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Inflation risks persist, says RBI
- The Reserve Bank of India (RBI) on Monday warned that inflation risks persisted while growth outlook and business climate had weakened. It also said:
- Monetary actions will need to strike a balance between risks to growth and inflation
- Agricultural prospects remained encouraging but moderation was visible in industrial activity and some services. “Industrial slackness has emerged as export and domestic demand has decelerated.”
- The central bank felt that fiscal reforms, including the Direct Taxes Code (DTC) and the Goods and Services Tax (GST) were needed to contain deficits in 2012-13.
- “The Central Government's deficit indicators are under duress due to higher subsidies and lower tax collections. Fiscal slippages during 2011-12 may complicate the task of aggregate demand management,”
- Notwithstanding rupee depreciation, exports decelerated but import demand remained strong, with inelastic demand for oil and rising gold imports.
- The RBI left interest rates unchanged in its mid-quarter review in December after raising them 13 times between March 2010 and October 2011.
- However, the RBI hopes that in the short-run, moderating inflation will provide some space for monetary policy to address growth concerns. “This will be, at best, a temporary respite.”
- The apex bank said that current account deficit (CAD) risks had amplified as capital flows moderated.
- “Upward risks to CAD have become more pronounced with likely moderation of software earnings,” said RBI, adding, “As capital flows also moderated since August 2011, financing pressure on the CAD translated into exchange rate pressures.”
Power units fear jump in generation cost due to coal price hike
- With Coal India Limited (CIL) having hiked its coal prices under a new mechanism, public and private power producers along with other economic sectors have warned of a considerable escalation in power generation costs.
- In many states, the state power regulatory bodies are now empowered to take decisions on tariff hike.
- Demanding the withdrawal of new mechanism, the Indian Captive Power Producers' Association (ICPPA) said
- Various companies under ICPPA in the aluminium, cement, steel and textiles sectors, including the likes of Hindalco, Balco, Nalco and Orient Paper, are of the view that it could lead to price escalation of their products.
- Consequently, prices of related products will also go up for consumers all over the country.
- Public and private sector power producers have strongly opposed the new pricing mechanism of CIL implemented from January 1. The mechanism is based on the gross calorific value (GCV) of coal. Till December 31, 2011, CIL followed a pricing mechanism based on the useful heat value (UHV) of coal, which deducted ash and moisture content from the standard formula.
- However, unlike the UHV pricing methodology (in which coal was categorised into seven grades), the GCV-based system has 17 grades and the new prices have been fixed accordingly.
FIEO questions TDS on overseas trade deals
- The ripple effect of the Vodafone tax case judgment has started showing up.
- The Federation of Indian Export Organisations (FIEO) has questioned the very basis of imposition of TDS (tax deduction at source) for payment with regard to overseas transactions.
- It has questioned the applicability of Section 195 of the Income-tax Act under which exporters are asked to pay TDS on payments made for foreign agency commissions, royalties and offshore professional services.
- “There has been a plethora of litigation with regard to these payments,” he said. “The anomaly is in interpretation rather than in law which, we hope, will be clarified by the Central Board of Direct Taxes (CBDT) given the historic judgment,''
Acute shortage prompts traders to mint their own coins
- The Mandvi-Kolivad Association (MKA), a grouping of traders, have minted the coins with the MKA logo on one side and the denomination value on the other. So far, nearly 50,000 coins of Re. 1 and Rs. 2 denominations have been minted and circulated among traders in the wholesale markets
- The coins are not illegal as they are not counterfeited with those in circulation endorsed by the Reserve Bank of India, said a grocery store owner
- The traders are facing an acute shortage of coins and rampant black marketing has forced us to use these coins, he said.
- In the black market, for 100 one-rupee coins one has to pay Rs. 114, while for 50 two-rupees coins one has to fork out Rs. 115. For 20 five-rupee coins, one has to cough up Rs. 118.
‘Centre focussing on development of MSMEs'
- Union Minister for Micro, Small and Medium Enterprises (MSME) Virbhadra Singh, after addressing a gathering at the National Institute-MSME and launching six training programmes in the 4th phase of International Executive Development Programmes said the special thrust on developing the MSME sector was imperative because it accounted for about 45 per cent of the country's industrial output and 90 per cent of enterprises.
- The sector would get a boost with the recent decision of the government to make it mandatory for all Ministries, departments and institutions to procure at least 20 per cent of their requirements from MSMEs
- Over 50 per cent of MSMEs in India were spread in just six States, a fact that clearly indicated the growth potential in the other States.
