Economy News Notes

Growth can be destabilising without equity: Subbarao

Is the financial sector inherently equity promoting, or at least equity neutral? Our experience in India has been that left to itself, the financial sector does not have a pro-equity bias.
Our response to counter this bias has been to use regulation to encourage socially optimal business behaviour by financial institutions
The extent of financial exclusion is staggering. Out of the six lakh habitations in India, less than 30,000 have a commercial bank branch. Just about 40 per cent of the population across the country have bank accounts, and this ratio is much lower in the Northeast of the country.
The proportion of people having any kind of life insurance cover is as low as 10 per cent and proportion having non-life insurance is an abysmally low 0.6 per cent.
Even where bank accounts are claimed to have been opened, verification has often shown that the accounts are dormant.
Millions of households across the country are thereby denied the opportunity to harness their earning capacity and entrepreneurial talent, and are condemned to marginalisation and poverty.
Over the last few years, the RBI has launched several initiatives to deepen financial inclusion. “Our goal is not just that poor households must have a bank account, but that the account must be effectively used by them for savings, remittances and credit.

Movement is a demand supply factor: Gokarn

The Reserve Bank of India on Tuesday said it would intervene in the foreign exchange market only to check volatility even as the rupee weakened to 50.71 against the dollar.
The movement is a demand supply factor. This is happening globally and some countries are intervening to prevent the depreciation.
The rupee has depreciated by about 11 per cent so far in 2011.
RBI would opt for open market operations to manage liquidity in the system only if there was a stress and not to influence government bond yields.

SEBI to revamp IPO process to check price manipulation

Market regulator Securities and Exchange Board of India (SEBI) on Tuesday said it was looking at revamping the initial public offering (IPO) norms and putting in place a common Know Your Customer (KYC) regulation for financial sector intermediaries.
We have decided to have a thorough review of our risk management system as the current system is more than 10 years old
Earlier this year, the SEBI had decided to introduce a new short and simple form for IPO investors. for increasing retail participation.

Pakistan to open floodgates for Indian goods in February

Pakistan on Tuesday agreed to open its market for over 7,000 items from India in the next three months and promised to grant New Delhi the crucial MFN status by 2012 end.
It would translate into a huge opportunity for Indian businessmen who would be able to ship all but few items to a 150-million Pakistani market through land, air and sea routes.
“In the first stage, Pakistan will transition from the current PL approach to a Negative List...A small NL shall be finalised and ratified by February, 2012. Thereafter, all items other than those on the Negative List shall be freely exportable from India to Pakistan,”
Addressing concerns of Pakistani businessmen, the two sides agreed to work with their respective authorities for liberalisation of the visa regime before the end of December.
Under the WTO, members are to grant MFN to each other. That obligation stands and will be completed when there is no list (positive or negative).
Once Pakistan widens the market access for about 7,000 Indian goods, India's exports to the neighbouring country would immediately leap frog to $7.5 billion. This is because the third country shipments being routed through Dubai would be directly shipped to the Pakistani markets.
As the land route is the most critical part of the bilateral trade, the two sides reviewed the progress in development of physical infrastructure for trade through Attari-Wagah border.
It was agreed that all infrastructure construction would be completed and fully operational before February, 2012.
A broad understanding was also reached on cooperation in power trading. The possibility of grid connectivity between Amritsar and Lahore for power trading up to 500 MW was discussed.
Another similar group for trade in petroleum products would hold its meeting in January, 2012.

Makeover for small savings

After months of dithering, the government has accepted most of the recommendations of the Shyamala Gopinath Committee, which was set up at the instance of the 13 {+t} {+h} Finance Commission to review the parameters of the National Small Savings Fund (NSSF) and the various small savings schemes.
The most significant of them is to link the return on the small savings instruments to market rates, a step that will have major implications for the finances of the Centre and the States.
Presumably, the market-oriented rates on the small savings instruments will revive popular interest, which has of late been flagging as depositors started migrating to banks.
The contrast with the banking system is particularly striking in one key area: while the interest rate on savings deposits with banks has been freed recently, that on post office savings bank deposits remains controlled, though it has been raised from 3.5 per cent to 4 per cent.
The committee has done well to recognise the role of the various small savings schemes in catering to the thrift needs of different sections of the population. Only one scheme — the Kisan Vikas Patra — has been recommended for closure. The most popular scheme, the Public Provident Fund, gets a substantial boost.