#Current Affairs (Sep.22th–28st 2014) #Economy: Government cancels 9 SEZ projects The government has cancelled approvals of nine special economic zones, including that of Hindalco Industries, Essar and Adani as no “satisfactory” progress was made to execute the projects. The decision was taken in the meeting of the Board of Approval (BoA) headed by Commerce Secretary Rajeev Kher on September 18. It said the developers have to refund the duty benefits availed by them. Hindalco Industries had proposed to set up an aluminium product SEZ in Orissa. The formal approval to the developer was granted in July 2007. The developer was granted extension from time to time and the last extension granted expired on December 31, 2013. Essar Jamnagar SEZ Ltd, which had proposed to set up a multi-product zone in Gujarat, got formal approval in August 2006. It was expired in August 2009. The developer did not make any request for further extension of approval. Similarly, Adani Townships & Real Estate Company Ltd had proposed an IT/ITeS zone in Gujarat. The BoA granted formal approval in June 2007, which expired in June 2010. The developer had reported that they could not proceed with the SEZ project due to adverse demand scenario from IT sector and accordingly they are not interested in perusing the project. What is SEZ? The term special economic zone (SEZ) is commonly used as a generic term to refer to any modern economic zone. In these zones business and trades laws that differ from the rest of the country. Broadly, SEZs are located within a countrys national borders. The aims of the zones include: increased trade, increased investment, job creation and effective administration. To encourage businesses to set up in the zone liberal policies are introduced. There policies typically regard investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays. India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asias first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. Singareni to open country’s biggest underground coal mine Indias second-largest coal producer Singareni Collieries will open the countrys biggest underground mine next month with a capacity of 2.8 million tonnes per year, which should help the firm edge past its output target for this fiscal year. Singarenis output is just about 10 percent of what Coal India, the worlds largest miner, digs out. But its small size and focus on one state, Telangana, has helped it beat its production targets for years, unlike Coal India that has its mines across the country. The company expects to produce a total of 55 million tonnes in the current fiscal year ending March 31, 2015, and 56 million the year after that. Its target for the current fiscal year was 54.5 million. Coal India fell short of its production target of 183.9 million tonnes for April-August by 8 million tonnes. The company fears it may not be able to meet its commitment of supplying 408 million tonnes to power firms this fiscal year. The inability of Coal India - accounting for 80 percent of the countrys coal output - to raise production fast enough has made India the worlds third-largest coal importer despite sitting on the fifth-largest reserves. RBI maintained status quo Continuing the effort to fight “persisting inflation” and inflationary pressures, the Reserve Bank of India (RBI) Governor Raghuram Rajan, on 30th September, maintained the policy rates at the current levels. The central bank kept the short-term policy indicative rate (Repo rate) unchanged at 8 per cent while keeping the Cash Reserve Ratio (CRR) at 4 per cent. The repo rate is the rate at which the central bank lends money to banks. The CRR is the portion of total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. Turning to the medium-term objective — inflation target of 6 per cent by January 2016 — Dr. Rajan said the balance of risks was still to the upside, though somewhat lower than in the last policy statement. This continued to warrant policy preparedness to contain pressures if the risks materialised. Dr. Rajan said that in pursuance of the Urjit R. Patel Committee’s recommendation to move away from sector-specific refinance, the access to the Export Credit Refinance (ECR) was is being brought down to 15 per cent from 32 per cent of the eligible export credit, thus continuing to give banks room for manoeuvre. This will be in effect from October 10. He also said that with liquidity conditions easing, the recourse to ECR had fallen off substantially to about 10 per cent of the outstanding export credit eligible for refinance. About Monetary policy: Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity. In India, monetary policy of the Reserve Bank of India is aimed at managing the quantity of money in order to meet the requirements of different sectors of the economy and to increase the pace of economic growth. The RBI implements the monetary policy through open market operations, bank rate policy, reserve system, credit control policy, moral persuasion and through many other instruments. Using any of these instruments will lead to changes in the interest rate, or the money supply in the economy. Monetary policy can be expansionary and contractionary in nature. Increasing money supply and reducing interest rates indicate an expansionary policy. The reverse of this is a contractionary monetary policy. For instance, liquidity is important for an economy to spur growth. To maintain liquidity, the RBI is dependent on the monetary policy. By purchasing bonds through open market operations, the RBI introduces money in the system and reduces the interest rate. KYC norms for bank account opening further simplified Guidelines on ‘know your customer’ (KYC) have been further simplified with immediate effect with a view to easing difficulties faced by common persons while opening bank accounts and during periodic updating, according to the Reserve Bank of India. As per the simplified KYC guidelines, banks will not insist on physical presence of the customer at the time of periodic updating and they will not seek fresh proof of identity and address at the time of periodic updating in case of no change in status for low risk customers. Banks will allow self-certification and accept a certified copy of the document by mail/post, etc. Further, they will not seek fresh documents if an existing KYC compliant customer of a bank desires to open another account in the bank. The RBI, in its fourth bi-monthly monetary policy statement, said there is a need for banks to complete KYC for all customers including long standing ‘low risk’ customers. Banks should complete documentation, while minimising the effort on the part of the customer to what is strictly needed. In the event that customers are unable to comply within a reasonable time period, ‘partial freezing’ may be introduced in respect of KYC non-compliant customers, that is, credits would be allowed in such accounts while debits would not be allowed, with an option to the account holder to close the account and take back the money in the account. Fiscal deficit for five months at 75% of Budget estimate The fiscal deficit for the first five months of 2014-15 is 75 per cent of the Government’s Budget estimate. This trend is similar to what was seen in the corresponding period of last fiscal. According to the latest data of the Controller General of Accounts, fiscal deficit during the April-August period reached Rs 3.97 lakh crore, nearly 75 per cent of the budget estimate of Rs 5.31 lakh crore. Fiscal deficit is the difference between the Government’s earnings and expenditure. The Government has set a target to mobilise over Rs 63,000 crore through disinvestment for Central PSUs and its residual stake sale in private companies. But experts point out that the Government has not moved forward and the first nine months of the fiscal has ended. Govt sets up task force on public debt management The government on 30th September set up four different task forces to lay a road map for up gradation of existing agencies in the financial sector and establishment of new ones, including the Public Debt Management Agency (PDMA). The action is based on recommendations of the Financial Sector Legislative Reforms Commission. The task forces are on Financial Sector Appellate Tribunal, Resolution Corporation, PDMA, and Financial Data Management Centre. These will be headed by N K Sodhi, former chief justice of Karnataka and Kerala high courts; M Damodaran, former chairman of the Securities and Exchange Board of India; D Swarup, former chairman of Pension Fund Regulation Development Authority; and Subir Gokarn, former deputy governor of Reserve Bank of India. FSLRC, set up in March 2011 for rewriting financial-sector laws to bring them in harmony with the current requirements, had submitted its report to the government on March 22, 2013. It had recommended a non-sectoral, principle-based, legislative architecture for the financial sector by restructuring or upgrading existing regulatory agencies and creating new ones wherever needed for better governance and accountability. It suggested creation of PDMA to perform the function of debt management for the government. It would help the government raise debt and support its cash management function. The nine-member task force will review international best practices in public debt management and develop an administrative plan that includes a design of the required physical infrastructure, among other things. The task force on FSAT will review global best practices of procedural rules and internal processes of courts and tribunals. It will review the present rules of procedure for the Securities Appellate Tribunal. FDMC task force will review the present practices of management of regulatory data in the country. The one on RC would develop an organisation design for the corporation that would implement the Indian Financial Code. All the four task forces have been given one year to submit their report. 5.5% Growth rate in FY: UN study United Nations Economic and Social Commission for the Asia and the Pacific (UN ESCAP) expects a stronger growth momentum of 5.5 per cent for India in 2014-15 on account of economic expansion, likely uptick in exports and a stable government at the Centre. The Indian economy had registered a growth of 4.9 per cent in fiscal year ending 2014, up from 4.5 per cent in the previous fiscal, but far below the 9.5 per cent pace three years before the global financial crisis of 2008. The economy is expected to enjoy stronger growth momentum of 5.5 per cent in the fiscal year 2014, underpinned by solid expansion in the industrial and services sectors. Higher growth in the developed countries and the weaker local currency would support exports, said the UN ESCAP report on Economic and Social Survey of Asia and the Pacific-2014 released. On Asia Pacific, the report said developing countries in the region are forecast to grow at an average of 5.8 per cent in 2014, up from 5.6 per cent last year. About UN ESCAP: The Economic and Social Commission for Asia and the Pacific (UNESCAP or ESCAP), located in Bangkok, Thailand, is one of the five regional commissions of the United Nations Economic and Social Council. It was established in 1947 (then as the UN Economic Commission for Asia and the Far East - ECAFE) to encourage economic cooperation among its member states. The name was changed to the current in 1974. It is one of five regional commissions under the administrative direction of United Nations headquarters. ESCAP has 53 member States and nine Associate members, and reports to the UN Economic and Social Council (ECOSOC). As well as countries in Asia and the Pacific, it includes France, the Netherlands, the United Kingdom and the United States. RBI eases norms for short sale in g-secs The Reserve Bank of India (RBI) on 30th September said it will gradually lower the ceiling on bonds that can be held-to-maturity (HTM) starting in January, while further easing currency hedging rules for importers in moves to boost trading in markets. In order to enhance liquidity and develop the government securities (G-sec) market, the RBI brought down the ceiling on statutory liquidity ratio (SLR) securities under the HTM (held-to-maturity) category from 24 per cent of NDTL to 22 per cent in a phased manner. It asked banks to bring the SLR down to 23.5 per cent with effect from the fortnight beginning January 10, 2015, 23.0 per cent with effect from the fortnight beginning April 4, 2015, 22.5 per cent with effect from the fortnight beginning July 11, 2015 and 22.0 per cent with effect from the fortnight beginning September 19, 2015. In addition, RBI liberalised guidelines on short sale in G-Secs by increasing the limit on short sale for liquid securities to 0.75 per cent (from 0.50 per cent) of outstanding stock or Rs. 600 crore, whichever is lower. RBI also permitted banks and primary dealers (PDs) to take short positions in G-Secs in the over-the-counter (OTC) market (within the total short sale limit), subject to appropriate audit/ internal controls. The RBI also announced it would extend the period that foreign investors can settle their over-the-counter government bonds to two days of their trade from one, a measure that traders speculated could be aimed to facilitate the settlement of debt in the Euroclear platform. India is considering joining Euro clear, the worlds largest securities settlement system. What are G-secs? The Government securities comprise dated securities issued by the Government of India and state governments as also, treasury bills issued by the Government of India.Reserve Bank of India manages and services these securities through its public debt offices located in various places as an agent of the Government. Why G-secs: Provident funds, by their very nature, need to invest in risk free securities that also provide them a reasonable return. Government securities, also called the gilt edged securities or G-secs, are not only free from default risk but also provide reasonable returns and, therefore, offer the most suitable investment opportunity to provident funds. India to grow 5.6% this fiscal: Fitch India’s growth is expected to accelerate to 5.6 per cent in the current financial year and further to 6.5 per cent in 2015-16, buoyed by strong investments and political certainty, rating agency Fitch said on 1st October. Fitch expects gross domestic product (GDP) growth to pick up to 5.6 per cent in FY15 (ending in March) and 6.5 per cent in both FY16 and FY17, the agency said, in its global economic outlook report. The Reserve Bank of India has projected a 5.5 per cent GDP growth for the current financial year and 6.3 per cent for 2015-16. Fitch further said the expected pick-up is supported by the 5.7 per cent GDP growth in April-June quarter of FY15. India had clocked a sub-five per cent growth in the previous two financial years. It grew 4.5 per cent in in 2012-13 and 4.7 per cent in 2013-14. Fitch said lifting GDP growth to substantially higher levels would require large productivity gains through implementation of reforms related to governance, product and labour markets, as well as reduction of infrastructure bottlenecks. Jan Dhan: banks asked to set up Rs. 75-cr corpus for media campaign Public sector banks have been asked to pick up the tab on media campaign expenses incurred for the Pradhan Mantri Jan Dhan Yojana The Department of Financial Services (DFS) in the Finance Ministry has advised the Indian Banks’ Association (IBA) to create a corpus of Rs. 75 crore to meet all the media campaign expenses for the scheme, sources in the banking industry said. IBA has, in turn, approached its member banks seeking an initial aggregate contribution of Rs. 30 crore for the expenses already incurred and also expected to be spent shortly. While public sector banks would have little option but to cough up money towards this corpus, indications are that private and foreign banks are keen to escape The DFS has also urged NABARD, Life Insurance Corporation, General Insurance Corporation and pension regulator PFRDA to contribute ( Rs. 15 crore) towards the corpus. The PMJDY — which was launched on August 28 by Prime Minister Narendra Modi — targets to bring financial inclusion to atleast 7.5 crore unbanked families by January 26 next year. The effort will be to ensure that atleast one person from every household in the country has a bank account in his/her name by January 26. Meanwhile, IBA’s managing committee has now decided to focus the media campaign on ground level activities. To ensure success of the campaign and to create a pull effect, the DFS had planned a nationwide campaign during the PMJDY programme period. After calling for presentation from agencies empanelled with different banks, DFS had selected RK Swamy BBDO for carrying out the campaign in the initial stages for a period of one month covering pre-launch, launch and post-launch period. The cost of this campaign carried out worked out to Rs. 20 crore, details available with DFS showed. The DFS now wants the media campaign to be carried out during the rest of the programme also. Panel formed on pension system The Pension Fund Regulatory and Development Authority (PFRDA) has set up an 18-member advisory committee to help frame regulations for developing pensions system in the country. The move comes eight months after the PFRDA law got notified on February 1 this year, giving the regulator the much-needed statutory backing. As many as 12-13 draft regulations are currently under the process of receiving public feedback and these are then expected to go through the newly set up PAC before being taken up by the PFRDA Board for final approval The draft regulations that had been already exposed to the public include pension funds management, points-of-presence regulations, aggregator regulations, customer grievance regulations and exit regulations. Besides the 18 members, the PAC will have the PFRDA Chairman and PFRDA members as ex-officio chairperson and ex-officio members respectively. The banking sector is fully on board with representatives from the Reserve Bank of India (at the level of chief general manager) besides the Chief Executive of Indian Banks’ Association. The panel also has representatives from the Clearing Corporation of India, National Stock Exchange, Labour Ministry, SBI Pension Funds, ICICI Prudential Pension Funds and NSDL e-governance Infrastructure.
Posted on: Wed, 08 Oct 2014 05:18:04 +0000
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