norms for Offer
For Sale (OFS). OFS is a new route intro-
duced by SEBI in early 2012 to help compa-
nies increase their public shareholding. A
minimum gap of two weeks between two
OFS issuances was permitted by SEBI.
SEBI made it easier for promoters of
listed companies to dilute their stake and
comply with public holding rules by 2013.As
specified by SEBI, private sector companies
and also the state-owned corporations is re-
quired to have a minimum public holding of
25% by August 2013. In the SEBI board
meeting, the regulator also announced a sim-
pler share auction mechanism that would help
listed companies to attract investors. It pro-
vided institutional investors with the option
of applying for shares either with 100% mar-
gin or with a lesser margin to be fixed by
stock exchanges. However in case of the
lesser margin being fixed by the stock ex-
change the bids cannot be changed. With re-
gards to fulfilling public holding norms, the
board decided that issuers will be required
to disclose the floor price a day before the
share auction. The floor price may or may
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not be a part of the notice given by compa-
nies on the offer. Investors were barred from
modifying or cancelling bids during the last
60 minutes from the close of the bidding ses-
sion in the auction. Exchanges are required
to display the indicative price during the last
60 minutes of the close of bidding session
irrespective of the book being built.
INDIAS PUBLIC DEBT ROSE BY 4.9 %
According to the quarterly report on
Public debt management prepared by the
Department of Economic Affairs (DEA) un-
der the Ministry of Finance, Indias public
debt rose by 4.9 per cent to 3752576 crore
rupees during the first quarter (April-June)
of fiscal year 2012 from 3578244 crore ru-
pees in the fourth quarter (January-March)
of 2011-12. The report was released by the
government on 27 July 2012. The report
pointed out that internal debt constituted 90.6
per cent compared with 90.1 per cent at the
end of March, 2012 quarter. The report noted
that outstanding internal debt of the Govern-
ment at 3398154 crore rupees constituted
33.4 per cent of GDP compared with 36.4
per cent in the last quarter of 2011-2012. On
the tax front, report revealed, the government
did remarkably better as gross tax collections
during April-May period at 7.8 per cent of
budget estimate were higher than 6.6 per cent
a year ago. Personal income tax collections
at 25999 crore rupees also surged by 44.2 per
cent against budgeted estimate of 13.9 per
cent for 2012-13. In the direct taxes, corpo-
rate tax collections at 10137 crore rupees
showed a healthy growth. Among the indi-
rect taxes, customs and excise duties showed
negative growth of 2 per cent and 4.6 per cent,
respectively, against budgeted growth rates
of 22 per cent and 29.1 per cent. Service tax
collections, however, increased by 37.7 per
cent during April-May 2012-13 as against
budget estimate of 30.5 per cent.
UNION GOVERNMENT TO LIBERALISE ECB
The Union government decided to liberalise the
external commercial borrowing (ECB) norms for the
power sector. The announcement was made in tune
with the announcement made in this respect by the
Finance Minister, Pranab Mukherjee while presenting
the Union budget 2012-13. Power sector companies
will now be able to use up to 40 per cent of ECB loans
to refinance their rupee debt, provided the remaining
60% balance is utilised for investments in new projects.
So far, power companies were permitted to use only
25 per cent of the ECB to refinance their domestic
rupee-debt loan. Besides, the government also opened
the ECB route for capital expenditure on maintenance
and operations of toll systems in the roadways and
highways sector, only if these constitute a part of the
original project.
NABARD INTRODUCES
NEW SYSTEM FOR FARMERS
The National Bank for Agriculture and
Rural Development (NABARD) has intro-
duced a Negotiable Warehouse Receipt
(NWR) system to help farmers avoid distress
sale of their produces. NABARD chief gen-
eral manager K.C. Shashidhar said the NWRs
would enable small and marginal farmers
with Kisan Credit Cards to avail post-harvest
loans at concessional interest rates and store
their produce in warehouses against ware-
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house receipts. At present, concessional loan
at 7 per cent interest is available to farmers
as pre-harvest loan. However, in the case of
post-harvest loans, the farmers must pay com-
mercial interest rates. The interest subven-
tion being offered now would be released
through NABARD for the post-harvest loans
granted by cooperative banks and regional
rural banks.
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