Economy News Notes

More crude sought from Saudi Arabia

• Seeking to lessen its dependence on Iran crude oil in view of rising tensions due to sanctions by the U.S. and the EU against Iran, India on Thursday asked Saudi Arabia for an additional 5 million tonnes of crude oil for next fiscal.
• India buys 27 million tonnes of crude oil per annum from Saudi Arabia while its annual import from Iran is about 17 million tonnes.
• India also sought more LPG from Saudi Arabia to meet growing energy needs.
• In a related development, state-owned Hindustan Petroleum Corporation Ltd (HPCL) has decided to double crude oil imports from Saudi Arabia next fiscal and cut purchases from Iran by over 14 per cent.

Study identifies lapses in World Bank crisis response

• During its response to the worst financial-economic crisis in a generation, the World Bank failed to adequately tailor its lending patterns to the severity of the downturn across nations and today finds itself with potentially insufficient headroom to respond to a second crisis of similar or greater magnitude to the one in 2008-09, should there be one.
• These worrying results were part of a phase-two study of the Bank's crisis response, presented in a report, titled The World Bank's Response to the Global Economic Crisis: Phase II.
• Regarding the inadequate change in the Bank's pre-crisis lending patterns, the IEG (Independent Evaluation Group) suggested that in part this phenomenon was driven by country demand for bank lending, and hence countries that were most engaged with the Bank before the crisis — its ‘good clients' such as India and Indonesia — tended to approach bank more and in some cases get loans prepared loans more quickly.
• Nevertheless, India was one of the Bank's “largest borrowers in crisis,” Dr. Anjali Kumar (lead author of the report and a Lead Economist with the IEG) noted, adding that it was sanctioned $7 billion in lending during crisis, of which $5 billion was tied to crisis-specific operations. Despite these large-scale commitments, some of them remained unrealised, including $3 billion for the financial sector were cancelled.

Economy News Notes

STPI losing sheen?

• Is Software Technology Parks of India losing its power to attract export-oriented IT-BPO firms?
• Dwindling number of units registered in the last few years and increasing number of requests for ‘de-bonding' from units indicate a diminishing interest in this organisation.

Power sector honchos seek natural gas on priority basis

• Leading power sector honchos met the Principal Secretary to the Prime Minister and demanded that steps be taken to address their long-pending demands, including immediate allocation of gas to all the projects recommended by the Power Ministry, reforms in the debt-ridden state electricity boards and priority in gas allocation to power and fertilizer sectors in the XII Plan.
• They also sought an assurance that gas may be given to the remaining projects which will be completed in 2012-13, including preferential allocation of natural gas as recommended by the Saumitra Chaudhuri Committee on natural gas price pooling.
• At present, almost all of the 35 million standard cubic metres per day (mscmd) of gas output from KG-D6 field is consumed by priority sectors of fertilizer and power, over 7 mscmd of gas produced by state-owned ONGC is being supplied to non-priority sectors.

Economy News Notes

China to be top gold consumer in 2012

• China could well displace India as the country with the greatest appetite for gold in 2012.
• Its jewellery and investment demand reached 769.8 tonnes in 2011, representing 82 per cent of India's level of demand for gold which was at 933.4 tonnes, according to World Gold Council (WGC).
• Further, both countries face separate headwinds in 2012, but China with its large reserve base, adjustable exchange rate and political decisiveness may be better positioned to tackle a slowdown posed by falling exports and the policy-tightening pursued during most of 2011.

Retail, FMCG players should focus on growing the pie: HUL chief

• There is such a huge opportunity in Indian retail and fast moving consumer goods (FMCG) that there is no need for players to fight for their share of the pie. 

  • Instead, the focus should be to grow this pie, which is small today, and to unlock a closed market
  • “The same person who will spend Rs.2,000 on a lavish cinema experience will also be seen fighting to save Rs.10 at a grocer.
  • “To understand this behaviour, we need to understand the difference between a shopper and a consumer. They are no longer the same. Both have a unique mission and behaviour that is diametrically different.”
• A report, ‘The Tiger Roars' by the CII and the Boston Consulting Group was released and it estimated that total consumption expenditure, at $991 billion in 2010, is expected to grow to nearly $3.6 trillion in 2020.

World Bank chief Zoellick decides to step down

• World Bank President Robert Zoellick has announced to step down from at the end of his five-year-term in June, giving rise to speculation that the Secretary of State, Hillary Clinton, may be headed to replace him, which was immediately denied by her aide.
• Mr. Zoellick said through June 30 he would stay 100 per cent focussed on being Bank President and would continue to drive policy and programmes at a heightened tempo.

Switzerland rebuts black money estimates

• Without referring to, though stung by, the CBI Director A.P. Singh estimates of illegal funds held by Indians in foreign locations, the statement said: “Switzerland is not a tax haven. There have been several speculations about the amount of wealth held by Indians in Swiss Banks. Such estimates and statistics lack evidence and are uncorroborated”.

  • The Double Taxation Avoidance Agreement (DTAA) between India and Switzerland, it said, provided a legal framework within which administrative assistance could be sought in particular cases of tax evasion or tax fraud.
• Mr. Singh said: “It is estimated that around $500 billion of illegal money belonging to Indians is deposited in tax havens abroad. Largest depositors in Swiss banks are also reported to be Indians.” He went on to state that India, in particular, “has suffered from the flow of illegal funds to tax havens such as Mauritius, Switzerland, Lichtenstein and British Virgin islands”.

  • Meanwhile, the government said the CBI chief's statement was based on a report prepared and submitted by a committee appointed by the Supreme Court.

Economy News Notes

Centre to miss disinvestment target

• The Centre is likely to miss the disinvestment target of Rs.40,000 crore for the current fiscal as the Empowered Group of Ministers (EGoM) on Wednesday failed to reach a consensus on selling the government's stake in ONGC and BHEL.
• The EGoM had met to decide on the disinvestment in the two major government-owned firms aimed at garnering around Rs.14,500 crore in 2011-12.
• So far the government has been able to garner only Rs.1,145 crore by diluting its share in Power Finance Corporation (PFC).
• Last fiscal, the government had raised around Rs.22,500 crore through stake sale in PSUs.

Telecom licences will be delinked from spectrum

• To be a major component of the proposed National Telecom Policy 2011, the new guidelines say all future licences will be ‘Unified Licences' that will be delinked from spectrum allocation, while all existing telecom licences will be migrated to the new regime.
• “There will be uniform licence fee across all telecom licenses and service areas which will progressively be made equal to 8 per cent of the adjusted gross revenue (AGR) in two yearly steps starting from 2012-13,” Mr. Sibal said. At present, this varies from 6 to 8 per cent depending on the telecom circles.
• Mr. Sibal also said the prescribed limit on spectrum assigned to a service provider will be 2x8 MHz (paired spectrum) for GSM technology for all service areas other than Delhi and Mumbai where it will be 2x10 MHz (paired spectrum). The current prescribed limit is 2x6.2 MHz of GSM spectrum as per licence norms.
• All the operators holding extra spectrum will have to surrender it within one year. We have also decided to renew licences for just 10 years that may be extended for another 10 years
• Existing licences are given for 20 years, while the licenses of old operators like Bharti and Vodafone will expire in 2014.
• Referring to merger and acquisitions, Mr. Sibal said the new regime would allow up to 35 per cent market share for the merged entity, while the government would the TRAI recommendation to consider market share up to 60 per cent. The new policy will allow spectrum sharing between operators in the same circle, while spectrum will not be permitted among licensees having 3G spectrum. Mr. Sibal also clarified that spectrum trading would not be allowed in India.

National policy on natural fibre mooted

• G. Balachandran, who assumed charge as the Chairman of the Coir Board, has underlined the need for a national policy on natural fibre.
• The policy could encompass natural fibre such as jute, abaca, banana, sisal and coir.
• He said value added products of coir such as Bhoovastra and ornaments had high potential to attract international market. Bhoovastra could be utilised in road laying works to improve the condition of the roads.

Economy News Notes

Non-banks can set up ATMs: RBI

• The Reserve Bank of India has decided to permit non-banks to set up, own and operate automated teller machines (ATMs) to accelerate the growth and penetration of ATMs in the country.
• Such ATMs will be in the nature of white label ATMs (WLA) and would provide ATM services to customers of all banks
• “There is abundant scope and a felt need to deploy more ATMs, particularly in Tier III to VI areas of the country,” the RBI said.

RBI realigns Bank Rate with MSF

• The Reserve Bank of India (RBI) has decided on Monday to increase the Bank Rate by 350 basis points from 6 per cent to 9.50 per cent per annum with immediate effect.
• The RBI said that it realigned the Bank Rate with Marginal Standing Facility (MSF) rate, which, in turn, is linked to the policy repo rate.
• Henceforth, whenever there is an adjustment of the MSF rate, the Reserve Bank will consider and align the Bank Rate with the revised MSF rate.
• Being the discount rate, the Bank Rate should technically be higher than the policy repo rate.
• The Bank Rate has, however, been kept unchanged at 6 per cent since April 2003. This was mainly for the reason that monetary policy signalling was done through modulations in the reverse repo rate and the repo rate till May 3, 2011, and the policy repo rate under the revised operating procedure of monetary policy from May 3, 2011 onwards.
• Under the MSF, banks are permitted to avail themselves of funds from the RBI on overnight basis.
• The Bank Rate acts as the penal rate charged on banks for shortfalls in meeting their reserve requirements (cash reserve ratio and statutory liquidity ratio). The Bank Rate is also used by several other organisations as a reference rate for indexation purposes.

Economy News Notes

IT sector earnings likely to grow 22 %

• Export of software and IT-enabled services is expected to touch $68 billion by the end of the current fiscal, up from $57 billion in 2010-11. However, in rupee terms, it has shown a 24 per cent decline due to slowdown in the U.S. and European markets.
• Hardware exports are expected to grow 10 per cent to reach $9.2 billion by March 2012. The overall likely IT sector earnings growth rate for the current fiscal is 22 per cent.
• The optimism also stems from the change in the strategy to look beyond traditional U.S. and European markets and penetrate into the Japan, China, Latin America, Africa and the Middle East markets
• Though Japan, a major contributor to electronic and manufacturing equipment, is the second largest single country market for software exporters, Indian software exports to Japan are only 3 per cent of its total exports. Japan with a manpower shortfall of three lakh offers a big opportunity
• While the U.S. normally accounts for a lion's share of Indian software exports at 62 per cent, its share had fallen to 56 per cent this year, as exports to other markets have improved with EU accounting for 22 per cent and Africa 4-5 per cent
• The Electronics and Computer Software Export Promotion Council (ESC) is also lobbying for tax benefits to SME units to boost their performance following withdrawal of STPI policy.
• At present, while the top 200 companies located in SEZs account for 80 per cent of total software exports, the share of 2,300 small units is a mere 20 per cent.
• The share of products in IT exports is only 3 per cent but this could go up with end-to-end solutions planned for emerging markets

WTO ruling ‘unfair', says China

• The U.S and several other countries, including India, Mexico and Brazil, recently won their battle against China at the WTO on export of raw materials. 

  • In a ruling, the WTO Appellate Body found China's restraints on export of industrial raw materials, used as key components in steel, aluminium and chemicals industries, to be inconsistent with China's WTO obligations.

  • The Appellate Body affirmed a WTO dispute settlement panel's July, 2011, finding, agreeing with the U.S. and rejecting China's attempts to portray its export restraints as conservation, or environmental protection measures, or measures taken to manage critical shortages of supply.
  • Mr. Qingbao said China had every right to protect its environment.
• Niu Qingbao (China's Consul-General in Mumbai) said, “I don't think it is very fair” on the part of the WTO. For all member countries of WTO, there is one law — conducting international trade in a fair manner.

  • “What applies to China should also apply to other counties. Frankly speaking, India also may be faced with a similar situation. India also sometimes restricts export of raw materials such as iron ore and coal.”
  • Ecology is a big problem for developing countries such as China… may not be a big problem for western countries. “For them (western countries) density of population is lower compared to China and India. Damage to our environment will adversely affect future generations,” he said.
• Bilateral trade between India and China touched $73.9 billion in 2011, driven largely by India's imports of Chinese machinery and home appliances. It will touch $100 billion by 2015. The trade volume in 2011 was almost 25 times more than the volume in 2000 ($2.9 billion), Mr. Qingbao said.
• He said around 2,000 Chinese students were studying in Indian universities against nearly 10,000 Indian students studying in universities of China.
• However, Chinese students had been facing some difficulties in getting their visas extended for more than a year.

Indians have $500 billion in tax havens

• Indians have an estimated $500 billion (Rs.24.5 lakh crore) of illegal money stashed away in tax havens, CBI Director A.P. Singh said on Monday.

Payment for exports to Iran can be in rupees

• Indian government had created a mechanism whereby payments for exports from India to Iran could be made in Indian rupees instead of convertible currency such as American dollars and Euros.
• A delegation of Indian exporters would visit Iran within a few weeks with the aim of promoting exports to Iran directly
• Now, transactions can be done in rupees through the bilateral arrangement.

Economy News Notes

Public debt up 3.2 per cent to Rs.33.82 lakh crore in Q3

• The government's public debt during the third quarter (October-December) of the current fiscal crept up by 3.2 per cent to Rs.33,82,645 crore.

  • However, this is lower than the 4.7 per cent hike witnessed in the previous quarter.
• Internal debt during October-December this fiscal constituted 89.9 per cent of public debt

  • Outstanding internal debt of the Government at Rs.30,41,895 crore constituted 33.9 per cent of GDP
• The need for higher borrowings was owing to the fact that inflows on account of foreign investment during October-November 2011 remained subdued as in the second quarter of 2011-12 with a “lacklustre performance” by both components — foreign direct investment (FDI) and portfolio investment by foreign institutional investors (FIIs). As a result, there was a net outflow of capital in October and only a marginal inflow in November.

Economy News Notes

IT-BPO business set to cross $100 billion

• The National Association of Software and Services Companies (Nasscom) expects export revenue for 2012-13 to grow by 11-14 per cent.
• The domestic revenue is expected to grow by 13-16 per cent.
• Terming 2011-12 a ‘landmark year', Nasscom expects the aggregate revenue for the Indian IT-BPO sector to cross $101 billion. Exports are expected to be in the vicinity of $ 69 billion, growing by 16.3 per cent over the last fiscal year.
• Some of the factors that have been contributing to this growth include new business models, organisation efficiencies, services around disruptive technologies such as cloud, mobility, analytics and social media, and flexible product portfolios

Economy News Notes

NMDC on acquisition mode

• NMDC plans to spend Rs.30,000 crore during the XII Plan to expand operations, including acquisitions

Economy News Notes

No soft loans to kins of bank directors: RBI

• The ‘concessional window' is off. Relatives of directors of commercial banks won't be able to avail