Economy News Notes:

Government opens domestic equity market to qualified foreign investors

• In a major policy decision, the Centre said it would allow Qualified Foreign Investors (QFIs) to directly invest in Indian equity market in order to widen the class of investors, attract more foreign funds, reduce market volatility and deepen the Indian capital market.

  • The scheme also comes in the wake of a sizeable foreign capital outflow from the Indian equity market that led to volatility of the rupee. 
  • Significant outflow by FIIs saw the rupee plunging to an all-time low of over Rs. 54 against the dollar last month.
• In the present arrangement relating to foreign portfolio investments, only Foreign Institutional Investors/sub-accounts and Non-Resident Indians are allowed to directly invest in the Indian equity market.
• The QFIs would be individuals, groups or associations residing in a foreign country that is compliant with the Financial Action Task Force and that is a signatory to The International Organisation of Securities Commissions's multilateral MoU. 

  • The QFIs do not include FII/sub-accounts.
• Under the scheme, the RBI would grant general permission to the QFIs to invest in the Portfolio Investment Scheme (PIS) route similar to FIIs.
• The QFIs shall be allowed to invest through the SEBI-registered Qualified Depository Participant (DP), with the QFI required to open only one demat account and a trading account with any of the qualified DP and make purchase and sale of equities through that DP only.

Doha talks going in rounds

• A meeting of trade ministers under the aegis of the World Trade Organization (WTO) was held in Geneva in mid-December.

  • Meetings of trade ministers are normally held once every two years to give crucial political direction to trade talks.
• The communique at the end of the meeting acknowledged the fact that the Doha round was for all practical purposes dead. 

  • At the same time, it urged member countries to “more fully explore different negotiating approaches while respecting the principles of transparency and inclusiveness.”
  • The trade ministers also admitted Russia — the only big economy that remained outside the WTO so far — and three smaller countries into the WTO.
• On the eve of the ministerial meeting, there were very few expectations over the Doha development round.

  • Moving in fits and starts, the talks reached a dead end in July, 2008, when another ministerial meeting, also in Geneva, collapsed in acrimony. 
  • The differences with the U.S. over a special safeguards mechanism for agricultural products had reached a boiling point.
  • In much of the western press, however, Mr. Kamal Nath was branded as a deal-breaker, the one who put the Doha round to sleep.
• Now under Commerce Minister Anand Sharma, India has tried to put the multilateral trade negotiations back on track.

  • Failure to conclude the Doha round, at least at some future date, will lead to a further erosion in the authority of the WTO. That would be highly regrettable.
  • Apart from negotiations, the WTO has created fair and equitable machinery for overseeing the implementation of agreements, monitoring and surveillance, capacity building and dispute settlement. 
  • These have brought the rule of law to world trade and dispute settlement mechanism especially enables the smallest country to take on the world's biggest economy.
  • The WTO's initiatives in these have checked protectionism.
• The failure of the Doha round has made many countries, including India, to enter into other forms of preferential agreements, either bilateral (India-Japan) or plurilateral (India-EU, India-ASEAN).

  • These are easier to conclude and the benefits from them can be reaped quickly. However, many trade economists feel that these would stand in the way of future multilateral agreements.

Navigating the global headwinds

• The rupee has virtually crashed, posting the biggest annual loss since 2008. 

  From 44.81 on December 31, 2010, the rupee depreciated to 53.11 against the American dollar on December 30, 2011.
• For the IT (information technology) industry, too, the rupee slide can prove a big challenge in the days to come.

  • The IT industry is already facing myriad concerns which have, of late, made the global environment tough for the Indian IT, ITeS (IT-enabled services), outsourcing and call centre outfits.
  • A spate of not-so-encouraging initiatives — the subtle visa curbs imposed by the U.S., the rising anger within America against outsourcing work and the move by law-makers to slip through a bill that penalises companies that move jobs outside the U.S. — have all made for an inclement global environment for the Indian software industry. 
  • With the elections round the corner in the U.S., things appear to be going tough for the software firms.
  • To add to their discomfiture, the U.S. has accorded the most favoured nation status to Colombia, which is doing every bit to attract BPO (business process outsourcing) work.
• The appreciating yen against the dollar is making more Japanese pack their bags and travel. A stronger Australian dollar against the Singapore currency is forcing reverse traffic from Australia to Singapore for shopping. Indians are wary of travel now with the dollar and the pound sterling at such high numbers.
• Coming as it does against this anti-outsourcing sentiment, the big slide in the rupee may force the IT industry to re-work its game plan.