Current Affairs- India(Economy)

Current Affairs-Indian(Economy)

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Current Affairs- India(Economy)

1 Infra sector grows by 5.1% in September
Showing signs of further pick-up in the economy, annual growth of key infrastructure industries including coal and cement, have more than doubled to seven-month high of 5.1 percent in September. The eight core industries coal, crude oil, natural gas, refinery products, fertilizers, steel cement and electricity have shown marked improvement, both year-on-year as well on sequential basis. These industries had expanded by mere 2.3 in August 2012 and 2.5 percent in September last year.

2 One point rise in consumer price index (CPI)

Indias consumer price index (CPI) for industrial workers was at 9.14 percent in September, lower than an annual rise to 10.31 per cent in August, government data showed on Wednesday. The consumer price index for industrial workers rose by 1 point from the previous month to 215 in the government uses CPI for industrial workers to fix wages for its employees. Indias statistics ministry separately releases annual inflation data based on the CPI every month. The annual consumer price inflation was 9.73 per cent in September.

2.1 About CPI

The consumer price index or CPI is a measure of the level of inflation. Consumer Price Index (CPI) in India comprises multiple series classified based on different economic groups. RL (Rural Laborer) and CPI IW (Industrial Worker) While the CPI UNME series is published by the Central Statistical Organization, the others are published by the Department of Labor. From February 2011 the CPI (UNME) released by CSO is replaced as CPI (urban), CPI (rural) and CPI (combined).

3 New guidelines for rehabilitation of sick MSEs

The Reserve bank of India revised the definition of sick Micro and Small Enterprises (MSEs). As per the new guidelines, a MSE would be considered sick if any of the borrowal account of the enterprise remains non-performing assets (NPA) for three months or more. Earlier, a unit was considered sick if its borrowal account remained sub-standard for more than six months.
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Also, the unit needs not to be in commercial production for at least two years to be declared sick. The new guidelines should be applicable for the year ending March, 2013, RBI said.

3.1 Board for Reconstruction of Public Sector Enterprises (BRPSE)

Board for Reconstruction of Public Sector Enterprises (BRPSE) was established in December 2004 as an reviving and restructuring of public sector enterprises. The Board comprises a Chairman in the rank of Minister of State, three Non-official Members, three Official Members and three Permanent Invitees. The Secretary to the Government in the Administrative Ministry/Department, concerned with the CPSE, being taken up for consideration is invited to attend the Board meetings as a Special invitee. The Board has a Secretary in the rank of Additional Secretary to the Government of India. Following shall be the terms of reference to the Board. To advise the Government on ways and means for strengthening public sector enterprises in general and making them more autonomous and professional. To consider restructuring financial, organizational and business (including diversification, joint ventures, seeking strategic partners, merger and acquisition) of CPSEs and suggest ways and means for funding such schemes. To examine the proposals of the administrative Ministries for revival/restructuring of sick/loss making CPSEs for their turn around and to make suitable recommendations. To advise the Government on disinvestment/closure/sale, in full or part, in respect of chronically sick/loss making companies, which cannot be revived. In respect of such unviable companies the Board would also advise the Government about sources of fund including sale of surplus assets of the enterprise for the payment of all legitimate dues and compensation to workers and other costs of closure. To monitor incipient sickness (incurring loss for two consecutive years) in CPSEs. To make recommendations and advise the Government on such other matters as may be assigned it from time to time.

4 Reforms boost investments via P-Notes

Foreign investments in domestic markets through Participatory Notes and hedge funds, rose to a six-month high of Rs 1.47 lakh crore (about $27 billion) in September, as various reform measures helped boost investor sentiment. Securities and Exchange Board of India has released this data stating the total value of PNote investments in the value of such investments stood at Rs. 1.66 lakh crore.
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P-Note investments in August in domestic markets were at Rs. 142 lakh crore (around $26 billion).

4.1 Participatory Notes

Participatory Notes commonly known as P-Notes or PNs are instruments issued by registered foreign institutional investors (FII) to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India SEBI. SEBI permitted foreign institutional investors to register and participate in the Indian stock market in 1992. Investing through P-Notes is very simple and hence very popular amongst foreign institutional investors. P Notes are not used within the country but are used outside India for making investments in shares listed in the Indian stock market thus are also known as offshore derivative instruments. On the 16th of October, 2007, SEBI proposed curbs on participatory notes as it was not happy with P-Notes because it is not possible to know who owns the underlying securities and hedge funds acting through PNs might therefore cause volatility in the Indian markets. But, this was not received well by the investors and had led to a tumble in share prices until the government had to revoke the changes.

5 SC refuses to interfere with FDI

The Supreme Court said that it would not interfere in policy decisions, even as the Centre informed is that to Reserve Bank of India had notified the amendments to the regulations permitting foreign direct investment multi-brand retail. The Gazette notification amending the Foreign Exchange Management (Transfer or Issue of Security by a Person, Resident outside India) Regulations 2000, permitting foreign direct investment in the sector was product to the SC. The notification permits 100 per cent FDI in single brand product retail and 51 per cent in multi brand retail. Advocate Manohar Lal Sharma, who had challenged the notification, said the amendments would have to be placed before Parliament for its approval as per sections 47 and 48 of the FEMA. He apprehended that the Centre might not do so. The notification has laid down the following conditions. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh, poultry, fishery and meat products may be unbranded. The minimum amount to be brought in as FDI by the foreign investors would be $100 million.
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At least 50 per cent of the total FDI shall be invested in back-end infrastructure within the three years of the first tranche. At least 30 per cent of the value of procurement of manufactured/processed products purchased shall be sourced from Indian small farmers. It further stipules that retail sales outlets be set up only in cities with a population of more than 10 lakh. In the States/Union Territories not having cities with a population of more than 10 lakh, these outlets may be set up in the cities of their choice, preferably in the largest, and the government will have the first right to procurement of agricultural products. The Bench adjourned the matter to January 22, 2013 so as to enable the Centre to place the amendments before both Houses of Parliament in the winter session.

6 Banks can become Stock Exchange Members R.B.I.

RBI has said that banks could become members of stock exchanges to undertake proprietary transactions in the corporate bond market. A well developed corporate bond market provides additional avenues to corporate companies for raising funds in a cost effective manner and reduces their reliance on banks. Indias has an advanced government securities market but corporate bond market is still underdeveloped. The size of the Indian corporate bond market at 11.8 per cent of GDP is lower than the average for Emerging East Asia and for Japan at 17.2 and 19.8 per cent, respectively. Total issuance of corporate bond market increased from Rs. 1.75 lakh crore in 2008-09 to Rs. 2.97 lakh crore in 2011-12.

7 IAB favors separate regulator for collective investment schemes

The Securities and Exchange Board of India said its International Advisory Board (IAB) has favored active involvement of regulatory authorities to check flash crash like situations and a separate regulator for collective investment schemes. Besides, the IAB has acknowledged the need for reviewing the capital adequacy norms for market entities to meet the unknown and non market risks such as flash crash, as per their trade volumes and number of clients. In wide ranging discussions during its second meeting, the IAB also suggested a separate code or set of guidelines for research analysts providing their services without any fee to safeguard the investors interest.

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Indian stock market witnessed a flash crash in benchmark index Nifty last month, after erroneous trade orders entered by a broker led to about 900 point plunge within seconds and the markets had to be halted for about 15 minutes. SEBI said the IAB discussed the recent flash crash episodes witnessed globally and in India, while deliberating over the pros and cons of HFT (High Frequency Trade/Algorithmic) trading, efficiency of secondary markets and fairness to market participants. The IAB acknowledged that nearly all financial markets across the globe had these issues, and the international organization of securities commissions (IOSCO) had been actively discussing ways in which regulators and exchanges should modify market structures to tackle these challenges. For mutual funds, it was underlined that there was a need for uniform tax treatment of retirement related investments irrespective of the investment routes and a significant boost to the development of annuity industry in India.

7.1 What is Collective Investment Scheme?

A type of investment scheme that involves collecting money from different investors and then combining all the money collected to fund the investment. A collective investment scheme may also be called a mutual fund. Similar to a mutual fund, a collective investment scheme provides almost absolute control of the investment to the company pooling and investing the money.

7.2 International Advisory Board (IAB)

SEBI had constituted the IAB in September, 2001, and its role is to guide the market regulator in its policy decisions through global experience and emerging developments and challenges. The IAB meets twice in a year, if required, a third meeting will be organized by SEBI through video conferencing. All the recommendations of the IAB, along with the actions taken by SEBI, thereon, will be reported to the Sebi board. The IAB members would have a three year term, and would be paid an honorarium of USD 2,500 for each meeting. The Members of the IAB will be nominated by the Chairman SEBI from amongst persons who have special knowledge or experience of law, finance, economics, or any other discipline useful to the IAB.

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8 Banks to usher in Cheque Standardization
From January 1, 2013, cheques which to not conform to CTS-2010 standards would not be entertained by banks. These include provision of mandatory minimum security features on cheques forms such as quality of paper watermark, banks logo in invisible ink, void pantograph and standardization of field placements on cheques. The RBI had issued a plan to ensure a time bound migration of CTS-2010 standard cheque formats by all banks. As per the plan, banks had to arrange to issue only multi-city/payable at par CTS-2010 standard cheques not later the September 30, 2012 by creating awareness among customers. Further, banks holding post-dated EMI cheques received either on their own behalf on behalf of their NBFC clients were also instructed to replace non-CTS 2010 standard cheques with CTS-2010 standard cheques before December 31, 2012. The RBI also asked non banking finance companies (NBFCs) accepting post dated cheques from their customers for future EMI payments to ensure replacement of non CTS-2010 standard compliant cheques with CTS-2010 standard compliant cheques before December 31, 2012.

8.1 About Cheque Truncation System (CTS) in India

To improve the efficiency of the Cheque Clearing Cycle, Reserve Bank of India has decided to introduce Cheque Truncation System (CTS) in India. Cheque Transaction is a more secure system than the current exchange of physical documents in which of the instrument is lost in transit or manipulated during the clearing cycle. Cheque Truncation speeds up collection of cheques and therefore, enhances customer service, reduces the scope for clearing related frauds, minimizes cost of collection of cheques, reduces reconciliation problem eliminates logistics problem etc. In addition to operational efficiency, Cheque Truncation has several benefits to the banks and customers which includes introduction of new products, re-engineering the total receipts the payments mechanism of the customers, human resource rationalization, cost effectiveness etc.

8.2 What is cheque truncation?

Truncation is the process of stopping the flow of the physical cheque issued by a drawer to the drawee branch, image of the cheque would be sent to the drawee branch along with the relevant information like the MICR field date of presenting banks etc.

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The images captured at the presenting bank level would be transmitted to the Clearing House and then the drawee branches with digital signatures of the presenting bank. Thus each stage would carry the digital signature, apart from the physical endorsement of the presenting banks, in a prescribed manner.

9 Centre approves 10% disinvestment in HAL

The Cabinet Committee on Economic Affairs (CCEA) has approved divestment of 10 percent equity in HAL out its holding on 100 per cent through an Initial Public Offer (IPO) in the domestic market as per the SEBI rules and regulations. Following the sell-off, the Centres equity stake in the PSU will come down to 90 per cent. The IPO would be issued only in the next fiscal year. The proposal for disinvestment in HAL was placed before the CCEA in this light in view of the governments plans to modernize the company for which $20,000 crore would be required over the next five years.

9.1 About HAL

Hindustan Aeronautics Limited (HAL) based in Bangalore, India is one of Asias largest aerospace companies. Under the management of the Indian Ministry of Defense, the state owned company is mainly involved in aerospace industry, which includes manufacturing and assembling aircraft, navigation and related communication equipment.

10 With ECB norms eased, 2G spectrum bidders can now raise cheaper loans overseas
The Finance Ministry relaxed the policy norms for external commercial borrowing (ECBs) to facilitate easy availability to cheap funds for the upcoming 2G spectrum auction, keeping in view the large capital outlay required to be paid directly to the government within a limited period of time. Accordingly, successful bidders in the 2G auction will be eligible to refinance their rupee loans availed of from domestic lenders for making the upfront payment with a long term ECB, under the automatic route, subject to certain conditions. Also, subject to certain terms and conditions, the successful bidders can also avail themselves of short term foreign currency loan in the nature of bridge finance under the automatic route for the purpose of making upfront payment towards 2G spectrum allocation and replace the same with a long term ECB under the automatic route.

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The government takes up the ECB policy for periodic review consultation with the RBI, keeping in view the evolving macro-economic situation, external sector assessment, needs of the corporate sector and other sectoral requirements. Under the existing policy, eligible borrowers in the telecommunication sector are permitted to avail themselves of ECB under the automatic route for the purpose of spectrum allocation payment. To develop the telecom sector in the country, the government, in January 2010, had provided a window of 12 months to successful bidders of 3G auction to refinance the rupee loans initially availed of from domestic lenders to make payment for spectrum allocation with a long term ECB under the approval route.

10.1 External Commercial Borrowing (ECB)

External Commercial Borrowing (ECB) refer to commercial loans in the form of bank loans, buyers credit, suppliers credit, securitized instruments (e.g. floating route notes and fixed rate bonds) availed from non-resident lenders with minimum average maturity of 3 years. ECB can be accessed under two routes viz. Automatic Route and Approval Route. ECB for investment in real sector industrial sector, especially infrastructure sector in India, are under Automatic Route, i.e. do not require RBI/Government approval. In case of doubt as regards eligibility to access Automatic Route, applicants take resource to the Approval Route, where prior approval is needed.

11 Direct tax collection up 7% in April-October

Gross direct tax collections grew by a mere 6.59 per cent during the April-October period this fiscal in a clear reflection of the deceleration in industrial growth and subdued economic activity. However, net direct tax collection, or what government takes home after paying refunds, rose 14.6% ahead of the target of 13.9% rise assumed in the budget. This suggests, unless there is spike in refunds, the government is on course to meet its direct tax target for the year. Indian companies paid only 2% higher tax in April October 2012 over the comparable period last year, suggesting stagnant profit growth because of the economic slowdown. The government expects that in the worst case scenario growth could drop to 5.5% in the current year, a ten year low. Personal tax payments were up a robust 15.8% in April October, a slowdown tends to impact salaries with a lag.

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Net wealth tax collections rose 26% but securities transactions tax was down 15.4%. Net direct tax collection in the April October was Rs. 2.5 lakh crore, nearly 44% of the budgeted amount for the year, almost same as last year.

12 Diageo to acquire 54.4% stake in United Spirits

International Liquor Company Diageo has announced its decision to acquire 53.4% stake in Vijay Mallya owned United Spirits Ltd. For 11,166.50 crore.] After this deal the stake of UB Holdings group in United Spirits Ltd. will come down to 14.9%. Mr. Vijay Mallya will continue as chairman of USL and UBHL and will help Diageo build a brand in India. This deal is expected to complete in early 2013. Mr. Vijay Mallya made it clear that the money generated from this deal will NOT be utilized to revive Kingfisher Airlines. This agreement trigger the SEBIs takeover code due to which Diageo will launch an open to buy 26% stake from the public at 1,440 a share.

12.1 SEBIs takeover norms

The trigger point for open offer is increased from 15 per cent level to 25 per cent. The open offer size, after the 25 per cent trigger is hit, is enhanced from the current 20 per cent to 26 per cent.

12.2 Indian exports to China declines

A steep decline in Indian exports to China in October has widened the trade imbalance between both countries to $23 billion, with bilateral trade in 2012 set to fall below last years record figure. Overall bilateral trade reached $55.68 billion as of October, down 8.1 per cent from last year. A sharp fall in iron ore exports and continuing uncertainties in the power and telecom sectors, where the important of Chinese equipment have emerged as a key driver of trade, have left an uncertain future for the trade relationship, and cast doubt on whether a $100 billion target set for 2015 will be met. There was close to 50% decline in Chinese purchase of iron ore, the biggest India exports to China. One reason for the fall in exports is an oversupply of stock in China and a slowdown in the steel sector in China.

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Chinese exports to India have also fallen, down 5.7 per cent after 10 months this year. India purchases of power and telecom equipment have been the biggest component of Chinese exports, but troubles in both sectors have seen slump in trade.

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