basic economics and indian economy for ias pre exam (1)
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Basic Economics and Indian Economy
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BASIC ECONOMICS AND INDIAN ECONOMY FOR IAS PRE EXAM
• With Updates on Economic Issues
• Coverage on Union And State Budgets
• Also useful for State PCS Exams
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TABLE OF CONTENTS
Chapter 1: Basics in Economics..................................................................................................25
Growth and Development .................................................................................................25
Human Development Index (HDI) ......................................................................................26
Gender Inequality Index ....................................................................................................26
Multidimensional Poverty Index ........................................................................................27
Technological Achievement Index .....................................................................................28
Sustainable Development and Growth ..............................................................................28
Terms and Terminology .....................................................................................................29
Organisation of Production ........................................................................................37
People as Resource ....................................................................................................38
Quality of Population .................................................................................................38
Chapter 2: Indian Economy- Over the Years ..............................................................................40
Nature of Indian Economy .................................................................................................40
Current Analysis .........................................................................................................40
Planning over the Years: ....................................................................................................41
First Five-Year Plan (1951–1956) ................................................................................41
Second Five-Year Plan (1956–1961) ...........................................................................42
Third Five-Year Plan (1961–1966) ..............................................................................42
Fourth Five-Year Plan (1969–1974) ............................................................................42
Fifth Five-Year Plan (1974–1979) ...............................................................................42
Sixth Five-Year Plan (1980–1985) ...............................................................................43
Seventh Five-Year Plan (1985–1990) ..........................................................................43
Eighth Five-Year Plan (1992–1997).............................................................................43
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Ninth Five-Year Plan (1997–2002) ..............................................................................44
Tenth Five-Year Plan (2002–2007) .............................................................................44
Eleventh Five-Year Plan (2007–2012) .........................................................................44
Twelfth Five-Year Plan (2012-2017) ...........................................................................45
Chapter 3: Natural Resources ....................................................................................................47
Degrading Natural Resources and the Agrarian Crisis ........................................................47
Land and Soil .....................................................................................................................47
Ownership of the Land...............................................................................................48
Water ................................................................................................................................48
Irrigation Potential .....................................................................................................48
Annual requirement of fresh water (b cu m) ..............................................................49
Per Capita Availability ................................................................................................49
Demand Side Management of Water Resources ........................................................50
Biodiversity and Agricultural Genetic Resources ................................................................50
Forests ..............................................................................................................................51
Demands on Forest Resources ...................................................................................51
Livestock ...........................................................................................................................52
Fisheries ............................................................................................................................52
Chapter 4: Agriculture ...............................................................................................................54
Overview of India’s Agricultural Economy..........................................................................54
Crop-Specific Growth .................................................................................................55
Land Reforms ....................................................................................................................55
Policies for Agricultural and Rural Development: An Overview ..................................57
Agriculture: Trends in Investment ..............................................................................60
Increasing Subsidies Reduce Capital Formation .........................................................61
Agricultural Growth Concerns ....................................................................................61
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Agriculture Inputs and Green Revolution ...........................................................................61
Irrigation ....................................................................................................................61
Irrigation Potential and Sources of Irrigation..............................................................62
Some Problems Related to Irrigation .........................................................................63
Fertilisers...........................................................................................................................64
Consumption, Production and Import of Fertilisers....................................................64
High-Yielding Varieties of Seeds.........................................................................................64
Pesticides ..........................................................................................................................65
Effects of Pesticides ...................................................................................................66
Green Revolution ..............................................................................................................66
Impact of Green Revolution .......................................................................................66
Regional Dispersal of Green Revolution and Regional Inequalities .............................67
Agricultural Finance ...........................................................................................................68
Sources of Agricultural Finance and Their Relative Importance ..................................69
Cooperative Credit: An Evaluation .............................................................................71
Operations of Commercial Banks: A Critical Review ...................................................71
Problems of RRBs .......................................................................................................72
National Bank for Agriculture And Rural Development (Nabard) ................................73
Steps for Financial Inclusion .......................................................................................73
Agricultural Marketing in India ..........................................................................................73
Government Measures to Improve The System of Agricultural Marketing .................74
Weaknesses in Agricultural Marketing .......................................................................74
Cooperative Marketing ..............................................................................................75
Progress of Cooperative Marketing in India ...............................................................76
Agricultural Price Policy in India .........................................................................................76
Agricultural Subsidies.................................................................................................77
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Subsidies on Agricultural Inputs .................................................................................77
Consequences of Power and Irrigation Subsidies. ......................................................78
Fertiliser Subsidy........................................................................................................78
Increase in Fertiliser Prices. .......................................................................................79
Public Distribution System .................................................................................................79
Objectives and Expansion of PDS ...............................................................................79
Flaws in Food Security System ...................................................................................80
Targeted Public Distribution System (TPDS) ...............................................................81
Review of TPDS ..........................................................................................................81
National Food Security Bill .........................................................................................82
ICDS ...........................................................................................................................82
Mid-Day Meal Scheme ...............................................................................................83
Agricultural Workers and Labourers................................................................................................... 83
Definition of Agricultural Labour ................................................................................83
Categories of Agricultural Labourers ..........................................................................84
Growth in the Number of Agricultural Workers .........................................................84
Causes of Growth in the Number of Agricultural Labourers .......................................85
Conditions and Problems of Agricultural Labourers ...................................................85
Measures Adopted by the Government .....................................................................86
Chapter 5: Service Sector ..........................................................................................................88
Introduction ......................................................................................................................88
Service sector in India ........................................................................................................88
Composition of Service Sector in India ...............................................................................89
Performance of Services Sector in India .............................................................................89
Sectoral Composition of GDP Growth ........................................................................89
Employment Scenario ................................................................................................90
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Productivity Growth in Service Sector --Post-1980 Scenario .......................................90
Policy Measures for the Development of the Services Sector ............................................91
Problems/Challenges Ahead ..............................................................................................91
Prospects for Growth in the Services Sector ..............................................................92
Chapter 6: Industries .................................................................................................................93
Industrial Growth and Policy..............................................................................................93
The Industrial Scene at Independence .......................................................................93
Industrial Control Regime 1950s to 1970s ..................................................................93
Performance of the Industrial Licensing System .........................................................93
Industrial Policy Reforms 1980 s ................................................................................93
The Policy Regime in the 1990s ..................................................................................94
New Economic Policy 1991 ........................................................................................94
Public Sector Reforms, Privatisation and Infrastructure .............................................95
Industrial Policy: Recent Policy Initiatives ..................................................................95
Recent Industrial Growth ...........................................................................................96
Why did the Reforms Fail to deliver the Expected Results? ........................................97
Public Sector in the Indian Economy ..................................................................................97
The Rationale .............................................................................................................97
Performance of Central Public Sector Undertakings ...................................................98
Micro and Small Enterprises (MSEs) ..................................................................................99
Role of SMEs in Global Economy ................................................................................99
Defining MSEs-MSMED Act, 2006 ..............................................................................99
Chapter 7: Poverty .................................................................................................................. 101
How Poverty is defined? .................................................................................................. 101
Social Exclusion ............................................................................................................... 101
Poverty Line .................................................................................................................... 101
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Poverty Line Estimates Controversy................................................................................. 102
Poverty Line Definition in India ........................................................................................ 102
Inter-State Disparities ...................................................................................................... 102
Global Poverty Scenario .................................................................................................. 103
Causes of Poverty ............................................................................................................ 103
Anti-Poverty Measures ............................................................................................ 104
National Rural Employment Guarantee Act (NREGA) 2005 .............................................. 104
Poverty Alleviation in India: Concept Note of 12th Five Year Plan ..................................... 104
Terms related to Poverty ................................................................................................. 109
Chapter 8: Employment and Unemployment .......................................................................... 120
Unemployment ............................................................................................................... 120
Employment .................................................................................................................... 121
Employment Trends in India ............................................................................................ 121
Labour Force, Workforce and Unemployment (UPSS) .............................................. 123
Estimated Numbers of UPSS Workers Across Broad Industrial Categories ................ 123
Employment in Organised Sector..................................................................................... 125
Nature and Estimates of Unemployment in India ............................................................ 126
Nature of Unemployment ........................................................................................ 126
Concepts of Unemployment .................................................................................... 126
Estimates of Unemployment (1972-73 to 1993-94).................................................. 127
Unemployment in Post Reform Period ..................................................................... 127
Causes of Unemployment................................................................................................ 128
Chapter 9: Financial Sector ...................................................................................................... 132
Financial System .............................................................................................................. 132
Financial Markets..................................................................................................... 133
Financial Intermediation .......................................................................................... 134
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Financial Instruments............................................................................................... 134
Monetary Policy and Fiscal Policy ............................................................................ 135
Main Objectives of Fiscal Policy In India ................................................................... 136
Objectives of the monetary policy of India ............................................................... 138
Major Monetry Operations of RBI.................................................................................... 139
Money and Inflation ........................................................................................................ 140
Money Supply .......................................................................................................... 140
How to measure inflation in India? .......................................................................... 141
Taxation in India .............................................................................................................. 142
Tax Burden in India .................................................................................................. 142
Tax Revenue of the Central Government ................................................................. 142
Tax Revenue of the State Governments ................................................................... 142
Taxes on Income and Wealth ................................................................................... 143
Personal Income Tax ................................................................................................ 143
Corporation Tax ....................................................................................................... 143
Taxes on Wealth and Capital .................................................................................... 143
Indirect Taxation ...................................................................................................... 144
Customs Duties ........................................................................................................ 144
Excise Duties ............................................................................................................ 144
States' Excise Duties ................................................................................................ 145
Service Tax ............................................................................................................... 145
Goods and Services Tax (GST) .................................................................................. 146
Public Debt and Deficit Financing .................................................................................... 146
Debt Obligations of the Central Government ........................................................... 146
Internal Liabilities .................................................................................................... 146
External Liabilities .................................................................................................... 147
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Debt Obligations of The State Governments ............................................................ 147
Combined Debt of Central and State Governments ................................................. 147
Combined Liabilities of the Centre and States .......................................................... 148
Growth in public debt-GDP ratio is criticised due to following reasons .................... 148
These criticisms notwithstanding debt financing has been considered necessary for the following purposes. ........................................................................................... 148
Banking Sector in India .................................................................................................... 149
History of Indian Banking System ............................................................................. 149
Classification ............................................................................................................ 150
The main reasons why the banks are heavily regulated are as follows ..................... 150
Basel III norms ......................................................................................................... 150
What are the Major Changes Proposed in Basel III over earlier Accords i.e. Basel I and Basel II? ................................................................................................................... 151
Mirofinance ..................................................................................................................... 152
Salient features of Microfinance .............................................................................. 152
Gaps in Financial system and Need for Microfinance ............................................... 152
Channels of Micro finance ....................................................................................... 153
SHG – Bank Linkage Programme .............................................................................. 153
Micro Finance Institutions ....................................................................................... 153
Controversy on MFI ................................................................................................. 154
Chapter 10: Foreign Trade ....................................................................................................... 156
Balance of trade .............................................................................................................. 156
The Balance of Payments Sub-division ..................................................................... 156
The Current Account ................................................................................................ 156
The Capital Account ................................................................................................. 157
The Financial Account .............................................................................................. 157
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The Balancing Act .................................................................................................... 157
Balance of payments crisis ....................................................................................... 157
Foreign Trade and Trade Policy........................................................................................ 158
Value of Exports and Imports in the Planning Period................................................ 158
Composition of Foreign Trade .................................................................................. 158
India's Balance of Payments: The Pre-1991 Period ................................................... 160
Reasons for Satisfactory Balance of Payments Situation in Post-Reform Period ....... 162
The Management of Balance Of Payments ...................................................................... 162
Linkages between Fiscal and External Policies .......................................................... 162
Export Policy: The Pre-Reform Period ...................................................................... 163
Export Promotion Policies: An Overall View ............................................................. 163
Foreign Trade Policy (2009-14) ................................................................................ 165
Foreign Capital ................................................................................................................ 166
Components of Foreign Capital ................................................................................ 166
Need for Foreign Capital .......................................................................................... 166
Indian Government's Policy Towards Foreign Capital ............................................... 166
Choice of Exchange Rate Regime ............................................................................. 167
Exchange Rate Management in India ....................................................................... 168
India's Foreign Exchange Reserves ........................................................................... 169
The Issue of Capital Account Convertibility .............................................................. 169
The Case For and Against Capital Account Convertibility .......................................... 169
India's Approach to Capital Account Convertibility ................................................... 170
Important Capital Account Liberalisation Measures ................................................. 170
Foreign Exchange Regulation Act (Fera), 1973 ......................................................... 170
Foreign Exchange Management Act (Fema), 1999 ................................................... 171
Fema: A Major Departure From Fera ....................................................................... 171
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Chapter 11: International Organisations .................................................................................. 173
The International Monetary Fund .................................................................................... 173
The World Bank ............................................................................................................... 174
International Bank for Reconstruction and Development (IBRD) ..................................... 174
International Development Association ........................................................................... 175
International Finance Corporation ................................................................................... 175
Multilateral Investment Guarantee Agency ..................................................................... 176
International Centre for Settlement of Investment Disputes ........................................... 176
World Trade Organisation and GATT ............................................................................... 176
United Nations Conference on Trade and Development .................................................. 178
Asian Development Bank ................................................................................................. 179
SAFTA .............................................................................................................................. 179
G-8 .................................................................................................................................. 179
G-20 ................................................................................................................................ 180
ASEAN ............................................................................................................................. 182
ASEAN Regional Forum .................................................................................................... 182
European Union .............................................................................................................. 183
IBSA ................................................................................................................................. 185
Asian Clearing Union ....................................................................................................... 186
Food and Agriculture Organization .................................................................................. 186
BRICS ............................................................................................................................... 187
OECD ............................................................................................................................... 187
OPEC ............................................................................................................................... 187
Chapter 12: India and the WTO ............................................................................................... 189
Doha Round of Multilateral Trade Negotiations .............................................................. 189
I. Agriculture ............................................................................................................ 190
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Tariff Reduction ....................................................................................................... 191
Subsidies Reduction ................................................................................................. 191
II. Market Access for Non-Agricultural Products (NAMA) ......................................... 193
III. Services ............................................................................................................... 194
IV. Trade Related Aspects of Intellectual Property Rights (TRIPS) ............................. 195
V. Agreement on Trade Related Investment Measures (TRIMS) ............................... 196
Current Status, India’s Stand Point and Way Forward ...................................................... 197
India and the WTO ................................................................................................... 197
India’s Participation in WTO meetings ..................................................................... 198
WTO Negotiations and India .................................................................................... 198
India’s Stand on Various Issues ................................................................................ 198
Services ................................................................................................................... 199
Rules ........................................................................................................................ 199
Chapter 13: Current Affairs on Economy ................................................................................. 202
Union Cabinet Approved 50 Percent Reduction in the Reserve Prices for CDMA Spectrum ........................................................................................................................................ 202
Cabinet Committee on Economic Affairs approved the Continuation of JNNURM ........... 202
CCEA approved Defreeze in the Tariff Value of Edible Oils as per International Market ... 203
Union Government Approved Open Policy and lifted ban on Export of Processed Food .. 203
Union Government raised LPG Cap to Nine Subsidised Cylinders per Year ....................... 204
Union Government Imposed 2.5 Percent Import Duty on Crude Edible Oil ...................... 205
World Bank slashed the Global Growth Forecast to 2.4 Percent ...................................... 205
The Implementation of GAAR deferred by 2 Years, to Come into Force from 1 April 2016 ........................................................................................................................................ 206
Sensex Crossed Crucial 20000 Mark after Two Years ....................................................... 206
Union Cabinet approved 12517 crore Rupees of Capital Infusion in 10 PSU Banks ........... 206
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RBI: Private Sector of India registered a Net Profit of 4.3 percent in First Half of 2012-13208
RBI set up Working Group to review Banking Ombudsman Scheme ................................ 208
Rollout of Direct Benefits Transfers started on 1 January 2013 ........................................ 209
FII Investment in the Indian stock market surpassed more than 24000 crore Rupees in December 2012 ............................................................................................................... 209
Union Government Announced More Incentives to Exporters Hit By Global Meltdown ... 210
The Minimum Support Price of Wheat was Increased to 1350 Rupees per Quintal .......... 211
Indirect Tax Collection Increased at 16.8 Percent to 2.92 Lakh Crore Rupees in April-November 2012 ............................................................................................................... 211
UN Slashed World Growth Forecast to 2.4 Percent for year 2013 .................................... 212
Foreign Investments through P-Notes Increased to 8-Month Highest .............................. 212
Union Government of India lowered the Growth Projection for Current Fiscal to 5.7 Percent ............................................................................................................................ 213
Bombay Stock Exchange launched SME Platform Index aimed at Tracking Primary Market Condition......................................................................................................................... 213
Retail Inflation Increased to 9.90 Percent in November 2012 .......................................... 214
Cabinet Committee on Economic Affairs approved the Setting up of CCI ......................... 214
Indian Economy Would Dominate the Economy of the World by 2030: US Intelligence Community Report .......................................................................................................... 215
Security and Exchange Board of India (SEBI) allowed 12 more Alternative Investment Funds ........................................................................................................................................ 216
Reserve Bank of India (RBI) signed Currency Swap Agreement with Bank of Japan .......... 217
Union Coal Ministry decided to deallocate Four Coal Blocks allotted to 15 Firms ............ 217
India signed 70 million US Dollar loan agreement with World Bank ................................. 218
Reserve Bank of India asked Banks not to Provide Loans for Purchase of Gold ................ 218
Oman Banned Import of Eggs and Chicken from India ..................................................... 219
Income Ceiling for LIG raised by Union Government of India ........................................... 219
Union Cabinet of India cleared Proposal for Spectrum Sharing ........................................ 220
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Civil Aviation Ministry approved New Traffic Rights to Indian Carriers ............................. 220
Government decided to digitize Cable TV Network in Thirty Eight Cities .......................... 221
RBI Expanded the Lending Norms on Priority Sectors ...................................................... 221
12th five-year plan focused on improvement of health, education and sanitation ............ 222
Union Government Cleared Increase of FDI in Insurance ................................................. 222
CVC instructed CBI to expand the scope of investigation on Coalgate .............................. 223
Foreign Investment cap hiked to 74 percent for Broadcasting Services............................ 223
GAAR Report submitted by the Shome Committee to the Finance Ministry ..................... 224
Proposal for 51 percent FDI in multi-brand retail and 49 percent in Aviation passed ....... 225
Report: Indian external debts are within manageable limits ............................................ 226
Cabinet gave a nod to two subsidiaries of Air India: AIESL and AITSL ............................... 227
Union Government approved 14000 Crore Rupees Fund to spur Production of Hybrid and Electrical Vehicle ............................................................................................................. 228
SEBI allowed Partial Flexibility in IDRs for Investors ......................................................... 228
Public Accounts Committee (PAC) called for Deterrent Penal Provisions against Units in SEZs ................................................................................................................................. 228
India eased External Overseas Borrowing Rules to enable Easier Access to Cheap Dollar Funds .............................................................................................................................. 229
Union Finance Ministry approved 49 Percent FDI in Insurance and Pension Sector ......... 230
RBI stipulated the Norms for Securitisation of Loans by NBFCs ........................................ 231
Regulator SEBI permitted seven Alternative Investment Funds (AIFs) to start Operation in India ................................................................................................................................ 232
Inter-ministerial group recommended Linking Patented Drug Prices to Per-capita Income ........................................................................................................................................ 232
India’s NSE became the World’s Largest Bourse in Equity Segment as per WFE’s Global Ranking ........................................................................................................................... 233
Union Cabinet sets Base Price for Auction of 2G Spectrum at 14000 Crore Rupees ......... 234
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RBI directed NBFCs to maintain Net-owned Funds (NOF) at Rs 3 crore by 31 March 2013 ........................................................................................................................................ 234
RBI signed MoU with Financial Regulators of 9 Countries to promote Sharing of Information ..................................................................................................................... 235
Economy Updates ................................................................................................................... 238
Telecom Commission approved hike in FDI cap from 74 to 100 percent in Telecom Sector ........................................................................................................................................ 238
Foreign Institutional Investors pulled out 5.6 billion Dollars from Debt Market ............... 238
CCEA approved continuation of NMFP ............................................................................ 239
MSP for Paddy fixed at 1310 Rupees per Quintal ............................................................. 240
Govt to set-up 51 new low-cost Airports across India ...................................................... 240
European Commission approved Takeover of NYSE-Euronext ......................................... 241
India 3rd Most Attractive Destination for Investment: UNCTAD ....................................... 241
Plan for Visa-on-Arrival Facilities to Chinese .................................................................... 242
President inaugurated Gas-based Power Plant at Palatana .............................................. 242
Criteria of distribution of the electricity produced by Power Plant ........................... 243
Mechanism for Coal Supply to Power Producers Approved ............................................. 244
3 IPC Common Sales Contracts Launched ........................................................................ 245
Pipavav Port Regained Top Position in Seafood Exports ................................................... 245
About the Pipavav port ............................................................................................ 245
Power Distribution Reform Package extended to 12th Plan ............................................. 246
About Restructured Accelerated Power Development and Reforms (R-APDR) Programme .............................................................................................................. 246
CCEA approved Disinvestment of 5% Paid up Equity in NLC ............................................. 247
About Neyveli Lignite Corporation (NLC) .................................................................. 247
Mineral Production April 2013: Provisional Data Released .............................................. 247
CTT applicable on Non-Farm Products from 1 July 2013 .................................................. 248
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G-8 Summit concluded in Lough Erne .............................................................................. 248
Government proposed Plan to raise FDI Limit in Key Sectors ........................................... 250
About Arvind Mayaram Committee ......................................................................... 250
RBI left its Repo Rate unchanged at 7.25 Percent ............................................................ 250
Foreign Investment Limit hiked by 5 Billion Dollar ........................................................... 251
RBI penalised Axis, HDFC and ICICI Banks for Rule Violations ........................................... 251
The violations were related to ................................................................................. 251
Government hiked the Import duty on Gold and Platinum .............................................. 252
Union Cabinet approved the Real Estate Bill 2013 ........................................................... 252
RBI extended Time for opening up of New Banks by Six Months...................................... 253
India witnessed a Five-Fold Increase in Power Generation .............................................. 253
FIPB approved Eight FDI Proposals .................................................................................. 253
Quarterly Report (Jan-Mar 2013) on Public Debt Management ....................................... 254
RBI imposed Restrictions on Bank Loans against Gold ..................................................... 255
Govt. proposed Stronger Powers to SEBI to tackle Ponzi Schemes ................................... 255
What is Ponzi Schemes? .......................................................................................... 256
Chinese Premier Li Keqiang’s visit to India ....................................................................... 256
Union Government ratified 8.5 Percent interest on PF Deposits for 2012-13 ................... 258
CCEA approved the Same Scale of Allocation to APL Families .......................................... 259
RBI decided to Launch Inflation Indexed Bonds (IIBs) ...................................................... 259
Union Government hiked Backward Region Grant Fund Entitlement for Uttar Pradesh ... 260
IMF approved 1.3 bn Dollars Loan for Cyprus .................................................................. 260
RBI directed Banks to follow Clean Note Policy ................................................................ 261
WPI Inflation eased to 4.89 % in April 2013 as Per Official Data ....................................... 261
Value of Mineral Prod. During Mar 2013 was 20475 Crore .............................................. 261
Exports in India grew up by 1.6 percent in April 2013 ...................................................... 261
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Retail Inflation declined to 9.39 Percent in April 2013 ..................................................... 262
Exports in India grew up by 1.6 percent in April 2013 ...................................................... 262
Reserve Bank of India imposed Restrictions on Gold Import by Banks ............................. 263
National Stock Exchange launched Debt Trading Platform ............................................... 263
Union Govt set 325-billion Dollars Export Target for 2013-14 .......................................... 263
India is the largest Producer and Consumer of Chickpeas ................................................ 264
FEE from Tourism grew by 7 percent in April 2013 .......................................................... 264
Highlights of the FTAs and FEEs during April 2013 from Tourism .............................. 264
India's Services Growth hit 18-month low: HSBC ............................................................. 265
Highlights of the Report ........................................................................................... 265
SEBI approved Kerala's Start-up Village Angel Fund ......................................................... 266
About Village Angel Fund ......................................................................................... 266
Inter-Ministerial Group Approved 10% Equity Sale in Coal India ...................................... 266
Amendments in National Food Security Bill Introduced in LS ........................................... 267
CCEA approved Proposal to set-up 2 Major Ports in Bengal and Andhra Pradesh ............ 268
Union Cabinet approved Changes to Aajeevika................................................................ 269
ADB to provide 6 billion Dollars to India over next 3 years ............................................... 270
RBI reduced the Repo Rate by 25 Basis Points to 7.25 Percent ........................................ 271
Foodgrains Output for 2013 Exceeded its Target ............................................................. 271
States that lacked in Production due to Environmental Issues ................................. 271
CCEA approved Exchange Trade Fund for PSU stocks....................................................... 271
Government set 325-billion Dollars Export Target for 2013-14 ........................................ 272
Union Cabinet approved the Launch of NUHM ................................................................ 272
SC upheld 51 Percent FDI in Multi-brand Retail ............................................................... 273
BSE launched broad-based Islamic Equity Index .............................................................. 273
Union Government Launched 21 New Textile Parks ........................................................ 273
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Scheme for Integrated Textiles Parks (SITP) ............................................................. 274
Union Government approved 13 Power Projects ............................................................. 274
Government approved 1083 crore Rupees Revival Plan for HMT ..................................... 275
Significance of the Package Approved ...................................................................... 275
To Revive Interest in SEZs of Investors FTP Changed ........................................................ 275
Important features of the Package are ..................................................................... 275
Changes Implemented in IT Exports ......................................................................... 276
Changes in FTP 2009-14 to Enhance Trade and SEZs implemented .................................. 276
Changes in SEZs ....................................................................................................... 276
Zero Duty Export Promotion Capital Goods (EPCG) Scheme ..................................... 277
Salient Features of the Zero Duty EPCG includes ...................................................... 277
Reduced Export Obligation for Domestic Sourcing of Capital Goods ........................ 277
Reduced EO for units in the State of Jammu & Kashmir ........................................... 277
Widening of Interest Subvention Scheme ................................................................ 277
Widening the Scope of Utilization of Duty Credit Scrip ............................................. 278
Incremental Exports Incentivisation Scheme ............................................................ 278
Changes have been introduced in many other schemes are ..................................... 279
India’s Exports in March 2013 valued at $30849.65 Million ............................................. 279
Crude Oil and Non-Oil Imports ................................................................................. 279
Trade Balance .......................................................................................................... 280
IMF slashed Economic Growth Rate of India to 5.7% 2013 .............................................. 280
Growth Projection by Union Government of India ................................................... 280
RBI to Start Plastic Money Project on Trial Basis .............................................................. 281
Retail Inflation declined to 10.39 Percent in March 2013................................................. 281
NEEPCO granted Miniratna–Category–1 Status ............................................................... 281
Status of Category-I Miniratna firms ........................................................................ 281
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NEEPCO’s status after being conferred with Miniratna – Category – 1 ..................... 282
About NEEPCO ......................................................................................................... 282
National Workshop on Grid Integration Inaugurated ....................................................... 282
Highlights of the 21st Century Power Partnership initiative ..................................... 282
CCEA approved de-control of Sugar ................................................................................. 283
Foreign Tourist Arrivals in India Increased by Three Percent ............................................ 283
Foreign Tourist Arrivals (FTAs) ................................................................................. 283
Foreign Exchange Earnings (FEEs) from Tourism in rupee terms and US dollar term 283
Special Infra. Scheme in LWE affected States approved ................................................... 284
Core Sector Growth Slumped by 2.5% in February 2013 .................................................. 284
CCI approved Five Oil, Gas Blocks for Operations............................................................. 285
CCIC and Ministry of Textiles Signed Mou of Understanding ............................................ 286
FCI Raised 5000 Crore Rupees by Issuing Taxable Bonds .................................................. 286
RBI Slashed Repo Rate by 25 Base Points; Kept CRR Unchanged ...................................... 286
HPCL and Rajasthan Govt Signed a MoU for Setting up Refinery ...................................... 287
About the refinery-cum-petrochemical complex project .......................................... 287
Government granted aid to protect Pashmina Goats ....................................................... 288
Main Components of the Scheme ............................................................................ 288
Union Government to launch 10 Rupees Plastic Notes .................................................... 288
Financial Regulators signed pact to Monitor Conglomerates ........................................... 288
Union Budget and Economic Survey Highlights ....................................................................... 290
Union Budget 2013-14: Highlights ................................................................................... 290
List of Commodities Where Taxes Changed ..................................................................... 292
Tax Proposals .................................................................................................................. 293
Tax administration reforms commission to be set up ...................................................... 295
Defence Allocations ......................................................................................................... 296
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Social Sector Allocations .................................................................................................. 298
malnutrition to be tackled in mission mode ..................................................................... 299
Energy and Infrastructure Sector Allocations ................................................................... 299
Industrial Sector Allocations ............................................................................................ 301
Rural Development, Agriculture and Food Security ......................................................... 302
Economic Survey 2012-13: Highlights .............................................................................. 304
Sector –Wise Analysis ...................................................................................................... 306
Railway Budget ....................................................................................................................... 308
Railway budget 2013-14 at a glance: ............................................................................... 308
New Initiatives................................................................................................................. 309
New Plans and Schemes .................................................................................................. 311
New Trains ...................................................................................................................... 311
State Budgets .......................................................................................................................... 313
Uttar Pradesh .................................................................................................................. 313
Uttarakhand .................................................................................................................... 314
Madhya Pradesh.............................................................................................................. 316
Mukhya Mantri Kisan Videsh Adhayayan Yojana ...................................................... 318
Rajasthan ........................................................................................................................ 324
Bihar ................................................................................................................................ 325
Delhi ................................................................................................................................ 327
Himachal Pradesh ............................................................................................................ 330
Maharashtra .................................................................................................................... 332
Tamil Nadu ...................................................................................................................... 333
Haryana ........................................................................................................................... 335
Andhra Pradesh ............................................................................................................... 339
Corporate world updates ........................................................................................................ 344
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European Commission approved Takeover of NYSE-Euronext ......................................... 344
Strides Pharma received WHO Pre-Qualification ............................................................. 344
Muthoot Finance Got approval to Establish White Label ATMs........................................ 345
RBI guidelines under Scheme A ................................................................................ 345
World Gold Council Established Local Unit in India .......................................................... 345
Tata Commissioned a 1MW Geothermal Plant in Australia .............................................. 346
EXIM Bank Granted License to Open Representative Office ............................................. 347
Tata Coffee Inaugurated Premium Extraction Plant at TN ................................................ 347
Important points related to the extraction plant...................................................... 347
About Tata Coffee .................................................................................................... 348
ICSI and NISM Signed an MoU ......................................................................................... 348
Venus Remedies Ltd Received Patent for Potentox from Mexico ..................................... 348
Subramanian Ramadorai appointed Chairman of AirAsia India ........................................ 349
About Subramanian Ramadorai ............................................................................... 349
Ratan Tata Appointed as Chief Advisor of AirAsia India.................................................... 350
Maersk Line Unveiled World's biggest Container Ship .............................................. 350
About Maersk Line ................................................................................................... 350
IndusInd Bank and Western Union Business Solutions tie up ........................................... 350
CCI approved Mylan-Unichem Deal ................................................................................. 351
Microsoft India and JIS Group to set up Innovation Center .............................................. 351
RIL announced to Invest 1.5 Lakh Crore over Next Three Years ....................................... 352
DGFT and Government of Delhi Signed MoU to Use e-BRC .............................................. 352
Railtel & IIT Roorkee signed Mou to establish 8th TCOE .................................................. 353
BBC & ZeeQ Signed agreement for Bring Cbeebies’s to India ........................................... 353
Sun Pharma got approval for Depo-Testosterone Injection ............................................. 354
Coca-Cola opened its Bottling Plant in Myanmar ............................................................. 354
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MoU Signed between CCI and ACCC for Cooperation ...................................................... 355
Features of the MoU ................................................................................................ 355
It is also expected to further strengthen existing cooperation between CCI and ACCC. Amazon launched Indian Marketplace at Amazon.in ....................................................... 356
Govt. Appointed Five Part-Time Directors on Board of Air India ...................................... 356
COMPAT Ordered 11 Cement companies to Deposit 630 Crore ....................................... 357
The list of these cement manufacturers include ...................................................... 357
Gold Coins with Sachin Tendulkar’s Face and Signature ................................................... 358
About the Limited Edition Gold Coins ...................................................................... 358
Yahoo Introduced Revamp in Flickr with 1TB Free Storage .............................................. 358
New features introduced in revamped Flickr ........................................................... 359
IL&FS IAML Signed MoU with Eight Public Sector Banks .................................................. 359
IFFCO signed Agreement with Vale SA ............................................................................. 360
Srinivasan Appointed as CEO of Anglogold Ashanti .......................................................... 360
UK's Cairn Energy sold 8% Stake in Cairn India for 910 US $ ............................................. 360
Ivan Menezes Named as New CEO of Diageo ................................................................... 360
Walmart Replaced ExxonMobil to Record Highest Revenue ............................................ 361
CCEA cleared IKEA's Investment Proposal ........................................................................ 361
Aurobindo Pharma Received Approval from USFDA ........................................................ 362
Facebook Bought Parse to Build Apps for Mobile Platforms ............................................ 362
SSTL Appointment Dmitry Shukov as its New CEO ........................................................... 362
Google Inc Acquired Wavii for 30 Million US Dollar ......................................................... 363
About Wavii ............................................................................................................. 363
Etihad Airways took over 24 pc Stake in Jet Airways ........................................................ 363
Reliance signed Pact with Airtel for International Bandwidth .......................................... 364
Use of the High-speed link ....................................................................................... 364
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Fourth Huge Natural Gas Reserve in Mozambique Block ................................................. 364
Narendra Kumar appointed Managing Director of IGL ..................................................... 365
Indian Mobile Services Will Reach 1.2 Trillion Rupees in 2013 ......................................... 365
Air Asia Appointed the CEO for India Venture .................................................................. 365
FAA approved Resumption of Dreamliner flights ............................................................. 366
Universal Commodity Exchange went Live ....................................................................... 366
What is Universal Commodity Exchange? ................................................................ 367
Microsoft most attractive employer in India: Survey ....................................................... 367
Features of Survey ................................................................................................... 367
Muthoot Fincorp to Launch 100 Crore NCB Issue............................................................. 368
Twitter launched a New Music Service called #Music ...................................................... 368
AAI & MITRE Partnered for Setting up R&D Centre .......................................................... 368
Airtel restrained to provide Services in Non-licensed Circles............................................ 369
Mobile Visual Search Platform Ocutag launched by Ricoh ............................................... 370
TVS Motor and BMW Motorrad tied up to Develop Bikes ................................................ 370
Volvo signed Jeev Milkha Singh as Brand Ambassador ..................................................... 370
China Mobile & Vodafone to Bid for Mobile Licenses in Burma ....................................... 371
Raymond Lane Resigned as HP’s Chairman ...................................................................... 371
NTPC Signed Loan Agreements Worth 1870 Crore with Banks ......................................... 371
MoU Signed Between NTPC and Ministry Of Power for 2013-14 Financial Year ....... 372
Main points of the MoU ........................................................................................... 372
Reliance Jio and Reliance Communications Signed Agreement ........................................ 372
GAIL to sell Part of its 4.6 percent stake in China Gas Holdings ........................................ 373
GAIL Signed deal with US firm for LNG Liquefaction Terminal .......................................... 373
Significance of the deal signed ................................................................................. 373
L&T Bagged Order Worth 5689 Crore from RVUNL .......................................................... 373
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Sahara Q Shop Entered into the Guinness World Records ............................................... 374
G.V. Prasad Appointed as CEO of Dr Reddy’s Laboratories ............................................... 374
Nasdaq to Buy ESpeed Platform From BGC for 750 Million $ ........................................... 375
About NASDAQ ........................................................................................................ 375
IVRCL Signed Agreement with TRIL to Sell Highway Projects ............................................ 375
Google launched Google Play Movies in India .................................................................. 376
Apple bought Indoor Mapping firm WiFiSlam .................................................................. 376
Prudential, Insurance Giant fined 30 Million Pound by FSA.............................................. 377
Nokia won Patent Infringement Suit against HTC in Germany.......................................... 378
Infosys Inked Deal with India Post ................................................................................... 378
Main points of the deal ............................................................................................ 378
About India Post ...................................................................................................... 378
TSMC Acquired Stake in Labrador Iron Mines Holdings Ltd. ............................................. 379
Main points of the deal ............................................................................................ 379
Welspun commissioned Asia’s largest Solar Power Project .............................................. 379
About Welspun Energy ............................................................................................ 380
REC Signed Bilateral Term-Loan Agreement with SBI ....................................................... 380
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CHAPTER 1: BASICS IN ECONOMICS
GROWTH AND DEVELOPMENT
Growth and Development is not the same thing. Neither is necessary for the other. To grow is to increase in size or number. To develop is to increase one’s ability and desire to satisfy one’s own needs and legitimate desires and those of others. A legitimate desire is one that, when satisfied, does not impede the development of anyone else. Related to these two terms is Economic Growth and Economic Development Economic Growth is a narrower concept than economic development. It is an increase in a country's real level of national output which can be caused by an increase in the quality of resources, increase in the quantity of resources & improvements in technology or in another way an increase in the value of goods and services produced by every sector of the economy. Economic Growth can be measured by an increase in a country's GDP (gross domestic product).
Economic development is a normative concept i.e. it applies in the context of people's sense of morality (right and wrong, good and bad). The definition of economic development given by Michael Todaro is an increase in living standards, improvement in self-esteem needs and freedom from oppression as well as a greater choice. The most accurate method of measuring development is the Human Development Index which takes into account the literacy rates & life expectancy which affects productivity and could lead to Economic Growth. It also leads to the creation of more opportunities in the sectors of education, healthcare, employment and the conservation of the environment. It implies to an increase in the per capita income of every citizen.
Economic Growth does not take into account the size of the informal economy. The informal economy is also known as the black economy which is the unrecorded economic activity. Development alleviates people from low standards of living into proper employment with suitable shelter. Economic Growth does not take into account the depletion of natural resources which might lead to pollution, congestion & disease. Development however is concerned with sustainability which means meeting the needs of the present without compromising future needs. These environmental effects are becoming more of a problem for Governments now that the pressure has increased on them due to Global warming.
Growth – the quantitative increase in size or throughput of biophysical matter. Daly has argued economic growth is based on the “limitless transformation of natural capital into man-made capital”.
Development – the qualitative improvement in economic welfare from increased quality of goods and services as defined by their ability to increase human well-being. This infers promoting increased economic activity only insofar as it does not exceed the capacity of the ecosystem to sustain it.
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HUMAN DEVELOPMENT INDEX (HDI)
The Human Development Index (HDI) is a composite statistics of life expectancy, education, and income indices to rank countries into four tiers of human development. It was created by economist Mahbub-ul-Haq, followed by economist Amartya Sen in 1990, and published by the United Nations Development Programme.
In its 2010 Human Development Report, the UNDP began using a new method of calculating the HDI. The following three indices are used:
1. Life Expectancy Index 2. Education Index: It includes
o Mean Years of Schooling Index o Expected Years of Schooling Index
3. Income Index
Finally, the HDI is the geometric mean of the above three normalized indices.
Among 187 countries ranked in the HDR, India comes in at a dismal 134 in the main composite index.
HDR 2011 makes the important point that environmental degradation and climate change will exacerbate inequalities, a trend already in evidence.
The report said India's Human Development Index (HDI) value for 2011 was 0.547 — positioning the country in the ‘medium human development category'
Neighbouring Pakistan was ranked at 145 (0.504) and Bangladesh at 146 (0.500).
It said between 1980 and 2011, India's HDI value increased from 0.344 to 0.547, an increase of 59 per cent or an average annual increase of about 1.5 per cent.
Mean years of schooling: Years that a 25-year-old person or older has spent in schools Expected years of schooling: Years that a 5-year-old child will spend with his education in his whole life
Inequality-adjusted HDI: The 2010 Human Development Report was the first to calculate an Inequality-adjusted Human Development Index (IHDI). The HDI represents a national average of human development achievements in the three basic dimensions making up the HDI: health, education and income. Like all averages, it conceals disparities in human development across the population within the same country. Two countries with different distributions of achievements can have the same average HDI value. The HDI takes into account not only the average achievements of a country on health, education and income, but also how those achievements are distributed among its citizens by “discounting” each dimension’s average value according to its level of inequality.
GENDER INEQUALITY INDEX
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The Gender Inequality Index (GII) is a new index for measurement of gender disparity that was introduced in the 2010 Human Development Report 20th anniversary edition by the United Nations Development Programme (UNDP). According to the UNDP, this index is a composite measure which captures the loss of achievement, within a country, due to gender inequality, and uses three dimensions to do so: reproductive health, empowerment, and labour market participation. The new index was introduced as an experimental measure to remedy the shortcomings of the previous, and no longer used, indicators, the Gender Development Index (GDI) and the Gender Empowerment Measure (GEM), both of which were introduced in the 1995 Human Development Report.
The GII's dimension of reproductive health has two indicators: the Maternal Mortality Ratio (MMR) and the Adolescent Fertility Rate (AFR).
The empowerment dimension is measured by two indicators: the share of parliamentary seats held by each sex and higher education attainment levels
The labour market dimension is measured by women's participation in the workforce. This dimension accounts for paid work, unpaid work, and actively looking for work. According to the Human Development Report 2011, India ranks 129 out of 146 countries on the Gender Inequality Index, below Bangladesh and Pakistan, which are ranked at 112 and 115, respectively.
Among BRICS (Brazil, Russia, India, China, South Africa) nations, India has the highest inequalities in human development
MULTIDIMENSIONAL POVERTY INDEX
The Multidimensional Poverty Index (MPI) was developed in 2010 by Oxford Poverty & Human Development Initiative and the United Nations Development Programme and uses different factors to determine poverty beyond income-based lists. It replaced the previous Human Poverty Index.
The MPI is an index of acute multidimensional poverty. It shows the number of people who are multidimensionality poor (suffering deprivations in 33.33% of weighted indicators) and the number of deprivations with which poor households typically contend. It reflects deprivations in very rudimentary services and core human functioning for people.
The index uses the same three dimensions as the Human Development Index: health, education, and standard of living. These are measured using ten indicators.
Dimensions Indicators
Health Child Mortality
Nutrition
Education Years of school
Children enrolled
Living Cooking fuel
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Standards Toilet
Water
Electricity
Floor
Assets
TECHNOLOGICAL ACHIEVEMENT INDEX
The Technology Achievement Index is used by the UNDP (United Nations Development Programme) to measure how well a country is creating and diffusing technology and building a human skill base, reflecting capacity to participate in the technological innovations of the network age. The TAI focuses on four dimensions of technological capacity: creation of technology, diffusion of recent innovations, diffusion of old innovations, human skills.
Technology creation, measured by the number of patents granted to residents per capita and by receipts of royalties and license fees from abroad per capita.
Diffusion of recent innovations measured by the number of Internet hosts per capita and the share of high-technology and medium-technology exports in total goods exports.
Diffusion of old innovations, measured by telephones (mainline and cellular) per capita and electricity consumption per capita.
Human skills, measured by the mean years of schooling in the population aged 15 and older, and the gross tertiary science enrolment ratio.
SUSTAINABLE DEVELOPMENT AND GROWTH
Sustainable development (SD) refers to a mode of human development in which resource use aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for generations to come. The term 'sustainable development' was used by the Brundtland Commission which coined what has become the most often-quoted definition of sustainable development: "development that meets the needs of the present without compromising the ability of future generations to meet their own needs."
Sustainable development ties together concern for the carrying capacity of natural systems with the social challenges faced by humanity. As early as the 1970s, "sustainability" was employed to describe an economy "in equilibrium with basic ecological support systems." Ecologists have pointed to The Limits to Growth, and presented the alternative of a "steady state economy" in order to address environmental concerns.
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The concept of sustainable development has in the past most often been broken out into three constituent parts: environmental sustainability, economic sustainability and sociopolitical sustainability.
The United Nations 2005 World Summit Outcome Document refers to the "interdependent and mutually reinforcing pillars" of sustainable development as economic development, social development, and environmental protection.[8]? Based on the triple bottom line, numerous sustainability standards and certification systems have been established in recent years. Green development is generally differentiated from sustainable development in that Green development prioritizes what its proponents consider to be environmental sustainability over economic and cultural considerations. Proponents of Sustainable Development argue that it provides a context in which to improve overall sustainability where cutting edge Green Development is unattainable.
Inclusive green growth is the pathway to sustainable development. It is the only way to reconcile the rapid growth required to bring developing countries to the level of prosperity to which they aspire, meet the needs of the more than 1 billion people still living in poverty, and fulfil the global imperative of a better environment.
TERMS AND TERMINOLOGY
The Association of South-east Asian Nations (ASEAN): It is a political, economic, and cultural organisation of countries located in South-east Asia—Thailand, Indonesia, Malaysia, Singapore, the Philippines, Brunei Darussalam, Cambodia, Laos, Myanmar and Vietnam.
Balance of Payments (BOP): It is a statistical statement summarising all the external transactions (receipts and payments) on current and capital account in which a country is involved over a period of time, say, a year. As the BOP shows the total assets and obligations over a time-period, it always balances.
Barriers to Entry: This refers to the factors which make it disadvantageous for new entrants to enter an industry as compared with the firms already established within the industry.
Better Compliance: Obeying or complying with the Government regulation. It is referred to usually in case of payment of taxes and dues to the Government.
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Bilateral Trade Agreements: The agreements relating to exchange of commodities or services between two countries.
Brundtland Commission: A Commission established by United Nations Organisation in 1983 to study the world’s environmental problems and propose agenda for addressing them. It came out with a report. The definition provided by the Commission for the term, ‘sustainable development’, is very popular and widely cited all over the world.
Budgetary Deficit: A situation when the government’s income and tax receipts fail to cover its expenditures.
Bureau of Energy Efficiency (BEE): It is a government organisation that aims to develop policies and strategies with a thrust on self regulation and market principles. It promotes energy conservation in different sectors of the economy and undertakes measures against the wasteful uses of electricity.
Business Process Outsourcing (BPO): Outsourcing of business processes (activities constituting a service) by companies to other companies. This term is frequently associated with outsourcing of such activities (e.g. receiving and making calls on behalf of other companies popularly known as call centres), by foreign companies to Indian companies in the field of IT-enabled services.
Carrying Capacity: It is the measure of habitat to indefinitely sustain a population at a particular density. A more technical definition for carrying capacity is the largest size of a density-dependent population for which the population growth rate is zero. Hence, below carrying capacity, populations will tend to increase, while they will decrease above carrying capacity. Population size decreases above carrying capacity due to either reduced survivorship (e.g. due to insufficient space or food) or reproductive success (e.g. due to insufficient food, or behavioural interactions), or both. The carrying capacity of an environment will vary for different species in different habitats, and can change over time due to a variety factors, including trends in food availability, environmental conditions and space.
Cascading Effect: When tax imposition leads to a disproportionate rise in prices, i.e. by an extent more than the rise in the tax, it is known as cascading effect.
Cash Reserve Ratio (CRR): A proportion of the total deposits and reserves of the commercial banks that is to be kept with the central bank (RBI) in liquid form. It is used as a measure of control of RBI over the commercial banks.
Casual Wage Labourer: A person, who is casually engaged in others’ farm or non-farm enterprises and, in return, receives wages according to the terms of the daily or periodic work contract.
Colonialism: The practice of acquiring colonies by conquest or other means and making them dependent. It also means extending power, control or rule by a country over the political and economic life of areas outside its borders. The main feature of colonialism is exploitation.
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Commercialisation of Agriculture: It implies production of crops for the market rather than for self-consumption i.e. family consumption. During the British rule, the commercialisation of agriculture acquired a different meaning—it became basically commercialisation of crops. The British started offering higher price to farmers for producing cash crops rather than for food crops. They used these cash crops as raw materials for industries in Britain.
Communes: Known as people’s communes, or renmin gongshe in China, were formerly the highest of three administrative levels in rural areas in the period from 1958 to 1982-85, when they were replaced by townships. Communes, the largest collective units, were divided in turn into production brigades and production teams. The communes had governmental, political, and economic functions.
Consumption Basket: Group of goods and services consumed by a household. In order to estimate the consumption pattern of people, statistical agencies identify such items. For instance NSSO has indentified 19 groups of items in the consumption basket. Some of them are (i) cereals (ii) pulses (iii) milk and milk products (iv) edible oil (v) vegetables (vi) fuel and light and (vii) clothing.
Default: Failure to make repayment of the principal and interest on a debt e.g. sovereign debt (loan obtained by the government) to the lenders, say, international financial institutions, on the scheduled date, causing loss of credibility as a debtor.
Deficit Financing: A situation where the expenditure of the government exceeds its revenue.
Demographic Transition: It is a concept developed by demographer Frank Note stein in 1945 to describe the typical pattern of falling death and birth rates in response to better living conditions associated with economic development. Note stein identified three phases of demographic transition, pre-industrial, developing and modern industrialised societies. Later another phase, post-industrial was also included.
Dereservation: Allowing an individual or group of enterprises to produce goods and services which were hitherto produced by a particular individual or group of enterprises. In India, it refers to allowing large-scale industries to produce goods and services which were produced only by the small-scale industries.
Devaluation: A fall in the exchange rate which reduces the value of a currency in terms of other currencies.
Disinvestment: A deliberate sale of a part of the capital stock of a company to raise resources and change the equity and/or management structure of a company.
Employers: Those self-employed workers who by and large, run their enterprises by hiring labourers.
Enterprise: An undertaking owned and operated by an individual or by group of individuals to produce and/or distribute goods and/or services mainly for the purpose of sale, whether fully
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or partly. Equities: Shares in the paid up capital or stock of a company whose holders are considered as owners of the company with voting rights and dividends in the profit.
Establishment: An enterprise which has got at least one hired worker for major part of the period of operation in a year.
European Union: It is a union of twenty-five independent states founded to enhance political, economic and social cooperation within the European continent. The member countries of European Union are Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom, Malta, Poland, Slovakia and Slovenia.
Export Duties: Taxes imposed on goods exported from a country.
Export Promotion: A set of measures (including fiscal and commercial support measures and steps aimed at removal of trade barriers) taken by a government to promote the export of goods with a view to achieve higher economic growth and accumulation of foreign exchange earnings.
Export-Import Policy: The economic policies of the government relating to its exports and imports.
Family labour/Worker: A member who works without receiving wages in cash or in kind in a farm, an industry, business or trade conducted by the members of the family.
Financial Institutions: Institutions that engage in mobilisation and allocation of savings. They include commercial banks, cooperative banks, developmental banks and investment institutions.
Fiscal Management: The use of taxation and government expenditure to regulate the economic activities.
Fiscal Policy: All the planned actions of a government in mobilising financial resources for meeting its expenditure and regulating the economic activities in a country.
Foreign Direct Investment: Investment of foreign assets into domestic structures, equipment and organisations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially ‘hot money’ which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.
Foreign Exchange: Currency or bonds of another country.
Foreign Exchange Markets: A market in which currencies are bought and sold at rates of exchange fixed now, for delivery at specified dates in the future.
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Foreign Institutional Investment: Foreign investments which come in the form of stocks, bonds, or other financial assets. This form of investment does not entail active management or control over the firms or investors. Foreign Institutional Investors (FIIs): Banking and non-banking financial institutions of foreign origin e.g. commercial banks, investment banks, mutual funds, pension funds or other such institutional investors (as distinct from the domestic financial institutions investing) whose investment in stocks and bonds in the country through stock markets have significant influence.
Formal Sector Establishments: All the public sector establishments and those private sector establishments which employ 10 or more hired workers.
G-20: Group of developing countries established to focus on issues relating to trade and agriculture in the World Trade Organisation. The group includes Argentina, Bolivia, Brazil, Chile, China, Cuba, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Philippines, South Africa, Thailand, Tanzania, Venezuela, and Zimbabwe.
G-8: The Group of Eight (G-8) consists of Canada, France, Germany, Italy, Japan, the United Kingdom of Great Britain and Northern Ireland, the United States of America, and Russian Federation. The hallmark of the G-8 is an annual economic and political summit meeting of the heads of government with international officials, though there are numerous subsidiary meetings and policy research. The Presidency of the group rotates every year. For the year 2006 it was held by Russia.
Gratuity: An amount of money given by the employer to the employee at the time of retirement for services rendered by the employee.
Gross Domestic Product: The total value of final goods and services produced within a country’s borders in a year, regardless of ownership. It is used as one of many indicators of the standard of living in a country, but there are limitations with this view.
Household: A group of persons normally living together and taking food from a common kitchen. The word ‘normally’ means that temporary visitors are excluded and those who temporarily staying away are included.
Import Licensing: Permission required from the government to import goods into a country.
Import Substitution: A policy of the state for development of economy in which import of goods is generally substituted by domestic production (through import controls, tariffs and other restrictions) with a view to encourage domestic industry on grounds of self-sufficiency and domestic employment.
Infant Mortality Rate: It is the number of deaths of infants before reaching the age of one, in a particular year, per 1,000 live births during that year.
Inflation: A sustained rise in the general price level.
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Informal Sector Enterprises: Those private sector enterprises, which employ less than 10 workers on a regular basis.
Integration of Domestic Economy: A situation where the policies of government facilitate free trade and investment with other countries making the domestic economy work together with other economies in an efficient and mutually interdependent way.
Invisibles: Various items enter in the current account of the balance of payments, some of which are not visible goods. Invisibles are mainly services, like tourism, transport by shipping or by airways, and financial services such as insurance and banking. They also include gifts sent abroad or received from abroad and private transfer of funds, government grants and interests, profits and dividends.
Labour Laws: All the rules and regulations framed by the government to protect the interests of the workers.
Land/Revenue Settlement: With the British acquiring territorial rights in different parts of India, administration of territories was formulated on the basis of survey of land. It was decided in the interests of government in terms of revenues to be collected from each parcel of land in possession of either a ryot (means peasant) or a mahal (revenue village) or a zamindar (a proprietary land holder). Decision in each of these cases was meant for the rights of the latter over land for the purposes of either ownership of land or rights to cultivation. This system is known as land/revenue settlement. There were different land settlements formulated in India. They are (i) system of permanent settlement, which is also known as the zamindari system (ii) ryotwari system (a system of revenue settlement entered into by the government with individual tenants) (iii) mahalwari system (a system of revenue settlement entered into by the government with a mahal).
Life Expectancy at Birth (years): The number of years a newborn infant would live if prevailing patterns of age-specific mortality rates at the time of birth were to stay the same throughout the child’s life.
Maternal Mortality Rate: It is the relationship between the number of maternal deaths due to childbearing by the number of live births or by the sum of live births and foetal deaths in a given year.
Merchant Bankers: Banks or financial institutions, also known as investment bankers, that specialise in advising the companies and managing their equity and debt requirement (often referred to as portfolio management) through floatation and sale/purchase of stocks and bonds. Morbidity: It is the propensity to fall ill. It affects a person’s work by making him or her temporarily disabled. Prolonged morbidity may lead to mortality. In our country, acute respiratory infections and diarrhoea are two major causes of morbidity.
Mortality Rate: The word ‘mortality’ comes from ‘mortal’ which originates from the Latin word mors (meaning death). It is the annual number of deaths (from a disease or in general) per
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1,000 people. It is distinct from morbidity rate, which refers to the number of people who have a disease compared to the total number of people in a population.
MRTP Act: An Act (Monopolies Restrictive Trade Practices Act) framed to prevent monopolistic practices and regulate the conductor business practices of firms that are not in public interest.
Multilateral Trade Agreements: Trade agreements made by a country with more than two nations to exchange goods and services.
National Product/Income: Total value of goods and services produced in a country plus income from abroad.
Nationalisation: Transfer of ownership from private sector to public sector. This involves takeover of companies owned by individuals or group of individuals by either state or central government. In some contexts, it also involves transfer of ownership from state government to central government.
New Economic Policy: A term used to describe the policies adopted in India since 1991.
Non-renewable Resources: Resources that cannot be renewed. They have a finite, even if large, stock. Some examples are fossils fuels such as oil and coal and mineral resources—iron, lead, aluminium, uranium.
Non-tariff Barriers: All the restrictions on imports by a government in the form other than taxes. They mainly include restrictions on quantity and quality of goods imported.
Opportunity Cost: It is defined with respect to a particular value or action and is equal to the value of the foregone alternative choice or action. Pension: A monthly payment to a worker who has retired from work. Per Capita Income: Total national income of a country divided by its population in a specific period.
Permit License Raj: A term used to denote the rules and regulations framed by the government to start, run and operate an enterprise for production of goods and services in India.
Planning Commission: An organisation set up by the Government of India. It is responsible for making assessment of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilisation of resources and determining priorities.
Poverty Line: The per capita expenditure on certain minimum needs of a person including food intake of a daily average of 2,400 calories in rural areas and 2,100 calories in urban areas.
Private Sector Establishments: All those establishments, which are owned and operated by individuals or group of individuals. Productivity: Output per unit of input employed. Increase in the efficiency on the part of capital or labour leads to increase in productivity. This term is generally used to refer to productivity increase in labour inputs.
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Provident Fund: A savings fund in which both employer and employee contribute regularly in the interest of the employee. It is maintained by the government and given to the employee when he or she resigns or retires from work.
Public Sector Establishments: All those establishments which are owned and operated by the government. They may be run either by local government, state government or by central government independently or jointly.
Quantitative Restrictions: Restrictions in the form of total quantities or quotas imposed on imports to reduce balance of payments (BOP) deficit and protect domestic industry.
Regular Salaried/Wage Employee: Persons, who work in others’ farm or non-farm enterprises and, in return, receive salary or wages on a regular basis (i.e. not on the basis of daily or periodic renewal of work contract). They include not only persons getting time wage but also persons receiving piece wage or salary and paid apprentices, both full time and part-time.
Renewable Resources: Resources that can be renewed through natural processes if they are used wisely. Forests, animals and fishes, if not overexploited, get easily renewed. Water is also in that category.
South Asian Association for Regional Cooperation (SAARC): It is an association of eight countries of South Asia — Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan. SAARC provides a platform for the peoples of South Asia to work together in a spirit of friendship, trust and understanding. It aims to accelerate the process of economic and social development in member countries.
Self-Employed: Those who operate their own farm or non-farm enterprises or are engaged independently in a profession or trade with one or a few partners. They have freedom to decide how, where and when to produce and sell or carry out their operation. Their earning is determined wholly or mainly by sales or profits from their enterprises.
Social Security: A government or privately established system of measures, which ensures material security for the elderly, disabled, destitute, widows and children. It includes pension, gratuity, provident fund, maternal benefits, health care etc.
Special Economic Zone (SEZ): It is a geographical region that has economic laws different from a country’s typical economic laws. Usually the goal is to increase foreign investment. Special Economic Zones have been established in several countries, including the People’s Republic of China, India, Jordan, Poland, Kazakhstan, the Philippines and Russia.
Stabilisation Measures: Fiscal and monetary measures adopted to control fluctuations in the balance of payments and high rate of inflation.
State Electricity Boards (SEBs): These are part of the state administration that generate, transmit and distribute electricity in different states.
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Statutory Liquidity Ratio (SLR): A minimum proportion of the total deposits and reserves to be maintained by the banks in liquid form as per the regulations of the central bank (RBI). Maintenance of SLR, in addition to the Cash Reserve Ratio (CRR), is an obligation of the banks.
Stock Exchange: A market in which the securities of governments and public companies are traded. It provides the facilities for stock brokers to trade company stocks and other securities.
Stock Market: An institution where stocks and shares are traded.
Structural Reform Policies: Long-term measures like liberalisation deregulation and privatisation aimed to improve the efficiency and competitiveness of the economy.
Tariff: A tax on imports, which can be levied either on physical units, e.g. per tonne (specific) or on value. Tariffs may be imposed for a variety of reasons including: to raise government revenue, to protect domestic industry from subsidised or low-wage imports, to boost domestic employment, or to ease a deficit on the balance of payments. Apart from the revenue that they raise tariffs achieve little good—they reduce the volume of trade and increase the price of the imported commodity to consumers.
Tariff Barriers: All the restrictions on imports by a government in the form of taxes.
Trade Union: An organisation of workers formed for the purpose of addressing its members’ interests in respect of wages, benefits, and working conditions.
Unemployment: A situation in which all those who, owing to lack of work, are not working but either seek work through employment exchanges, intermediaries, friends or relatives or by making applications to prospective employers or express their willingness or availability for work under the prevailing condition of work and remunerations.
Urbanisation: Expansion of a metropolitan area, namely the proportion of total population or area in urban localities or areas (cities and towns), or the increase of this proportion over time. It can thus represent a level of urban population relative to total population of the area, or the rate at which the urban proportion is increasing. Both can be expressed in percentage terms, the rate of change expressed as a percentage per year, decade or period between censuses.
Worker-Population RATIO: Total number of workers divided by the population. It is expressed in percentage.
ORGANISATION OF PRODUCTION
The aim of production is to produce the goods and services that we want. There are four requirements for production of goods and services.
The first requirement is land, and other natural resources such as water, forests, and minerals.
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The second requirement is labour, i.e. people who will do the work. Some production activities require highly educated workers to perform the necessary tasks. Other activities require workers who can do manual work.
The third requirement is physical capital, i.e. the variety of inputs required at every stage during production. It includes
Tools, machines, buildings: Tools and machines range from very simple tools such as a farmer’s plough to sophisticated machines such as generators, turbines, computers, etc. Tools, machines, buildings can be used in production over many years, and are called fixed capital.
Raw materials and money in hand: Production requires a variety of raw materials such as the yarn used by the weaver and the clay used by the potter. Also, some money is always required during production to make payments and buy other necessary items. Raw materials and money in hand are called working capital. Unlike tools, machines and buildings, these are used up in production.
There is a fourth requirement too. You will need knowledge and enterprise to be able to put together land, labour and physical capital and produce an output either to use yourself or to sell in the market. This these days is called human capital.
PEOPLE AS RESOURCE
’People as Resource’ is a way of referring to a country’s working people in terms of their existing productive skills and abilities. Looking at the population from this productive aspect emphasises its ability to contribute to the creation of the Gross National Product. Like other resources population also is a resource — a ’human resource’. This is the positive side of a large population that is often overlooked when we look only at the negative side, considering only the problems of providing the population with food, education and access to health facilities. When the existing ’human resource’ is further developed by becoming more educated and healthy, we call it ’human capital formation’ that adds to the productive power of the country just like’ physical capital formation’. Investment in human capital (through education, training, medical care) yields a return just like investment in physical capital. This can be seen directly in the form of higher incomes earned because of higher productivity of the more educated or the better trained persons, as well as the higher productivity of healthier people. Population need not be a liability. It can be turned into a productive asset by investment in human capital (for example, by spending resources on education and health for all, training of industrial and agricultural workers in the use of modern technology, useful scientific researches and so on).
QUALITY OF POPULATION
The quality of population depends upon the literacy rate, health of a person indicated by life expectancy and skill formation acquired by the people of the country. The quality of the population ultimately decides the growth rate of the country. Illiterate and unhealthy population are a liability for the economy. Literate and healthy population are an asset.
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CHAPTER 2: INDIAN ECONOMY- OVER THE YEARS
NATURE OF INDIAN ECONOMY
Since independence India has been a 'mixed economy'. India's large public sectors were responsible for rendering the country a 'mixed economy' feature.
Indian economic planning is associated with capitalist framework with no element of compulsion.
Indian economy overview was highly inspired by Soviet Union's practices post-independence. It had been recording growth rate not greater than five jumped till 1980s. This stagnant growth was termed by many economists as 'Hindu Growth Rate'.
In 1992, the country ushered into liberalization regime. Thereafter, the economy started scaling upward. This new trend in growth was called 'New Hindu Growth Rate'.
India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries and a multitude of services.
Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labour force.
CURRENT ANALYSIS
The economy of India boasts of being the fourth largest economy in the world after the United States, China and Japan.
The country's per capita GDP (PPP) was $3,500 in 2010 and ranked at 161, making it a lower-middle income economy.
The country recorded the highest growth rates and touched to as high as 9% GDP in the mid-2000s. It was then considered by many financial institutions as one of the fastest-growing economies in the world.
Notably, the robust growth rate reduced poverty by about 10 percentage points by mid-2000s.
But the overview of Indian economy was hit by global slowdown in 2008. Its speed of growth received a jerk and the country's GDP slowed down to a large extent thereafter.
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Government of India has projected growth rate for 2011-12 at 8.2% of GDP compared to 8.5% registered last year.
As regards inflation, it has been a major concern for the government to reign in. The inflation for over five years has crippled the economy. In 2005, the country witnessed inflation as low as 4 %. Thereafter, the graph has been constantly rising. At many times, inflation has reached to double digit. Several monetary measures are being taken by the government and the Central Bank to control the menace, but in vain. However, government expects that there will be some relief starting from November and declined to 6.5% in March 2012.
India is the 20th largest merchandise trading nation. The country's exports were worth $19870 million by October in 2011-12, amounting to 22% of country's GDP. Gems and jewellery constitute the single largest export item, that is, 16 percent of total export. However, it is feared that global economic crisis and appreciation of Rupee may hit domestic export adversely in future.
According to Global Competitiveness Report 2011 released by World Economic Forum, India has slipped down to its rank to 51 from 49 in 2009.
According to World Economic Outlook 2011 released by International Monetary Fund, China is ahead of India in terms of growth. The GDP exceeded the government's target in China and is estimated to be close to 10 percent in 2011.
PLANNING OVER THE YEARS:
FIRST FIVE-YEAR PLAN (1951–1956)
The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to the Parliament of India on December 8, 1951.This plan was based on the Harrod-Domar model. The plan addressed, mainly, the agrarian sector, including investments in dams and irrigation. The agricultural sector was hit hardest by the partition of India and needed urgent attention. The total planned budget of INR 2069 crore was allocated to seven broad areas: irrigation and energy (27.2 percent), agriculture and community development (17.4 percent), transport and communications (24 percent), industry (8.4 percent), social services (16.64 percent), land rehabilitation (4.1 percent), and for other sectors and services (2.5 percent).
The target growth rate was 2.1% annual gross domestic product (GDP) growth; the achieved growth rate was 3.6%. The net domestic product went up by 15%. The monsoon was good and there were relatively high crop yields, boosting exchange reserves and the per capita income, which increased by 8%. National income increased more than the per capita income due to rapid population growth. Many irrigation projects were initiated during this period, including the Bhakra Dam and Hirakud Dam.
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SECOND FIVE-YEAR PLAN (1956–1961)
The second five-year plan focused on industry, especially heavy industry. Unlike the First plan, which focused mainly on agriculture, domestic production of industrial products was encouraged in the Second plan, particularly in the development of the public sector. The plan followed the Mahalanobis model, an economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. The plan attempted to determine the optimal allocation of investment between productive sectors in order to maximise long-run economic growth. It used the prevalent state of art techniques of operations research and optimization as well as the novel applications of statistical models developed at the Indian Statistical Institute. The plan assumed a closed economy in which the main trading activity would be centered on importing capital goods. Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela were established. Coal production was increased. More railway lines were added in the north east.
The Atomic Energy Commission was formed in 1958 with Homi J. Bhabha as the first chairman. The Tata Institute of Fundamental Research was established as a research institute. In 1957 a talent search and scholarship program was begun to find talented young students to train for work in nuclear power. Target Growth-4.5% Growth achieved:4.0%.
THIRD FIVE-YEAR PLAN (1961–1966)
The third plan stressed on agriculture and improvement in the production of wheat, but the brief Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus towards the Defence industry or Indian army. In 1965–1966, India fought a [Indo-Pak] War with Pakistan. Due to this there was a severe drought in 1965. The war led to inflation and the priority was shifted to price stabilisation. The construction of dams continued. Many cement and fertilizer plants were also built. Punjab began producing an abundance of wheat. Target Growth: 5.6% Actual Growth: 2.4%.
FOURTH FIVE-YEAR PLAN (1969–1974)
At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government nationalised 14 major Indian banks and the Green Revolution in India advanced agriculture. In addition, the situation in East Pakistan (now Bangladesh) was becoming dire as the Indo-Pakistani War of 1971 and Bangladesh Liberation War took Funds earmarked for the industrial development had to be diverted for the war effort. India also performed the Smiling Buddha underground nuclear test in 1974, partially in response to the United States deployment of the Seventh Fleet in the Bay of Bengal. The fleet had been deployed to warn India against attacking West Pakistan and extending the war. Target Growth: 5.7% Actual Growth: 3.3%
FIFTH FIVE-YEAR PLAN (1974–1979)
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Stress was by laid on employment, poverty alleviation, and justice. The plan also focused on self-reliance in agricultural production and defence. In 1978 the newly elected Morarji Desai government rejected the plan. Electricity Supply Act was enacted in 1975, which enabled the Central Government to enter into power generation and transmission. Target Growth: 4.4% Actual Growth: 5.0
SIXTH FIVE-YEAR PLAN (1980–1985)
The sixth plan also marked the beginning of economic liberalisation. Prize controls were eliminated and ration shops were closed. This led to an increase in food prices and an increase in the cost of living. This was the end of Nehruvian Socialism and Indira Gandhi was prime minister during this period.
Family planning was also expanded in order to prevent overpopulation. Target Growth: 5.2% Actual Growth: 5.4%
SEVENTH FIVE-YEAR PLAN (1985–1990)
The Seventh Plan marked the comeback of the Congress Party to power. The plan laid stress on improving the productivity level of industries by upgrading of technology.
The main objectives of the 7th five-year plans were to establish growth in areas of increasing economic productivity, production of food grains, and generating employment.
As an outcome of the sixth five-year plan, there had been steady growth in agriculture, control on rate of Inflation, and favourable balance of payments which had provided a strong base for the seventh five Year plan to build on the need for further economic growth. The 7th Plan had strived towards socialism and energy production at large.
Target Growth: 5.0% Actual Growth: 5.7%
EIGHTH FIVE-YEAR PLAN (1992–1997)
1989–91 was a period of economic instability in India and hence no five-year plan was implemented. Between 1990 and 1992, there were only Annual Plans. In 1991, India faced a crisis in Foreign Exchange (Forex) reserves, left with reserves of only about US$1 billion. Thus, under pressure, the country took the risk of reforming the socialist economy. P.V. Narasimha Rao was the twelfth Prime Minister of the Republic of India and head of Congress Party, and led one of the most important administrations in India's modern history overseeing a major economic transformation and several incidents affecting national security. At that time Dr. Manmohan Singh (currently, Prime Minister of India) launched India's free market reforms that brought the nearly bankrupt nation back from the edge. It was the beginning of privatisation and liberalisation in India. Modernization of industries was a major highlight of the Eighth Plan. Under this plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning deficit and
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foreign debt. Meanwhile India became a member of the World Trade Organization on 1 January 1995.This plan can be termed as Rao and Manmohan model of Economic development.
An average annual growth rate of 6.78% against the target 5.6% was achieved.
NINTH FIVE-YEAR PLAN (1997–2002)
Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main aim of attaining objectives like speedy industrialization, human development, full-scale employment, poverty reduction, and self-reliance on domestic resources. During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point lower than the target GDP growth of 6.5 per cent.
TENTH FIVE-YEAR PLAN (2002–2007)
Attain 8% GDP growth per year.
Reduction of poverty ratio by 5 percentage points by 2007.
Providing gainful and high-quality employment at least to the addition to the labour force.
Reduction in gender gaps in literacy and wage rates by at least 50% by 2007.
20 point program was introduced.
Target growth: 8% Growth achieved: 7.8%
ELEVENTH FIVE-YEAR PLAN (2007–2012)
The eleventh plan has the following objectives:
Income & Poverty
Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita income by 2016–17
Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits
Create 70 million new work opportunities.
Reduce educated unemployment to below 5%.
Raise real wage rate of unskilled workers by 20 percent.
Reduce the headcount ratio of consumption poverty by 10 percentage points.
Education
Reduce dropout rates of children from elementary school from 52.2% in 2003–04 to 20% by 2011–12
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Develop minimum standards of educational attainment in elementary school, and by regular testing monitor effectiveness of education to ensure quality
Increase literacy rate for persons of age 7 years or above to 85%
Lower gender gap in literacy to 10 percentage point
Increase the percentage of each cohort going to higher education from the present 10% to 15% by the end of the plan
Health
Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births
Reduce Total Fertility Rate to 2.1
Provide clean drinking water for all by 2009 and ensure that there are no slip-backs
Reduce malnutrition among children of age group 0–3 to half its present level
Reduce anaemia among women and girls by 50% by the end of the plan
Women and Children
Raise the sex ratio for age group 0–6 to 935 by 2011–12 and to 950 by 2016–17
Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes are women and girl children
Ensure that all children enjoy a safe childhood, without any compulsion to work
Infrastructure
Ensure electricity connection to all villages and BPL households by 2009 and round-the-clock power.
Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015
Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012
Provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover all the poor by 2016–17
Environment
Increase forest and tree cover by 5 percentage points.
Attain WHO standards of air quality in all major cities by 2011–12.
Treat all urban waste water by 2011–12 to clean river waters.
Increase energy efficiency by 20%
Target growth: 8.4% Growth achieved: 7.9%.
TWELFTH FIVE-YEAR PLAN (2012-2017)
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12th five year plan (2012-17) document that seeks to achieve annual average economic growth rate of 8.2 per cent, down from from 9 per cent envisaged earlier, in view of fragile global recovery. 12th five-year plan is guided by the policy guidelines and principles to revive the following Indian economy, which registered a growth rate of meagre 5.5 percent in the first quarter of the financial year 2012-13.
The plan aims towards the betterment of the infrastructural projects of the nation avoiding all types of bottlenecks. The document presented by the planning commission is aimed to attract private investments of up to US$1 trillion in the infrastructural growth in the 12th five-year plan, which will also ensure a reduction in subsidy burden of the government to 1.5 percent from 2 percent of the GDP (gross domestic product). The UID (Unique Identification Number) will act as a platform for cash transfer of the subsidies in the plan.
The plan aims towards achieving a growth of 4 percent in agriculture and to reduce poverty by 10 percentage points, by 2017.
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CHAPTER 3: NATURAL RESOURCES
DEGRADING NATURAL RESOURCES AND THE AGRARIAN CRISIS
The achievements during the past ten Five Year Plans have been phenomenal. Yet, the human development indicators such as child and adult malnutrition, poverty, illiteracy, infant and maternal mortality rates and access to sanitation and clean drinking water are India’s major concerns. The approach paper for the Eleventh Five Year Plan (XI Plan) mentions. “Economic growth has failed to be sufficiently inclusive, particularly after the mid-1990. Agriculture lost its growth momentum from that point on and subsequently entered a near crisis situation, reflected in farmer suicides in some areas”.
Degradation and erosion of natural resources – those parts of the natural world that are used to produce food and other valued goods and services and which are essential for our survival and prosperity, are one of root causes of the agrarian crisis. No current or intended use of natural resources should condemn our children to endless toil or deprivation. Land, water, soil, forest, livestock, fish, biodiversity (plant, animal and microbial genetic resources), along with air and sunlight, are our natural resource upon which human life is dependent.
The natural resources are interlinked as producers and service providers to maintain environmental health, augment agriculture production and ensure economic development. One of the major concerns in this endeavour is to rehabilitate the degraded and vulnerable land and water resources suffering from soil erosion, soil acidity, salinity, alkalinity, water logging, water depletion, water pollution etc and to ensure livelihood support to the rural population in the country. Soil and water conservation practices through engineering and vegetative measures need to be more indigenous, innovative and eco-friendly and those which are maintainable by farming community. The existing soil and water conservation practices to arrest soil erosion and reclamation measures for other soil degradation processes also need to be re-looked. Soil buffering system and land use policy are also vital components of NRM to attain sustainability that needs to be activated
LAND AND SOIL
Land conservation, soil health and access to land for livelihood are the main challenges. Worlds’ biological productivity, meeting our food, energy and other requirements, depends on soil health, especially its water, nutrient and carbon balance. Unfortunately, it is this mother resource which is depleting the fastest. Estimates of the cost of soil degradation during 1980s and 1990s ranged from 11 to 26 percent of GDP. The cost of salinity and waterlogging is estimated at Rs.120 billion to Rs.270 billion, and if the cost of environmental damage is taken into account, India’s economic growth comes to minus 5.73 percent per annum as against plus 5.66 percent estimated otherwise.
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Out of the 328.7 million hectare (m ha) of geographical area, 142 m h is the net cultivated area in India. Of this, about 57 m ha (40 per cent) is irrigated and the remaining 85 m ha (60 per cent) is rain fed. Approximately, 20.00 m ha of degraded land was likely to be treated during the Tenth Plan period and therefore, about 68.50 m ha of degraded lands will require development after the Tenth Five Year Plan.
Soil health enhancement holds the key to raising small farm productivity. The Second or Evergreen Revolution is not possible without overcoming the widespread macro- and micro-nutrient deficiencies – the “hidden hunger”. Every farm family should be issued with a Soil Health Passbook, which contains integrated information on the physics, chemistry and microbiology of the soils on their farm. More laboratories to detect specific micronutrient deficiencies in soils are urgently needed. Soil organic matter content will have to be increased by incorporating crop residues in the soil. Proper technical advice on the reclamation of wastelands and on improving their biological potential should be available. Pricing policies should promote a balanced and efficient use of fertilizers.
The land use should be compatible to the land capability otherwise it will induce degradation process that may be detrimental to the watershed development programme. The land use policy needs to be developed as per land capability that is to be derived out of soil survey data. In this context, it is necessary to revive the State 8
Land Use Boards (SLUBs) which should be the nodal agencies to implement land use policy as per the capability to strengthen the mechanism to adopt optimal land use planning in the states.
OWNERSHIP OF THE LAND
The ownership of land is highly skewed, nearly 65 per cent of the rural households owning less than one ha. The landless population amounts to over 12 per cent of rural households. Fragmentation of farm holdings continues unabated. Per capita land availability has also dropped from 0.48 ha in 1951 to 0.16 ha in 1991 and is projected to drop to 0.08 ha in 2035. Enhancing and sustaining productivity and income of small forms through crop-livestock-fish integration and multiple opportunities through agro-processing, value addition and biomass utilization must be a high priority. On the other hand, Land Use Planning is highly ineffective and the Land Use Boards have been rendered nonfunctional.
WATER
IRRIGATION POTENTIAL
Irrigation expansion has been one of the three input-related driving factors (the other two being seeds of modern HYVs and fertilizer) in the Green Revolution process. Gross irrigated area went up by over 300 per cent, from 22.6 m ha in 1950-1951 to 57 m ha (gross irrigated area over 75.1 m ha) in 2000-2001, rendering India as the country having the largest irrigated area in the world. The ultimate irrigation potential for the country has been estimated at
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about 140 m ha (59 m ha through major and medium irrigation projects, 17 m ha through minor irrigation schemes and 64 m ha through groundwater development). So far, the irrigation potential of nearly 100 m ha has already been created, but only about 86 m ha is being utilized, thus leaving a gap of 14 m ha between created and utilized potential.
Serious gaps also exist between the stipulated and realized productivity and income gains in the irrigated areas. The irrigation intensity is also around 135 per cent which should be raised to 175 per cent or more. The intended productivity increases were, however, not realized and clearly the past policies have been inadequate and had low pay off, let alone the irrigation associated environmental and natural resource related degradations and low water use efficiency and inequity.
Irrigation expansion rate in recent years has been about 1.4 m ha per annum. Should the trend scenario be maintained, by the end of the XI Plan, additional 7 m ha of irrigated land should be available. Further, under Bharat Nirman, creation of 10 m ha additional assured irrigation is planned during 2005-2009 through major, medium and minor irrigation projects complemented by groundwater development
Constraints in the spread of Drip Irrigation
The main constraints encountered include (i) poor quality of the system supplied to the farmers, (ii) unreliable and spurious spares and non-availability of standard parts, (iii) ignorance of the users regarding the maintenance and operation of the system, and (iv)non-availability and uncertainty of power/energy supply.
ANNUAL REQUIREMENT OF FRESH WATER (B CU M)
Under Sector 2000 2025 2050
Irrigation 541 910 1072
Domestic 42 73 102
Industries 8 22 63
Thermal Power 2 15 130
Other 41 72 80
Total 634 1049 1447
PER CAPITA AVAILABILITY
Our per capita water availability at the national level has declined rapidly, from 1986 cu m (cu m) in 1998 to 1731 cu m in 2005, rendering India dangerously close to the threshold of 1700 cu m and being declared as a water scarcity region of the World. Of our estimated some 350 million hectare meter (m ha m) annual renewable water resources, around 160 mhm find their way back to the sea as river flow. On the other hand, over 29 per cent of the blocks in the country are in the category of over exploited areas of groundwater use. Nearly 60 percent of
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the blocks in Punjab and 40 percent of the blocks in Haryana have turned “dark” and over exploited - the heartland of the green revolution.
While the North Zone has already developed 87 per cent of its groundwater, the East Zone has over 70 per cent of its groundwater unexploited for irrigation purposes. Thus, larger investments in irrigation should be made in the East Zone. In doing so, the past mistakes and shortcomings of irrigation development should be avoided. Such a move will be a move towards inclusive growth, as the East Zone has higher concentration of the poor people.
DEMAND SIDE MANAGEMENT OF WATER RESOURCES
Demand management through improved irrigation practices, including sprinkler and drip irrigation, should receive priority attention. A water literacy movement should be launched and regulations should be developed for the sustainable use of ground water. Crop planning and large scale adoption of proven technology can greatly mitigate the problem of excessive use of irrigation water. For instance, one crop of irrigated rice in India consumes more than 40 per cent of all the irrigation water in the season. Believing (wrongly) that continuous submergence/flooding of rice field throughout the crop life cycle is essential, nearly 4,500 litres of water is required for production of one kg of rice. On the other hand, it is conclusively established that irrigating rice only one to three days after disappearance of pond water can save 20 to 30 per cent of irrigation water applied without any significant effect on the yield, let alone the environmental benefits. The System of Rice Intensification (SRI) offer greater eco-friendly and economic opportunities. Development of irrigation responsive varieties, cultivated under limited water availability and non-puddle conditions (aerobic rice) is another highly viable complementary component of integrated on-farm water management strategy.
BIODIVERSITY AND AGRICULTURAL GENETIC RESOURCES
Biodiversity refers to the abundant wealth of flora and fauna including soil micro-flora and micro-fauna and constitutes the genetic wealth for farmers’ livelihood security and welfare. The aim should be to conserve as well as enhance these natural resources, to provide equitable access and lead to sustainable use with equitable sharing of benefits.
But, degradations and erosions are rampant in our biodiversity, forests and agro-ecological production systems. The loss of land races, wild species and local breeds have greatly enhanced genetic vulnerability of our major crops, livestock and fish, besides losing invaluable gene pools. Synergy and congruence is also missing between the two newly created biodiversity related national bodies, namely, National Biodiversity Board and Plant Variety Protection and Farmers’ Rights Authority.
The Plant Variety Protection and Farmers’ Rights (PVPFR) Act was enacted in 2001. The Act recognizes the multiple roles of farmers as cultivators, conservers and breeders. Detailed guidelines should be developed for ensuring that the rights of farmers in their various roles are safeguarded. For example most farmers who are cultivators are entitled to “Plant Back Right”.
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This implies that they can keep their own seeds and also enter into limited exchange in their vicinity. Farmers as breeders have the same rights as professional breeders and they can enter their varieties for registration and protection.
FORESTS
Forests form the basic resource for maintaining the soil/water regimes and ecological services, hence optimizing productivity of forest means augmenting resilience of soil, water and agriculture, which are the pillars of rural livelihood security. Green cover is indicator of resilience of the natural resources and a primary requirement for sustainable agriculture production. Thus forest cover needs to be recognized as the “Natural Resource Infrastructure for agriculture / primary production / rural economic growth”. Good density forest will thus provide required ecosystem services, but also material products in plenty for communities. Thus investment in forest estate is an investment for growth.
India is one of the 17 mega diversity countries in the world having vast variety of flora and fauna, supporting 16 major forest types, comprising from Himalayan Alpine pasture and temperate forest, sub-tropical forest, tropical evergreen to mangroves in the coastal areas. India also has two biodiversity hot spots in the northeastern states and the Western Ghats.
Per capita forest area is only 0.064 ha - one-tenth of the world average. Under the heavy pressures of human and animal populations, about 41 per cent of forest cover of the country is degraded. Dense forests are losing their crown density and productivity continuously, the current productivity being one-third of that of the world average. The use of forests beyond their carrying capacity, compounded with the loss of nearly 4.5 m ha to agriculture and other uses since 1950 and nearly 10 m ha of forest area being subjected to shifting cultivation, is the main cause of continuous degradation of forests.
(N.B.: For More Information on Forest refer to the State of Forest Report-2011 provided in the Annexure-A of Environment PDF)
DEMANDS ON FOREST RESOURCES
Among the many demands placed on the forest resource of India the most important, both in terms of value and volume are timber, fuel and fodder. Of these, while timber is required by all sections of society, demand of fuel and fodder basically comes from rural areas and that too from the underprivileged section of the society. Thus, these two demands receive added significance.
As regards timber, the domestic supply increased from 53 million cubic meters (m c m) in 1996 to 65 m cu m in 2006. During the same period the demand increased from 64 to 82 m cu m, the gap being met through import, valued at Rs. 9,000 crore during the year 2003-04. While natural forests are unable to meet the requirement, non forest areas, which include farm forests, could play a significant role in fulfilling the demand.
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As regards fuel wood, these constitute an important basic need of about 40 per cent of the population of India. The fact remains that India may have sufficient food to eat but not sufficient fuel wood to cook it. Demand of fuel, which basically comes from rural areas, depends on various factors such as availability of other fuels, climate, living standards, size of the family, food habits, etc. It has been estimated that average annual per capita fuel wood consumption in the country works out to about 0.35 tones. The domestic supply through normal means generally meets hardly 50% of the demand, mostly through over exploitation of forests beyond their productive capacities leading to degradation of growing stock.
Regarding fodder, forests meet about one-third of the requirement in India. The forests form a major source of fodder supply and it increases during drought years when the crops fail and therefore natural forests remain the only source of fodder. Grasslands are biomass wise among the most productive ecosystems of the world. In an agrarian nation so dependent upon range grazing of its moving stock, they are the most important component of country’s animal husbandry.
LIVESTOCK
Livestock sub-sector, with its annual outputs (milk, meat, egg and wool) valued at nearly Rs. 170,000 crore - about 27 per cent of the agricultural GDP and engaging over 90 million people, is a highly strategic and vital sub-sector for agrarian economy of the country. Unlike the ownership of land, the ownership of livestock is positively egalitarian, especially in the arid, semi-arid and other non-congenial rain fed settings, and is a critical component of livelihood security.
Possessing the world’s largest livestock population, India ranks first in milk production, fifth in egg production and seventh in meat production. Total livestock output has been growing at a much faster rate of 3.6 percent per annum against only 1.1 percent registered for the crops sub-sector during the past decade.
Productivity of our animals is almost one-third of that of the world’s average and far lesser when compared with that in the developed countries. On the other hand, India has about 20 percent of the world’s animal population, but good grazing lands are practically non-existent, thus exerting enormous pressure on the limited and shrinking land and water resources. The major constraints relate to fodder, feed, healthcare, genetic improvement and conservation (degeneration of the famous Tharparker cattle breed in Western Rajasthan is a sad story), processing and value addition, remunerative pricing and marketing.
FISHERIES
Fisheries, including aquaculture, contribute significantly to food, nutrition, economic and employment securities, and fortunately are one of the fastest growing agricultural sub-sectors during the last three decades. Currently, fisheries contribute 4.6 percent of the agricultural GDP, provide employment security to about 11 million people and annually earn foreign
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exchange worth Rs. 7,300 crore - about one-fifth of the value of the national agricultural export. Of the current total production of 6.4 million tones (m t) of fish, marine fish production contributed about 3.0 m t and inland fisheries contributed 3.4 m t – 53 percent of the total production. While the marine fish production has been growing at 2.2 percent per annum, the inland production has annually been growing at 6.6 percent, resulting in an overall annual growth rate of 4.12 percent during the nineties.
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CHAPTER 4: AGRICULTURE
OVERVIEW OF INDIA’S AGRICULTURAL ECONOMY
In the early 1950s, half of India’s GDP came from the agricultural sector. By 1995, that contribution was halved again to about 25 per cent. As would be expected of virtually all countries in the process of development, India’s agricultural sector’s share has declined consistently over time as seen in the table below.
Year 1951 1965 1976 1985 1991 1999 2011
Percentage share of GDP 52.2 43.6 37.4 32.8 28.3 24.4 14.6
In the last five decades, the Government’s objectives in agricultural policy and the instruments used to realize the objectives have changed from time to time, depending on both internal and external factors. Agricultural policies can be divided into supply side and demand side policies. The former include those relating to land reform and land use, development and diffusion of new technologies, public investment in irrigation and rural infrastructure and agricultural price supports. The demand side policies on the other hand, include state interventions in agricultural markets as well as operation of public distribution systems. Such policies also have macro effects in terms of their impact on government budgets.
Macro level policies include policies to strengthen agricultural and non-agricultural sector linkages and industrial policies that affect input supplies to agriculture and the supply of agricultural materials. During the pre-green revolution period, from independence to 1964-1965, the agricultural sector grew at annual average of 2.7 per cent. This period saw a major policy thrust towards land reform and the development of irrigation. With the green revolution period from the mid-1960s to 1991, the agricultural sector grew at 3.2 per cent during 1965-1966 to 1975-1976, and at 3.1 per cent during 1976-1977 to 1991-1992. The policy package for this period was substantial and consisted of:
a) introduction of high-yielding varieties of wheat and rice by strengthening agricultural research and extension services,
b) measures to increase the supply of agricultural inputs such as chemical fertilizers and pesticides,
c) expansion of major and minor irrigation facilities,
d) announcement of minimum support prices for major crops, government procurement of cereals for building buffer stocks and to meet public distribution needs, and
e) Provision of agricultural credit on a priority basis.
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f) This period also witnessed a number of market intervention measures by the central and state Governments. The promotional measures relate to the development and regulation of primary markets in the nature of physical and institutional infrastructure at the first contact point for farmers to sell their surplus products. Crops, Production, Productivity, Inputs and Surpluses
CROP-SPECIFIC GROWTH
As per 2nd advance estimates for 2011-12, total food grains production is estimated at a record level of 250.42 million tonnes which is 5.64 million tonnes higher than that of the last year production. Production of rice is estimated at 102.75 million tonnes, Wheat is 88.31 million tonnes, coarse cereals 42.08 million tonnes and pulses 17.28 million tonnes. Oilseeds production during 2011-12 is estimated at 30.53 million tonnes, sugarcane production is estimated at 347.87 million tonnes and cotton production is estimated at 34.09 million bales (of 170 kg. each). Jute production has been estimated at 10.95 million bales (of 180 kg each). Despite inconsistent climatic factors in some parts of the country, there has been a record production, surpassing the targeted production of 245 million tonnes of food grains by more than 5 million tonnes during 2011-12. Growth in the production of agricultural crops depends upon acreage and yield. Given the limitations in the expansion of acreage, the main source of long-term output growth is improvement in yields. In the case of wheat, the growth in area and yield have been marginal during 2000-01 to 2010-11 suggesting that the yield levels have plateaued for this crop. This suggests the need for renewed research to boost production and productivity. All the major coarse cereals display a negative growth in area during both the periods except for maize, which recorded an annual growth rate of 2.68 per cent in the 2000-01 to 2010-11 period. The production of maize has also increased by 7.12 percent in the latter Period. The biggest increase in the growth rates of yields in the two periods, however, is in groundnut and cotton. Cotton has experienced significant changes with the introduction of Bt cotton in 2002. By 2011-12, almost 90 percent of cotton area is covered under Bt. cotton, production has more than doubled (compared to 2002-03), yields have gone up by almost 70 percent, and export potential for more than Rs 10,000 crore worth of raw cotton per year has been created.
LAND REFORMS
Under the 1949 Indian constitution, states were granted the powers to enact (and implement) land reforms. This autonomy ensures that there has been significant variation across states and time in terms of the number and types of land reforms that have been enacted. We classify land reform acts into four main categories according to their main purpose.
1. The first category is acts related to tenancy reform. These include attempts to regulate tenancy contracts both via registration and stipulation of contractual terms, such as shares in share tenancy contracts, as well as attempts to abolish tenancy and transfer ownership to tenants.
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2. The second category of land reform acts are attempts to abolish intermediaries. These intermediaries who worked under feudal lords (Zamandari) to collect rent for the British were reputed to allow a larger share of the surplus from the land to be extracted from tenants. Most states had passed legislation to abolish intermediaries prior to 1958.
3. The third category of land reform acts concerned efforts to implement ceilings on land holdings, with a view to redistributing surplus land to the landless.
4. Finally, we have acts which attempted to allow consolidation of disparate land-holdings.' Though these reforms and in particular the latter were justified partly in terms of achieving efficiency gains in agriculture it is clear from the acts themselves and from the political manifestos supporting the acts that the main impetus driving the first three reforms was poverty reduction.
Existing assessments of the effectiveness of these different reforms are highly mixed. Though promoted by the centre in various Five Year Plans, the fact that land reforms were a state subject under the 1949 Constitution meant that enactment and implementation was dependent on the political will of state governments. The perceived oppressive character of the Zamandari and their close alliance with the British galvanized broad political support for the abolition intermediaries and led to widespread implementation of these reforms most of which were complete by the early 1960s. Centre-state alignment on the issue of tenancy reforms was much less pronounced. With many state legislatures controlled by the landlord class, reforms which harmed this class tended to be blocked, though where tenants had substantial political representation notable successes in implementation were recorded. Despite the considerable publicity attached to their enactment, political failure to implement was most complete in the case of land ceiling legislation. Here ambivalence in the formulation of policy and numerous loopholes allowed the bulk of landowners to avoid expropriation by distributing surplus land to relations, friends and dependents. As a result of these problems, implementation of both tenancy reform and land ceiling legislation tended to lag well behind the targets set in the Five Year Plans. Land consolidation legislation was enacted less than the other reforms and, owing partly to the sparseness of land records, implementation has been considered to be both sporadic and patchy only affecting a few states in any significant way. Village level studies also offer a very mixed assessment of the poverty impact of different land reforms. Similar reforms seemed to have produced different effects in different areas leaving overall impact indeterminate. There is some consensus that the abolition of intermediaries achieved a limited and variable success both in redistributing land towards the poor and increasing the security of smallholders.
For tenancy reform, however, whereas successes have been recorded, in particular, where tenants are well organized there has also been a range of documented cases of imminent legislation prompting landlords to engage in mass evictions of tenants and of the de jure banning of landlord-tenant relationships pushing tenancy under- ground and therefore, paradoxically, reducing tenurial security. Land ceiling legislation, in a variety of village studies, is also perceived to have had neutral or negative effects on poverty by inducing landowners from
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joint families to evict their tenants and to separate their holdings into smaller proprietary units among family members as a means of avoiding expropriation. Land consolidation is also on the whole judged not to have been progressive in its redistributive impact given that richer farmers tend to use their power to obtain improved holdings. There is a considerable variation in overall land reform activity across states with states such as Uttar Pradesh, Kerala and Tamil Nadu having a lot of activity while Punjab and Rajasthan have very little.
POLICIES FOR AGRICULTURAL AND RURAL DEVELOPMENT: AN OVERVIEW
Important policy measures introduced in the rural sector in India during the period of planning are as follows:
Technological measures: Initiation of measure to increase agricultural production substantially to meet the growing needs of the population and also to provide a base for industrial development. It included steps to increase both extensive cultivation and intensive cultivation. For the former, irrigation facilities were provided to a large area on an increasing basis and area hitherto unfit for cultivation was made fit for cultivation. For the latter, new agricultural strategy was introduced in the form of a package programme in selected regions of the country in 1966. To sustain and extend this programme to larger and larger areas of the country, steps were initiated to increase the production of high-yielding varieties of seeds, fertilisers and pesticides within the economy and supplement domestic production by imports whenever necessary. Food grains production which was merely 50.8 million tonnes in 1950-51 rose to the record level of 252.6 million tonnes in 2011-12.
Land reforms: Land reform measures to abolish intermediary interests in land. Measures taken under this head included: (i) Abolition of intermediaries; (ii) Tenancy reforms to (a) regulate rents paid by tenants to landlords, (b) provide security of tenure to tenants, and (c) confer ownership rights on tenants; and (iii) Imposition of ceilings on holdings in a bid to procure land for distribution among landless labourers and marginal farmers.
Cooperation and consolidation of holdings: In a bid to reorganise agriculture and prevent subdivision and fragmentation of holdings, the Indian agricultural policy introduced the programmes of co-operation and consolidation of holdings. The latter programme aimed at consolidating all plots of land owned by a particular farmer in different places of the village by sanctioning him land at one place equal in area (or value) to his plots of land.
Institutions involving people's participation in planning: Bringing small and marginal farmers together to cultivate jointly is only half of the story. It was precisely with this end in view that the Programme of Community Development was initiated in 1952 in this country. Another programme designed to encourage the participation of masses in the planning process (and political decision- making) was the programme of democratic decentralisation, often known as Panchayati Raj.
Institutional credit: A National Bank for Agriculture and Rural Development (NABARD) was also set up. As a result of the expansion of institutional credit facilities to farmers, the
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importance of moneylenders has declined steeply and so has the exploitation of farmers at the hands of moneylenders.
Procurement and support prices: To provide remunerative prices to the farmers
Input subsidies to agriculture: The government has provided massive subsidies to farmers on agricultural inputs like irrigation, fertilisers and power.
Food security system: In a bid to provide food grains and other essential goods to consumers at cheap and subsidised rates, the Government of India has built up an elaborate food security system in the form of Public Distribution System (PDS) during the planning period.
Rural employment programmes: The government introduced various poverty alleviation programmes particularly from Fourth Plan onwards like Small Farmers Development Agency (SFDA), Marginal Farmers and Agricultural Labour Development Agency (MFAL), National Rural Employment Programme (NREP), Rural Landless Employment Guarantee Programme (RLEGP), Jawahar Rojgar Yojana (JRY) , Jawahar Gram Samridhi Yojana (JGSY), Sampoorna Grameen Rozgar Yojana (SGRY), National Food for Work Programme (NFFWP), Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), etc.
Rashtriya Krishi Vikas Yojana (RKVY): The RKVY was launched in 2007-08 with an outlay of Rs. 25,000 crore in the Eleventh Plan for incentivising States to enhance public investment to achieve 4 per cent growth rate in agriculture and allied sectors during the Eleventh Five Year Plan period. The RKVY format permits taking up national priorities as sub-schemes, allowing the States flexibility in project selection and implementation. The sub- schemes include: Bringing Green Revolution to Eastern India (BGREI); Integrated Development of 60,000 pulses villages in Rain fed Areas; Promotion of Oil Palm; Initiative on Vegetable Clusters; Nutri-cereals; National Mission for Protein Supplements; Accelerated Fodder Development Programme; and Saffron Mission.
National Food Security Mission (NFSM). The NFSM is a crop development scheme of the Government of India that aims at restoring soil health and achieving additional production of 10, 8 and 2 million tonnes of rice wheat and pulses, respectively by the end of 2011-12. It was launched in August 2007 with an approved outlay of Rs. 4,883 crore for the period 2007-08 to 2011-12. The Mission has focused on the Districts with productivity of wheat/rice below the State average.
Macro Management of Agriculture. Macro Management of Agriculture (MMA) is one of the centrally sponsored scheme formulated in 2000-01 with the objective to ensure that Central assistance is spent through focused and specific interventions for development of agriculture in States. To begin with, the scheme initially consisted of 27 Centrally sponsored schemes relating to Cooperative Crop Production Programmes (for rice, wheat, coarse cereals, jute, sugarcane), Watershed Development Programme (National Watershed Development Project for Rain fed Areas, River Valley Projects/Flood Prone Rivers),
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Horticulture Fertiliser, Mechanisation and Seed Production Programmes. With the launching of National Horticulture Mission (NHM) in 2005-06, 10 schemes pertaining to horticulture development were taken out of purview of this scheme. In the year 2008-09, Macro Management of Agriculture Scheme was revised to improve its efficacy in supplementing/complementing efforts of States towards enhancement of agricultural production and productivity
In an effort to extend green revolution to the Eastern Region of the country and develop dry land areas, the Seventh Five Year Plan introduced two specific programmes:
Special Rice Production Programme, and National Watershed Development Programme for Rain fed Agriculture.
To increase the production of oil seeds to reduce imports and achieve self-sufficiency in edible oils, the Technology Mission on oilseeds was launched by the Central government in 1986. Subsequently, pulses, oil palm and maize were brought within purview of the Mission in 1990- 91, 1992 and 1995-96, respectively.
An Accelerated Irrigation Benefit Programme (AIBP) was launched during 1996-97 to give loan assistance to the States to help them complete some of the incomplete projects. Rs. 50,381 crore had been released under AIBP as Central Loan Assistance/grant during 1996-97 to November 31, 2011.
To meet the demand for bringing in more crops into the purview of crop insurance, extending its scope to cover all farmers (both loanee and non-loanee) and lowering the unit area of insurance, the government introduced 'National Agriculture Insurance Scheme (NAIS), in the country from Rabi 1999-2000. The scheme envisages coverage of all the food crops (cereals and pulses), oilseeds and annual horticultural/commercial crops, in respect of which yield data are available for adequate number of years. With the aim of further improving crop insurance schemes, the modified NAIS (MNAIS) is under implementation on pilot basis in 50 districts in the country from Rabi 2010-11 seasons. Some of the major improvements made in the MNAIS are - actuarial premium with subsidy in premium at different rates; all claims liability to be on the insurer; unit area of insurance reduced to village panchayat level for major crops; indemnity for prevented/sowing/ planting risk and for post harvest losses due to cyclone; on account payment of up to 25 per cent advance of likely claims as immediate relief; more proficient basis for calculation of threshold yield; and allowing private sector insurers with adequate infrastructure.
To facilitate access to short-term credit by farmers, a Kisan Credit Card (KCC) scheme was introduced in 1998-99. The scheme has gained popularity and its implementation has been taken up by 27 commercial banks, 378 District Central Cooperative Banks/State Cooperative Banks and 196 Regional Rural Banks throughout the country.
The access to credit for the poor from conventional banking is often constrained by lack of collaterals, information asymmetry and high transaction costs associated with small
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borrowal accounts. To bring these people within the purview of the organised financial sector, microfinance schemes are assuming increasing importance. Based on the model of the Grameena Bank developed originally in Bangladesh, National Bank for Agriculture and Rural Development (NABARD) in India has been engaged in the task of linking up of self-help groups (SHGs) with the formal credit agencies since 1991-92
In view of the critical importance of rural infrastructure and the lacklustre growth in agricultural investment in the past, concerns were raised about the country's ability to increase production. Consequently, an initiative for setting up of an independent fund called the Rural Infrastructure Development Fund (RIDF) within National Bank for Agriculture and Rural Development (NABARD) was taken in the Union Budget of 1995-96. The corpus of RIDF-I was kept at Rs. 2,000 crore. The successive Budgets have continued with the RIDF scheme.
In addition to RIDF, another important initiative for building up rural infrastructure was the announcement of the Bharat Nirman Programme in 2005. This programme covers six components of infrastructure: irrigation, rural roads, rural housing, rural water supply, rural electrification and rural telephony. The targets are as under: (a) irrigation - to create 10 million hectares of additional irrigation capacity; (b) rural roads - to connect all 'habitations (66,802) with population above 1,000 (500 in hilly/tribal areas) with all weather roads; (c) rural housing - to construct 60 lakh houses for rural poor; (d) rural water supply - to provide potable water to all uncovered habitations (55,067) and also address slipped back and water quality affected habitations; (e) rural electrification - to provide electricity to all un-electrified villages (1,25,000) and to connect 23 million households below the poverty line; and (f) rural telephones - to connect all remaining villages (66,822) with a public telephone.
AGRICULTURE: TRENDS IN INVESTMENT
As the economy of a backward country develops, the GDP share in primary sector declines. Accordingly, the contribution of agriculture to GDP declines. This is borne out by Indian data also as the share of agriculture and allied activities in GDP at factor cost has registered a fall from 55.3 per cent in 1950-51 (at 1999-2000 prices) to only 14.4 per cent in 2010-11 (at 2004-05 prices). While in 1951, 69.5 per cent of the working population was engaged in agriculture, now approximately 52 per cent of the working population is engaged in agriculture. Less investment in agriculture would mean less growth of infra structural facilities like irrigation, rural roads, market, power, cold storage, etc., and this would, in turn, affect agricultural growth adversely.
1. Total investment in agriculture was Rs. 14,836 crore in 1990-91 which rose to Rs. 17,304 crore in 1999-2000 (at 1993-94 prices). At 2004-05 prices, total investment in agriculture was Rs. 76,096 crore in 2004-05 and Rs. 1, 33, 377 crore in 2009-10.
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2. As far as public sector investment in agriculture is concerned, it was Rs. 4,395 crore in 1990-91 and Rs. 4,221 crore in 1999-2000 (at 1993-94 prices). In percentage terms, this meant a fall in the share of public investment in total investment in agriculture from about 30 per cent to less than 25 per cent.
3. Gross Capital Formation in Agriculture (GCFA) was 9.9 per cent of total GCF in 1990-91 and this fell drastically to only 3.5 per cent in 1999-2000 in terms of 1993-94 prices. This poor investment in agriculture is one of the main causes of slow growth in agriculture in recent years.
INCREASING SUBSIDIES REDUCE CAPITAL FORMATION
The most important cause for the decline in public investment in agriculture is the diversion of resources from investment to current expenditure. A large portion of public expenditure on agriculture in recent years went into current expenditure in the form of increased subsidies for food and agricultural inputs. For example, food subsidy increased from Rs. 7,500 crore in 1997-98 to Rs. 67,199 crore in 2011- 12. Not only is the high level of subsidies fiscally unsustainable, under-pricing of inputs is a major cause of indiscriminate and wasteful use of these inputs, raising the costs of production and contributing to degradation of land, pollution of water resources and over-exploitation of groundwater.
AGRICULTURAL GROWTH CONCERNS
Important concerns regarding agricultural growth are as follows:
1. While the rate of growth in the agriculture sector has always been less than the overall growth rate of the economy, the gap between the growth of agriculture and non-agriculture sector began to widen since 1981-82, because of acceleration in the growth of industry and service sectors.
2. There has been a serious set-back to agriculture during the period of Ninth and Tenth Plans with the rate of growth in this sector decelerating to less than 2.5 per cent per annum.
3. The increasing gap between the agriculture and non-agriculture sectors was most prominent during the Tenth Plan. While the overall GDP increased at the rate of 7.8 per cent per annum, the agriculture sector registered a rate of growth of only 2.3 per cent per annum.
AGRICULTURE INPUTS AND GREEN REVOLUTION
IRRIGATION
Increase in agricultural production and productivity depends, to a large extent, on the availability of water, hence the importance of irrigation. However, the availability of irrigation
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facilities is highly inadequate in India. For example, in 1950-51, gross irrigated area as percentage of gross cropped area was only 17 per cent. Despite massive investments on irrigation projects over the period of planning, gross irrigated area as percentage of gross cropped area was only 45.3 per cent in 2009-10 (88.42 million hectares out of 195.10 million hectares). Thus, even now almost 55 per cent of gross cropped area depends on rains. That is why Indian agriculture is called 'a gamble in the monsoons'.
Reasons for the importance of Irrigation in the Indian context
Insufficient, uncertain and irregular rains.
Higher productivity on irrigated land.
Multiple cropping possible.
Role in new agricultural strategy: The successful implementation of the High-Yielding Varieties Programme depends, to a large extent, on the timely availability of ample water supply.
Bringing more land under cultivation: The total reporting area for land utilisation statistics was 305.69 million hectares in 2008-09. Of this, 17.02 million hectares was barren and unculturable land, 10.32 million hectares fallow land other than current fallows, while 14.54 million hectares was current fallow lands. Cultivation on all such lands is impossible in some cases while in others it requires substantial capital investment to make land fit for cultivation.
Reduces instability in output levels: Irrigation helps in stabilising the output and yield levels. A study carried out for 11 major States over the period 1971-84 revealed that the degree of instability in agricultural output in irrigated areas was less than half of that in unirrigated areas.
Indirect benefits of irrigation: Irrigation confers indirect benefits through increased agricultural production. Employment potential of irrigated lands increases, increased production helps in developing allied activities, means of water transport are improved, income of government from agriculture increases, etc.
IRRIGATION POTENTIAL AND SOURCES OF IRRIGATION
India has vastly increased its irrigation potential after Independence. It increased from 22.6 million hectares in 1950-51 to 102.8 million hectares in 2006-07 which implies an increase of 35.5 per cent. Sources of irrigation in India can be divided into the following:
(i) Canals, (ii) Wells, (iii) Tanks, and (iv) Others
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Approximately 26.3 per cent of the irrigated areas in India are watered by canals. This includes large areas of land in Punjab, Haryana, Uttar Pradesh, Bihar and parts of southern States. Taken together, canals and wells watered 87.3 per cent of net irrigated area in 2008-09. Tank irrigation is resorted to mostly in Tamil Nadu, Andhra Pradesh and parts of West Bengal and Bihar.
SOME PROBLEMS RELATED TO IRRIGATION
1. Delays in completion of Projects.
2. Inter-State water disputes.
3. Regional disparities in irrigation development.
4. Water logging and salinity: Introduction of irrigation has led to the problems of water logging and salinity in some of the States. The Working Group constituted by the Ministry of Water Resources in 1991 estimated that about 2.46 million hectares in irrigated commands suffered from water logging.
5. Increasing costs of irrigation: The factors contributing to increase in costs have beep 'the following: (i) non-availability of comparatively better sites for construction in earlier plans; (ii) inadequate preparatory survey and investigations leading to substantial modification in scope and design during construction; (iii) the tendency to start far too many projects that can be accommodated within the funds available for irrigation; (iv) larger provision for measures to rehabilitate people as well as for preservation of environment and ecology; and (v) adoption of more sophisticated but expensive criteria for irrigation project planning in conformity with requirements of external aid agencies.
6. Losses in operating irrigation projects: The water charges have been kept too low to cover even working expenses, not to speak of depreciation charges and contributing even a moderate return on the investments.
7. Ageing of infrastructure and increased siltation: Almost 60 per cent of the total dams of the country are more than two decades old. Canal networks also need annual maintenance.
8. Tail-ender deprivation: Farmers who have land at the end of the canal system are called tail-enders. Many of them get neither enough nor timely water.
9. Decline in water table: There has been a steady decline in water table in the recent period in several parts of the country, especially in the western dry region, on account of overexploitation of groundwater and insufficient recharge from rainwater.
10. Wastages and inefficiencies in water use.
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FERTILISERS
Indian farmers use only one tenth the amount of manure that is necessary to maintain the productivity of soil. Indian soil is deficient in nitrogen and phosphorus and this deficiency can be made good by an increased use of fertilizers. Since possibilities of extensive cultivation are extremely limited because most of the cultivable area is already being cultivated, there is no option but to extend intensive cultivation in more and more areas by using larger quantities of fertilizers.
CONSUMPTION, PRODUCTION AND IMPORT OF FERTILISERS
The production of fertilisers has increased by leaps and rounds in the post-Independence period. For instance, from 98 thousand tonnes in 1960-61, production of nitrogenous fertilisers shot up to 12,156 thousand tonnes in 2010-11. The production of phosphatic fertilisers rose from 52 thousand tonnes in 1960-61 to 4,222 thousand tonnes in 2010-11. Adding the production and import figures for nitrogenous, phosphatic and potassic fertilisers, we find that the availability of fertilisers in the economy rose from 569 thousand tonnes in 1960-61 to 1,688 thousand tonnes in 1970-71 and further to 28,741 thousand tonnes in 2010- 11. In 2010-11 the imports stood at 12,363 thousand tonnes which was 44.0 per cent of total consumption. As far as the consumption of fertilisers is concerned, it was a meagre 66,000 tonnes in 1952-53. The advent of the HYVP in 1966 completely changed the picture and consumption of fertilisers shot up substantially. For instance, in 1990-1991 it rose to 125.46 lakh tonnes and in 2010-11 stood at 281.22 lakh tonnes. It is generally admitted that increased use of fertilizers can add substantially to food grains production. For instance, it has been estimated that even an increase in fertilizer consumption of 40 to 60 kgs per hectare can yield an additional 30 to 45 million tonnes of food grains.
HIGH-YIELDING VARIETIES OF SEEDS
Under the new agricultural strategy, special emphasis has been placed on the development and widespread adoption of high-yielding varieties of seeds. Though the government had been paying attention to induce qualitative improvements in seeds ever since the initiation of planning process in the country, yet the real impetus to these efforts were given by the adoption of the new agricultural strategy in the kharif season of 1966. In Mexico, Prof. Norman BorIaug and his associates developed new varieties of wheat which were early-maturing, highly productive and disease resistant during the mid-1960s and these varieties were imported and planted in selected regions of India having adequate irrigation facilities. Within a year of their introduction, it was conclusively demonstrated that the yields from the new varieties exceeded 25 to 100 per cent compared to the yields from traditional varieties. The Seventh Plan kept a target of 70 million hectares for coverage in area under HYV. As against this, the actual area under HYV by the end of Seventh Plan was only 63.1 million hectares. In 1998-99, the coverage rose to 78.4 million hectares.
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Production of improved seeds and especially high- yielding varieties of seeds was encouraged on the farms of the Centre and the State governments and by registered seed growers. Side by side, Indian Council of Agricultural Research, Punjab Agricultural University at Ludhiana, G.B. Pant Agricultural University at Pantnagar and several other research institutes were engaged in the task of developing new hybrid varieties suitable to Indian conditions and in adopting imported varieties to Indian requirements. While in selected regions of the country Mexican varieties of wheat like Lerma Rojo-64-A and Sonara 64 were directly introduced in the initial period, considerable attention was later given to hybridisation of Mexican material with Indian varieties. Introduction of such high-yielding varieties of wheat depends crucially on the availability of fertilisers, adequate water supply, pesticides and insecticides. Therefore they have to be launched in the form of a 'Package Programme'. Because of their dependence on irrigation, they could be adopted only in areas having proper irrigation facilities. Indian seed programme includes the participation of Central and State Governments, ICAR, State Agriculture Universities, public sector, cooperative sector and private sector institutions.
Seed sector in India consists of two national level corporations, i.e., National Seeds Corporation (NSC) and State Farms Corporation of India (SFCI), 13 State Seed Corporations (SSCs) and about 100 major private sector seed companies. For quality control and certification, there are 22 State Seed Certification Agencies (SSCAs) and 101 State Seed Testing Laboratories (SSTLs). Though the private sector has started to play a significant role in the production and distribution of seeds particularly after the introduction of the New Seed Policy of 1988, the organised seed sector particularly for food crops and cereals continues to be dominated by the public sector. As far as the distribution of certified/quality seeds is concerned, it increased from 25 lakh quintals in 1980-81 to 277.3 lakh quintals in 2010-11. Unfortunately, the seeds revolution of 1960s and 1970s appears to have tapered off after encompassing only the cereal segment. Improved seeds technology continues to elude vital segments of the farm economy such as pulses, oilseeds, fruits and vegetables. As a result, the country has to import nearly 2 million tonnes of edible oils and about a million tonnes of pulses every year so as to meet the domestic demand. In the above context, the National Seeds Policy 2001 provides the framework for growth of the Seed Sector. It seeks to provide the farmers with a wide range of superior quality seed varieties and planting materials.
PESTICIDES
Pesticide is defined as any substance or 'mixture of substances, intended for preventing, destroying or controlling any pest including vectors of human or animal diseases, unwanted species of plants and animals. Pesticides are classified according to their use and kinds of applications as insecticides, fungicides, herbicides and, other pesticides. Insecticides account for the major share of pesticides consumption in India that includes both preventive treatments, which are applied before infestation levels are known, and intervention treatments, which are based on monitored infestation levels and expected crop damages. The use of pesticides in Indian agriculture was negligible in early 1950s with only 100 tonnes of pesticides being consumed at the beginning of the First Five Year Plan. Consumption of
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pesticides (technical grade material) stood at 55.54 thousand tonnes in 2010-11. However, there are vast inter-State differences in the level of consumption of pesticides.
EFFECTS OF PESTICIDES
In recent times (particularly during the last two decades), increasing attention has been drawn to the health hazards and environmental problems that are caused by the unabated use of pesticides. Health hazards are both direct and indirect.
Another problem with the use of pesticides is that the targeted pests develop resistance towards them. As a result, higher and higher doses of more and more toxic chemicals have to be applied. Use of fertilisers and pesticides brings about physiological changes in plants leading to multiplication and proliferation of several pests. It is also important to note that pesticides application needs a scientific approach and Integrated Pest Management On account of the above reasons, what is now advocated is not just pest extermination but economical utilisation of pesticidal chemicals with least ecological damages. The main facets of the plant protection system currently in use are the following three - pest and disease control through Integrated Pest Management (IPM) schemes, locust surveillance and control, and plant and seed quarantine. Integrated Pest Management includes pest monitoring, promotion of biological control of pests, organising demonstration, training and awareness of IPM technology. The IPM technology encourages the use of safer pesticides including botanicals (neem based) and bio-pesticides.
GREEN REVOLUTION
A team of experts sponsored by the Ford Foundation was invited by the Government of India in the latter half of the Second Five Year Plan to suggest ways and means to increase agricultural production and productivity. On the basis of the recommendations of this team, the government introduced an intensive development programme in seven districts selected from seven States in 1960 and this programme was named Intensive Area Development Programme (IADP). The period of mid-1960s was very significant from the point of view of agriculture. New high-yielding varieties of wheat were developed in Mexico by Prof. Norman Borlaug and his associates and adopted by a number of countries. Because of the promise of increasing agricultural production and productivity held by the new varieties of seeds, countries of South and South-East Asia started adopting them on an extensive scale. This new 'agricultural strategy' was put into practice for the first time in India in the kharif season of 1966 and was termed High- Yielding Varieties Programme (HYVP). This programme was introduced in the form of a package programme since it depended crucially on regular and adequate irrigation, fertilizers, high-yielding varieties of seeds, pesticides and insecticides.
IMPACT OF GREEN REVOLUTION
Increase in Production and Productivity
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HYVP was restricted to only five crops - wheat, rice, jowar, bajra and maize. Therefore, non-foodgrains were excluded from the ambit of the new strategy. That wheat has remained the mainstay of the Green Revolution over the years.
Deceleration in Agricultural Growth Rates in the Reform Period: After registering impressive performance during 1980s, the agricultural growth decelerated in the economic reform period (commencing in 1991). As is clear, the rate of growth of production of foodgrains fell from 2.9 per cent per annum in 1980s to 2.0 per cent per annum in 1990s and stood at 2.1 per cent per annum in first decade of the present century The period since 1991, therefore, emerges as a kind of watershed in time when growth in Indian agriculture, resurgent from the middle 1960s, was arrested. 23
Causes of Deceleration in Agricultural Growth: The main reasons for the deceleration in agricultural growth in the post-reform period have been:
Significant deceleration in the public and overall investment in agriculture,
Shrinking farm size,
Failure to evolve new technologies,
Inadequate irrigation cover,
Inadequate use of technology,
Unbalanced use of inputs,
Decline in plan outlay, and
Weaknesses in credit delivery system.
REGIONAL DISPERSAL OF GREEN REVOLUTION AND REGIONAL INEQUALITIES
HYVP was initiated on a small area of 1.89 million hectares in 1966-67 and even in 1998-99 it covered 78.4 million hectares which is only about 40 per cent of the gross cropped area. Naturally, the benefits of the new technology remained concentrated in this area only. Moreover, since green revolution remained limited to wheat for a number of years, its benefits mostly accrued to areas growing wheat.
1. Interpersonal Inequalities: There seems to be a general consensus that in the early period of the green revolution, large farmers benefited much more from new technology as compared with the small and marginal farmers. This was not unexpected as the new technology called for substantial investments which were generally beyond the means of a majority of this country's small and marginal farmers. Larger farmers have continued to make greater absolute gains in income because of lower costs per acre and by reinvesting earnings in non-farm and farm assets, including purchase of land from the smaller cultivators who could not make the transition to the new technology.
2. The Question of Labour Absorption: Although there is difference of opinion amongst economists regarding the effects of new agricultural strategy on interpersonal inequalities and real wages of agricultural labourers, there is a general consensus that the adoption of new technology has reduced labour absorption in agriculture.
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In recent years, a significant development in the pattern of rural labour absorption has been a shift away from crop production and into rural non-farm activities like agro-processing industries and other rural industries.
3. Undesirable Social Consequences: Some micro level socio-economic studies of green revolution areas have revealed certain undesirable social consequences of the green revolution. Many large farmers have evicted tenants as they now find it more profitable to cultivate land themselves. Wet lands have also attracted outsiders invest capital in buying farms. Because of these tendencies "the polarisation process that accentuates the rural class differences has been further intensified by the green revolution." Health hazards of the new technology can also not be lost sight of. The agricultural work in green revolution areas has been rendered even more injurious by the increasing use of poisonous chemical sprays for plant protection on a large scale.
4. Change in Attitudes: A healthy contribution of green revolution is the change in the attitudes of farmers in areas where the new agricultural strategy was practised. Increase in productivity in these areas has enhanced the status of agriculture from a low level subsistence activity to a money-making activity. The Indian farmer has shown his willingness to accept technical change in the pursuit of profit thus nullifying the age-long criticism against him that he is backward, traditional and unresponsive to the price and productivity incentives.
AGRICULTURAL FINANCE
Credit needs of the farmers can be examined from two different angles –
(i) On the basis of time, and (ii) On the basis of purpose.
On the basis of time: Agricultural credit needs of the farmers can be classified into three categories on the basis of time –
(i) Short-term, (ii) Medium-term, and (iii) Long-term.
Short-term loans are required for the purchase of seeds, fertilisers, pesticides, feeds and fodder of livestock, marketing of agricultural produce, payment of wages of hired labour, litigation, and a variety of consumption and unproductive purposes. The period of such loans is less than 15 months. Main agencies for granting of short-term loans are the moneylenders and cooperative societies. Medium-term loans are generally obtained for the purchase of cattle, small agricultural implements, repair and construction of wells, etc. The period of such loans extends from 15 months to 5 years. These loans are generally provided by moneylenders, relatives of farmers, cooperative societies and commercial banks. Long-term loans are required for effecting permanent improvements on land, digging tube wells, purchase of larger
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agricultural implements and machinery like tractors, harvesters, etc., and repayment of old debts. The period of such loans extends beyond 5 years. Such loans are normally taken from Primary Cooperative Agricultural and Rural Development Banks (PCARDBs).
On the basis of purpose: Agricultural credit needs of the farmers can be classified on the basis of purpose into the following categories –
(i) Productive, (ii) Consumption needs, and (iii) Unproductive.
Under Productive needs- we can include all credit requirements which directly affect agricultural productivity. Farmers often require loans for consumption as well. Between the moment of marketing of agricultural produce and harvesting of the next crop there is a long interval of time and most of the farmers do not have sufficient income to sustain them through this period. Therefore, they have to take loans for meeting their consumption needs. In the time of droughts or floods, the crop is considerably damaged and farmers who otherwise avoid- taking loans for consumption, have also to incur such loans. Institutional credit agencies do not provide loans for consumption purposes. Accordingly, farmers are forced to fall back upon moneylenders and mahajans to meet such requirements. In addition to consumption, farmers also require loans for a multiplicity of other Unproductive purposes such as litigation, performance of marriages, social ceremonies on the birth or death of a family member, religious functions, festivals, etc.
SOURCES OF AGRICULTURAL FINANCE AND THEIR RELATIVE IMPORTANCE
Non-institutional and Institutional Sources
Sources of agricultural finance can be divided into two categories:
Non-institutional sources, and
Institutional sources.
The non-institutional sources are the following –
i. moneylenders, ii. relatives,
iii. traders, iv. commission agents, and v. landlords.
The institutional sources comprise the
i. cooperatives, ii. Scheduled Commercial Banks and iii. Regional Rural Banks (RRBs).
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As far as cooperatives are concerned, the Primary Agricultural Credit Societies (PACSs) provide mainly short and medium-term loans and PCARDBs long-term loans to agriculture. The commercial banks, including RRBs, provide both short and medium-term loans for agriculture and allied activities. The National Bank for Agriculture and Rural Development (NABARD) is the apex institution at the national level for agricultural credit and provides refinance assistance to the agencies mentioned above. At the time of Independence, the most important source of agricultural credit was the moneylenders.
As far as institutional sources are concerned, the first institution established and promoted was the institution of cooperative credit socieities. The Cooperative movement in this country was started as far back as 1904. However, its development was very slow. Even in 1951, cooperatives provided only 3.1 per cent of total rural credit. Hence, the dominance of moneylenders in agricultural credit continued.
Thus, by the end of 1976, there emerged three separate institutions for providing rural credit, which is often described as the multi-agency approach. In 1982, NABARD was set up.
As a result of the efforts undertaken by the government to develop the institutional sources of credit, the role of non-institutional sources like moneylenders in agricultural credit declined considerably.
More significantly, the share of moneylenders fell from 71.6 per cent in 1951 to merely 17.5 per cent in 1991 (though it rose to 26.8 per cent in 2002). The share of institutional sources in rural credit rose correspondingly from only 7.3 per cent in 1951 to 31.7 per cent in 1971 and further to 66.3 per cent in 1991 (in 2002, it fell to 61.1 per cent).2
To suggest measures to increase agricultural credit, the Reserve Bank constituted an "Advisory Committee on Flow of Credit to Agriculture and Related Activities from the Banking System" under the chairmanship of V.S. Vyas. This Committee submitted its final report in 2004. The Committee gave 99 recommendations of which 32 were accepted and implemented by the Reserve Bank. Some of the major recommendations were:
1. A review of mandatory lending to agriculture by commercial banks to enlarge direct lending programmes;
2. Public and private sector banks to increase their direct agricultural lending to 12 per cent of net bank credit in the next two years and to 13.5 per cent two years thereafter, within the overall limit of 18 per cent of total agricultural lending;
3. Banks to increase their disbursements to small and marginal farmers under Special Agricultural Credit Plan (SACP) by the end of the Tenth Plan Period to 40 per cent;
4. Reduction in cost of agricultural credit by enhanching the cost-effectiveness of agricultural loans;
5. Credit flow to small borrowers to be improved through reduction in cost of borrowing, revolving credit packages, procedural simplification, involvement of Panchayati Raj institutions and microfinance, etc.
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COOPERATIVE CREDIT: AN EVALUATION
The major deficiencies in the working of the cooperative societies are as follows:
1. The essence or basic features of cooperative banking system must be a larger reliance on resources mobilised locally and a lesser and lesser dependence on higher credit institutions. However, many PACSs are at present dependent on CCBs and have failed miserably in mobilising rural savings. Heavy dependence on outside funds has, on the one hand, made the members less vigilant, not treating these funds as their own and on the other led to greater outside interference and control. Overall, this has made the cooperatives a "mediocre, inefficient and static system".
2. The cooperative credit institutions are plagued by the problem of high level of overdues. These overdues have clogged the process of credit recycling since they have substantially reduced the capacity of cooperatives to grant loans.
3. The rural cooperative institutions have a high level of NPAs (non-performing assets).
4. A large number of rural cooperative credit institutions have incurred substantial losses.
5. PACS is the most important link in the short-term cooperative credit structure. However, most of them are too small in size to be economical and viable. Besides, several of them are also dormant while some are defunct.
6. Because of their strong socio-economic position and grip over the rural economy, large landowners have cornered greater benefits from cooperatives. This is the opposite of what the planners intended.
7. There are considerable regional disparities in the distribution of credit by cooperative societies with the six States (Gujarat, Maharashtra, Karnataka, Kerala, Punjab and Tamil Nadu) accounting for 70 per cent of the short- term loans provided by the PACSs as at end-March 2010.
8. The powers which vest in the government under the cooperative law and rules are all-pervasive. Over the years, State has come to gain almost total financial and administrative control over the cooperatives, in the process stifling their growth. Instead of strengthening the base, a weak base was vastly expanded as per plan targets and an immense governmental and semi-governmental superstructure was created.
OPERATIONS OF COMMERCIAL BANKS: A CRITICAL REVIEW
1. The fast increase in bank credit to rural areas after nationalisation has created strains in the system due to rapid expansion and diversification. One of the problems of such rapid expansion has been the deterioration in the quality of scheme preparation, particularly under the anti-poverty programmes.
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2. The commercial banks have found sanctioning and monitoring of a large number of small advances in their rural branches, time-consuming and manpower intensive and consequently a high cost proposition.
3. Opening of a large number of branches in rural areas which do not have adequate business potential, rise in establishment expenses, and increase in non-performing advances affected the profitability of the banks adversely.
4. The recovery position of the commercial banks is bad.
5. The commercial banks have failed to fill the geographical gap in the availability of credit not covered by the cooperatives. They have also tended to serve those areas which were already well served by the cooperatives.
6. The credit-deposit ratio is an important indicator of the degree of involvement of banks in lending. The rural credit-deposit ratio declined from 1.58 per cent in 1991 to 0.73 per cent in 2001 which shows that deposits mobilised from rural India were being utilised elsewhere.
7. Loan disbursal to small and marginal farmers decelerated sharply in the 1990s. The option provided to the commercial banks to meet priority sector lending targets by investing in RIDF (Rural Infrastructure Development Fund) and placing deposits with SIDBI (Small Industries Development Bank of India) reduced the rate of growth of direct finance to small and marginal farmers.
8. The problem of coordination not only between one commercial bank and another but also between commercial banks and the cooperative credit structure, on the one hand, and between banks and the Government departments, on the other, has assumed serious dimensions.
PROBLEMS OF RRBS
1. Organisational Problems. Each RRB is sponsored by a commercial bank. The Central Government and the concerned State government also contribute to its capital. Thus there is a multi-agency control of RRBs. This has contributed to a lack of uniformity in their functioning. Besides, it has resulted in lack of support from State governments and lack of proper monitoring by sponsor banks. Second, inherent in the concept of RRB. is the constraint of restricted area of operation and restricted clientele, i.e., specific target groups. Third, there has been a lack of proper systems and procedures within the institutions of RRBs, which could have avoided or minimised the scope for overdues right from the start. Fourth, the process of recruitment and training of RRB staff has not received adequate attention.
2. Problems of Recovery. For a number of years, the recovery position of RRBs was very bad and their recovery varied between 51 per cent to 61 per cent.
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3. Mounting Losses Leading to Non-viability.
4. Management Problems. Since the RRBs are district level small institutions, the sponsor banks have been deputing only middle-management staff to run them. Such staff finds it difficult to take independent decisions in a new environment.
NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD)
Functions of NABARD
NABARD was established as a development bank to perform the following functions:
1. To serve as an apex financing agency for the institutions providing investment and production credit for promoting various developmental activities in rural areas;
2. To take measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions and training of personnel;
3. To coordinate the rural financing activities of all institutions engaged in developmental work at the field level and liaison with the Government of India, the State Governments, the Reserve Bank and other national level institutions concerned with policy formulation; and
4. To undertake monitoring and evaluation of projects refinanced by it.
STEPS FOR FINANCIAL INCLUSION
1. Expansion of Public Sector Banks' Network. 2. Revitalisation of Rural Cooperative Sector.
AGRICULTURAL MARKETING IN INDIA
For a long period of time Indian agriculture was mostly in the nature of 'subsistence farming'. The farmer sold/only a small part of his produce to pay-off rents, debts and meet his other requirements. Such sale was usually done immediately after harvesting of crops since there were no storing facilities. A considerable part of the total produce was sold by the farmers to the village traders and moneylenders often at prices considerably lower than the market prices. The farmers who took their produce to the mandies (wholesale markets) also faced a number of problems as they were confronted with powerful and organised traders. In mandies, business was carried out by arhatiyas with the help of brokers, who were the agents of arhatiyas. In fact, there was a large chain of middlemen in the agricultural marketing system like village traders, kutcha arhatiyas, pucca arhatiyas, brokers, wholesale, retailers, moneylenders, etc. As a result, the share of farmers in the price of agricultural produce was reduced substantially.
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In addition to the above defects in the agricultural marketing system in India - presence of a large number of middlemen and widespread prevalence of malpractices in the mandies - there were a number of other problems as well.
Transportation facilities were also highly inadequate and only a small number of villages were joined by railways and pucca roads to mandies. Most of the roads were kutcha roads not fit for motor vehicles and the produce was carried on slow moving transport vehicles like bullock-carts.
GOVERNMENT MEASURES TO IMPROVE THE SYSTEM OF AGRICULTURAL MARKETING
After Independence, the Government of India adopted a number of measures to improve the system of agricultural marketing, the important ones being establishment of regulated markets, construction of warehouses, provision for grading and standardisation of produce, standardisation of weights and measures, daily broadcasting of market prices of agricultural crops on All India Radio, improvement of transport facilities, etc.
1. Organisation of Regulated Markets: Regulated markets have been organised with a view to protect the farmers from the malpractices of sellers and brokers. The management of such markets is done by a Market Committee which has nominees of the State Government, local bodies, arhatiyas, brokers and farmers. Thus, all interests are represented on the committee. These committees are appointed by the government for a specified period of time. Most of the States and Union Territory governments have enacted legislations (Agriculture Produce Marketing Committee Act) to provide for regulation of agricultural produce markets. There are 7,157 regulated markets in the country as on March 31, 2010.
2. Grading and Standardisation : Improvements in agricultural marketing system cannot be expected unless specific attempts at grading and standardisation of the agricultural produce are made. The government recognised this quite early and the Agricultural Produce (Grading and Marketing) Act was passed in 1937. Initially grading was introduced for saun, hemp and tobacco. The government set up a Central Quality Control Laboratory at Nagpur and a number of regional subsidiary quality control laboratories. Samples of important products are obtained from the market and their physical and chemical properties are analysed in these laboratories. On these bases, grades are drawn up and authorised packers are issued AGMARK seals (AGMARK is simply an abbreviation for Agricultural Marketing).
3. Use of Standard Weights 4. Godown and Storage Facilities 5. Dissemination of Market Information 6. Government Purchases and Fixation of Support Prices
WEAKNESSES IN AGRICULTURAL MARKETING
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According to the Eleventh Five Year Plan, the regulated markets lack even basic infrastructure at many places. When the Agriculture Produce Marketing (Regulation) Acts were first initiated, there were significant gains in market infrastructure development. However, this infrastructure is now out of date, especially given the needs of a diversified agriculture. At present, only one-fourth of the markets have common drying yards; trader modules, viz., shop, godown and platforms in front of shop exist in only 63 per cent of the markets. Cold storage units are needed in the markets where perishable commodities are brought for sale. However, they exist only in 9 per cent of the markets at present and grading facilities exist in less than one-third of the markets. The basic facilities, viz., internal roads, boundary walls, electric lights, loading and unloading facilities, and weighing equipment are available in more than 80 per cent of the markets. Farmers' rest houses exist in more than half of the regulated markets.
Eleventh Five Year Plan proposes to address the following issues related to agricultural marketing - marketing system improvement and conducive policy environment; strengthening of marketing infrastructure and investment needs; improving market information system with the use of Information and Communication Technology (lCT); human resource development for agricultural marketing; and promoting exports/external trade.
COOPERATIVE MARKETING
The advantages that cooperative marketing can confer on the farmer are multifarious, some of which are listed below:
1. Increases bargaining strength of the farmers.
2. Direct dealings with final buyers.
3. Provision of credit: The marketing cooperative societies provide credit to the farmers to save them from the necessity of selling their produce immediately after harvesting. This ensures better returns to the farmers.
4. Easier and cheaper transport.
5. Storage facilities: The cooperative marketing societies generally have storage facilities. Thus, the farmers can wait for better prices, also there is no danger to their crop from rains, rodents and thefts.
6. Grading and standardization: This task can be done more easily for a cooperative agency than for an individual farmer. For this purpose they can seek assistance from the government or can even evolve their own grading arrangements.
7. Market intelligence: The cooperatives can arrange to obtain data on market prices, demand and supply and other related information from the markets on a regular basis and can plan their activities accordingly.
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8. Influencing market prices: While previously the market prices were determined by the intermediaries and merchants and the helpless farmers were mere spectators forced to accept whatever was offered to them, the cooperative societies have changed the entire complexion of the game.
9. Provision of inputs and consumer goods:The Cooperative marketing societies can easily arrange for bulk purchase of agricultural inputs like seeds, manures, fertilisers, pesticides, etc., and consumer goods at relatively lower prices and can then distribute them to the members.
10. Processing of agricultural produce: The Cooperative societies can undertake processing activities like crushing oil seeds, ginning and pressing of cotton, etc.
PROGRESS OF COOPERATIVE MARKETING IN INDIA
Two types of cooperative marketing structures are found in India. Under the first type, there is a two-tier system with primary societies at the base and the State society at the apex. Under the second type, there is a three- tier system with primary societies at the village level, Central marketing societies at the district level, and the State marketing society at the apex.
At present, the cooperative marketing structure comprises 2,633 general purpose primary cooperative marketing societies at the mandi level, covering all the important mandies in the country, 3,290 specialised primary marketing societies for oilseeds, etc., 172 district Central Federations and the National Agricultural Cooperative Marketing Federation of India Ltd., (NAFED) at the national level. NAFED is the apex cooperative marketing organisation dealing in procurement, distribution, export and import of selected agricultural commodities.
AGRICULTURAL PRICE POLICY IN INDIA
The initial price policy at the dawn of Independence was, to a large extent, based on the plethora of controls exercised during the Second World War. It included rigid controls on movement of crops from one State to the other, procurement of foodgrains through a compulsory levy on producers and millers, open market purchases, and rationing in practically all the States. Following the recommendation of the Foodgrains Policy Committee of 1947 for progressive decontrol, restrictions were relaxed. However, a food crisis appeared in 1948 and food prices rose substantially. Accordingly, controls were introduced.
On the recommendations of the Foodgrains Enquiry Committee, 1957, calling for 'social control over the wholesale trade in food grains' and its subsequent endorsement by the National Development Council in November 1958, the Government of India experimented with State trading in foodgrains in April 1959. According to this scheme, state trading was to be confined to two main commodities - wheat and rice. However, the scheme ran into difficulties since it was put into practice in a haphazard way without taking cognizance of economic forces.' For instance, procurement prices for wheat were fixed at much lower levels than those dictated by
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the forces of demand and supply. Accordingly despite large output market arrivals of foodgrains were low. Some States imposed a very heavy compulsory levy on the wholesale traders which discouraged the wholesalers on the one hand and on the other, prompted them to adopt unfair and corrupt practices.
1. Organisation of food zones. To introduce an element of stability in agricultural prices, food zones were organised in March 1964. The country was divided into eight wheat zones. Rice zones were formed in South India. On the failure of this experiment, each State was made a separate zone. Movement of food grains within a zone was free but restrictions were imposed on movements from one zone to the other. The government took upon itself the task of procuring food grains from the surplus States and distributing them to the deficit-States through the public distribution system.
2. Fixation of minimum support prices and procurement prices by the government.
3. Rationing and sale through fair price shops.
AGRICULTURAL SUBSIDIES
The issue of agricultural subsidies is a highly politically sensitive issue and arouses strong passions both among the supporters of such subsidies and the opponents of these subsidies. The supporters have argued that food subsidy in India is essential to maintain and sustain the food security system and ensure a safety net for the poor. On the other hand, subsidies on agricultural inputs such as irrigation, power and fertilisers are necessary to enable the poor and marginal farmers to have access to them. If agricultural inputs are not subsidised, the poor farmers will not be able to use them and this will lead to a decline in their income and productivity levels. On the other hand, the opponents have argued that the magnitude of agricultural subsidies has risen to very high levels in India and is now fiscally unsustainable. Not only this, it is argued that the benefits of subsidies on agricultural inputs are mostly cornered by large farmers and the industry while small and marginal farmers fail to derive much gains. As far as food subsidy is concerned, critics argue that this policy has led to the problem of burgeoning food stocks and introduced 'imbalances' in crop structure as such subsidy is limited only to a handful of crops. Moreover, so the critics argue, continuation of agricultural subsidies is against the spirit of the AoA (Agreement of Agriculture) as adopted by the WTO and, in any case, such subsidies have to be reduced in accordance with the commitments made by the member countries to the WTO.
SUBSIDIES ON AGRICULTURAL INPUTS
Introduction of the high yielding varieties programme in the 1960s demanded a high priority to supplying irrigation water and fertilisers to the farmers. Since these were 'critical inputs' for the new agricultural strategy, the government tried to ensure that they were accessible and affordable. Subsidisation of agricultural inputs thus became an important instrument of agricultural policy. Subsidy on fertilisers is provided by the Central government while subsidy on water is provided by the State governments. In this context, it is important to remember that
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subsidy on water is divided into two parts -power subsidy and irrigation subsidy. Power subsidy is granted on power that is used to draw on groundwater. Accordingly, it is a subsidy to privately owned means of irrigation. Irrigation subsidy, on the other hand, implies subsidy on canal water (i.e., surface water) usage.
Total subsidy on agricultural inputs was Rs. 33,591 crore in 1999-2000 which rose to Rs 1,60,917 crore in 2008-09.
CONSEQUENCES OF POWER AND IRRIGATION SUBSIDIES.
The most important consequence of rapidly increasing power and irrigation subsidies is the heavy fiscal burden. The marginal cost of power to the farmer is almost zero. This power pricing framework provides, what Gulati and Narayanan term, 'perverse incentives' to the farmers leading to excessive and inefficient use of power. Since cost of power is negligible, there is no effort on the part of farmers to use power-efficient pumps. Instead, cheap pumps are used that consume up to 30 per cent more electricity than the more efficient ones.
As far as irrigation subsidies are concerned low price of canal water induces inefficient use of surface water and its overexploitation, It also leads to the problems of water logging and salinity.
FERTILISER SUBSIDY
The need for fertiliser subsidy arises from the nature of the fertiliser pricing policy of the Government of India. This policy has been governed by the following two objectives: (i) making fertilisers available to the farmers at low and affordable prices to encourage intensive high yielding cultivation, and (ii) ensuring fair returns on investment to attract more capital to the fertiliser industry. To fulfill the former objective, the government has been statutorily keeping the selling prices of fertilisers at a largely static, uniformly low level throughout the country.
Fertiliser subsidy became necessary due to the twin objectives of fertiliser pricing policy noted above. Under this pricing policy, the farmer gets fertilisers at a low rate which is predetermined, called the maximum selling price. The manufacturer was paid an amount, called the retention price which is high enough to cover his costs and yet leave a 12 per cent post-tax return on the net worth. The difference between the retention price and the selling price was the subsidy paid by the government. For imports, the subsidy is equal to the difference between the cost of imported material and the selling price.
For instance, fertiliser subsidy was Rs. 505 crore in 1980. It rose to Rs. 4,562 crore in 1993-94 and, Rs. 76,603 crore in 2008-09. It fell to Rs. 52,980 crore in 2009-10.
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INCREASE IN FERTILISER PRICES.
Government of India is implementing a nutrient- based subsidy scheme (NBS) with effect from April 1, 2010. Under the nutrient-based subsidy scheme, a fixed subsidy is announced on per kg. basis nutrient annually. An additional subsidy is also given to micro-nutrients. With the objective of providing a variety of subsidised fertilisers to farmers depending upon soil and crop requirement, the government has included seven new grades of complex fertilisers under the NBS. Under this scheme, manufacturers/ marketers are allowed to fix the maximum retail price (MRP). Farmers pay only 50 per cent of the delivered cost of phosphate (P) and potash (K) fertilisers, and the rest is borne by the Government of India in the form of subsidy.
Imbalance in Fertiliser Consumption. The government's price policy for fertilisers over the years has created a lopsided nutrient price structure. This has led to distorted and lopsided pattern of application of urea, phosphate and potash. The ideal average nitrogen (N), Phosphate (P) and Potash (K) ratio use in India is 4: 2: 1. As against this, the ratio in India in 1991-92 was 5.9: 2.4: 1 - not very much away from the ideal ratio. The NPK ratio in 2007-08 was 5.5: 2.1: 1 which improved further to 4.7: 2.3: 1 in 2010-11.
PUBLIC DISTRIBUTION SYSTEM
OBJECTIVES AND EXPANSION OF PDS
The basic objective of the public distribution system in India is to provide essential consumer goods at cheap and subsidised prices to the consumers so as to insulate them from the impact of rising prices of these commodities and maintain the minimum nutritional status of our population. To run this system, the government resorts to purchases a part of the marketable surplus with traders/millers and producers at procurement prices. The grain (mainly wheat and rice) thus procured, is used for distribution to the consumers through a network of ration fair price shops and/or for building up buffer stocks. In addition to food grains, PDS has also been used in India for the distribution of edible oils, sugar, coal, kerosene and cloth. The most important items covered under PDS in India have been rice, wheat, sugar and kerosene.
PDS in India covers the whole population as no means of direct targeting are employed. The criterion is to issue ration cards to all those households that have proper registered residential addresses.
PDS distributes commodities worth more than Rs. 30,000 crore annually to about 160 million families and is perhaps the largest distribution network of its kind in the world.
The main agency providing food grains to the PDS is the Food Corporation of India (FCI) set up in 1965. The primary duty of the Corporation is to undertake the purchase, storage, movement, transport, distribution and sale of food grains and other foodstuffs. It ensures on the one hand that the farmers get remunerative prices for their produce and on the other
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hand, the consumers get food grains from the central pool at uniform prices fixed by the Government of India.
FLAWS IN FOOD SECURITY SYSTEM
The PDS in India has been criticised on various counts. The main criticisms are as follows:
1. Limited Benefit to Poor from PDS. Many empirical studies have shown that the rural poor have not benefited much from the PDS as their dependence on the open market has been much higher than on the PDS for most of the commodities."The cost-effectiveness of reaching the poorest 20 per cent of households through PDS cereals is very small. For every rupee spent, less than 22 paise reach the poor in all States, excepting in Goa, Daman and Din where 28 paise reach the poor.
2. Regional Disparities in PDS Benefits. There are considerable regional disparities in the distribution of PDS benefits. For example, in 1995, the four Southern States of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu accounted for almost one-half (48.7 per cent) of total PDS off take of food grains in the country while their share in all India population below the poverty line in 1993-94 was just 18.4 per cent. As against this, the four Northern States of Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh (or BIMARU States) having as much as 47.6 per cent of the all- India population below the poverty line in 1993-94 accounted for just 10.4 per cent of all India off take of food grains from PDS in 1995.
3. The Question of Urban Bias. A number of economists have pointed 'out that PDS remained limited mostly to urban areas for a considerable period of planning while the coverage of rural areas was very insufficient.
4. The Burden of Food Subsidy. PDS is highly subsidised in India and this has put a severe fiscal burden on the government. From Rs. 662 crore in 1980-81, food subsidy rose to Rs. 2,850 crore in 1991-92, Rs. 62.930 crore in 2010-11 and further to Rs. 72,823 crore in 2011-12.
5. Inefficiencies in the Operations of FeI. The Bureau of Industrial Costs and Prices (BICP) of the Government of India and some researchers have pointed out a number of inefficiencies in the operations of the Food Corporation of India. The economic cost of Fel food grains operations has been rising on account of increase in procurement prices and 'other costs' (which include procurement incidentals, distribution cost and carrying cost).
6. PDS Results in Price Increases. Some economists have pointed out that the operations of the PDS have, in fact, resulted in an all-round price increase. This is due to the reason that large procurement of food grains every year by the government actually reduces the net quantities available in the open market.
7. Leakages from PDS. Another criticism of PDS relates to the problem of leakages from the system in the form of losses in the transport and storage and diversion to the open market. The major part of the leakage is due to diversion of food grains to the open market because of the widespread prevalence of corrupt practices.
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TARGETED PUBLIC DISTRIBUTION SYSTEM (TPDS)
With a view to reducing the burden of food subsidy and targeting it better to the really needy people, the Government of India adopted the Targeted Public Distribution System (TPDS) from June 1, 1997. TPDS aims at providing food grains to people below the poverty line at highly subsidised prices from the PDS and food grains to people above the poverty line at much higher prices. Thus, the TPDS adopted by the Government of India maintains the universal character of the PDS but adds a special focus on the people below the poverty line (known as BPL).
The key features of TPDS as adopted by the Government of India are as follows:
1. Targeting. The most distinctive feature of the TPDS in relation to the previous policy is the introduction of targeting by dividing the entire population into below poverty line (BPL) and above poverty line (APL) categories, based on the poverty line defined by the Planning Commission. The maximum income level for the population to be covered under BPL was kept at Rs. 15,000 per annum.
2. Dual (multiple) prices. The second distinguishing feature is that the PDS now has dual central issue prices: prices for BPL consumers and prices for APL consumers. A third price, introduced in 2001, is for beneficiaries of the Antyodaya Anna Yojana (AAY).
3. Centre-State Control. A third important feature of the TPDS is that it has changed Centre-State responsibilities with respect to entitlements and allocations to the PDS. PDS was and is designed and managed by State governments, and State governments differ with respect to entitlements, the commodities offered, the retail price (State issue price) and so on. In the past, the State governments demanded a certain allocation from the Central pool, and based on certain factors, most importantly, past utilisation and the requirements of statutory rationing, the Central government allocated grain and other commodities to States for their public distribution systems.
Total number of families covered under BPL and AAY is presently 6.52 crore.
REVIEW OF TPDS
TPDS has been criticised on the following grounds:
1. Targeting. The major criticism of TPDS is that it has led to the large-scale exclusion of genuinely needy persons from the PDS. In this context, Madhura Swarninathan discusses two types of issues - (i) conceptual issues, and (ii) operational issues." The first concern 'the definition of the poor' and the second concern 'identification of poor in practice.' Both these issues are very important and crucial to the working of the TPDS as its very success hinges on the inclusion of genuinely needy persons under the programme.
(i) Conceptual issues: (Definition of poor). The main issue here in how appropriate is the definition of poor applied in the TPDS. The current definition of eligibility for BPL status is based on the official poverty line as estimated by
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the Planning Commission in 1993-94 (adjusted for population levels in 2000). If we use the income poverty line, then the target group comprised 37 per cent of the rural population and 32 per cent of the urban population in 1993-94. However, the official poverty line represents a very low level of absolute expenditure.
(ii) Operational issues: (Identification in practice.) The fact of the matter is that the whole process of identification of BPL families in many States has been carried out in a very arbitrary manner. As a result, there have been large errors of misclassification with genuinely deserving households excluded and some affluent households included in the BPL category.
2. Leakages and diversion. 3. Late and irregular arrival of grains in fair price shops. 4. No variation in purchase across expenditure groups. 5. Decline in off take and the question of viability of fair price shops. 6. TPDS has failed in transferring cereals from surplus to deficit regions. 7. Burden of subsidy has increased.
NATIONAL FOOD SECURITY BILL
The National Food Security Bill was introduced in the Lok Sabha on December, 22, 2011. As per the provisions of the Bill, it is proposed to provide 7 kg. of foodgrains per person per month belonging to priority households at prices not exceeding Rs. 3 per kg of rice, Rs. 2 per kg of wheat, and Rs. 1 per kg of coarse grains and to general households not less than 3 kg of foodgrains per person per month at prices not exceeding 50 per cent of the MSP for wheat and coarse grains and derived MSP for rice. It will benefit up to 75 per cent of rural population (with at least 46 per cent belonging to priority households), and up to 50 per cent of urban population (with at least 28 per cent belonging to priority households), besides providing nutritional support to women and children and meals to special groups such as destitute and homeless, emergency and disaster affected, and persons living in starvation. Pregnant and lactating mothers will also be entitled to maternity benefit of Rs. 1,000 per month for six months. In case of non-supply of food grains or meals, entitled persons will be provided food security allowance by the concerned State/Union Territory governments. Provisions for reforms in the TPDS such as doorstep delivery of foodgrains, application of information and communication technology (lCT) including end to end computerisation, leveraging 'aadhar' for unique identification of beneficiaries have also been made in the bill. Provisions have also been made for transparency and accountability including disclosure of records relating to the PDS, social audits, and setting up of vigilance committees besides an elaborate grievance redressal mechanism.
ICDS
Integrated Child Development Services (ICDS) launched in 1975 is a centrally sponsored scheme implemented by the Ministry of Human Resource Development. The Central Government is responsible for programme planning and operating costs while State
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governments are responsible for programme implementation and providing supplementary nutrition out of their own resources. ICDS integrates supplementary nutrition with primary health care and informal education. It is one of the largest child intervention programmes in the world with a holistic package of six basic services for children upto 6 years of age, and for pregnant and nursing mothers. These services are: (1) supplementary feeding (the ICDS provides to a child food ration for 300 days, containing 500 calories and 12-15 gms protein and to pregnant and lactating women food ration containing 600 calories and 18-20 gms protein); (2) immunisation; (3) health check-ups; (4) referral services; (5) health and nutrition education to adult women; and (6) non-formal pre-school education to 3-6 years old.
ICDS is being implemented through one platform, i.e., Anganwadi Centres (or child care centre). The staff includes CDPO (Chief Development Project Officer), supervisors, Anganwadi workers and helpers.
MID-DAY MEAL SCHEME
The national programme of nutritional support to primary education, commonly known as the Mid-Day Meal (MDM) scheme launched in 1995, is a nationwide Central scheme intended to improve the enrollment and regular attendance and reduce dropout in schools. It is also intended to improve the nutritional status of primary school children. MDM is the world's largest school feeding programme reaching out to about 11 crore children in over 12 lakh schools (EGS) centres across the country. The scheme is being implemented in all States and Union Territories.
From 2008-09, i.e., with effect from April, 2008 the scheme covers all children studying in Government, Local Body and Government-aided primary and upper primary schools and the alternate and innovative education centres including Madersa and Maqtabs supported under SSA (Sarva Shiksha Abhiyan) of all areas across the country. The calorific value of a mid-day meal at upper primary stage has been fixed at a minimum of 700 calaries and 20 grams of protein by providing 150 grams of food grains (rice/wheat) per child per school day.
The performance of mid-day meal scheme has varied across States. In Uttar Pradesh, because of powerful food mafias and corrupt officials, there has been very poor implementation. However, in Tamil Nadu, it has proved to be quite a success.
AGRICULTURAL WORKERS AND LABOURERS
DEFINITION OF AGRICULTURAL LABOUR
Unlike industrial labour, agricultural labour is difficult to define. The reason is that unless capitalism develops fully in agriculture, a separate class of workers depending wholly on wages does not come up. Since the capitalist relations are in an underdeveloped state in India, such clear- cut class of agricultural workers has not yet evolved. Difficulties in defining agricultural labour are compounded by the fact that many small and marginal farmers also work partly on
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the farms of others to supplement their income. To what extent should they (or their family members) be considered agricultural labourers is not easy to answer.
The first Agricultural Labour Enquiry Committee of 1950-51 regarded those people as agricultural workers who were engaged in raising crops on payment of wages. Since in India, a large number of workers do not work against payment of wages all the year round, this definition was incomplete. Accordingly, the Committee laid down that those people should be regarded as agricultural workers who worked for 50 per cent or more days on payment of wages.
The Second Agricultural Labour Enquiry Committee of 1956-57 took a broad view of agricultural activities to include those workers also who were engaged in allied activities like animal husbandry, dairy, poultry, piggery, etc. The Second Committee submitted that to know whether a household is an agricultural labour household we must examine its main source of income. If 50 per cent or more of its income is derived as wages for work rendered in agriculture, only then it could be classified as agricultural labour household. The changeover from 'work' to 'income' seems more scientific.
In the Census of India 1961, all those workers were included in the category of agricultural workers who worked on the farms of others and received payment either in money or kind (or both). The 1971 Census excluded those people from agricultural labourers for whom working on the farms of others was a secondary occupation.
Accordingly, we must remain content with a working definition. All those persons who derive a major part of their income as payment for work performed on the farms of others, can be designated as agricultural workers. For a major part of the year they should work on the land of others on wages.
CATEGORIES OF AGRICULTURAL LABOURERS
The First Agricultural Labour Enquiry Committee had classified agricultural workers into two categories: (i) attached labourers, and (ii) casual labourers. Attached labourers are attached to some cultivator household on the basis of a written or oral agreement. Their employment is permanent and regular.
All workers not falling in the category of attached labourers, constitute casual workers. They are free to work on the farm of any farmer and payment is generally made to them on a daily basis.
GROWTH IN THE NUMBER OF AGRICULTURAL WORKERS
The class of agricultural workers did not exist in India before the advent of Britishers. Sir Thomas Munroe had stated in 1842 that there was not a single landless laborer in India. Undoubtedly, this was an overstatement. According to the Census of 1881, landless labourers in that year were 7.5 million. In 1921, agricultural workers were 21 million which was 17.4 per
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cent of the total rural working population. They were 27.5 million in 1951 and 31.5 million in 1961.1 According to the Census of 1981, the number of agricultural workers was 55.4 million which 25.1 per cent of the total labour force was. According to the Census of 1991, the number of agricultural workers was 73.7 million which 26.5 per cent of the total labour force is. This shows that every fourth person of the labour force is an agricultural worker in India.
CAUSES OF GROWTH IN THE NUMBER OF AGRICULTURAL LABOURERS
1. Increase in population.
2. Decline of cottage industries and village handicrafts. There was a rapid decline of cottage industries and village handicrafts during the British period, but modem industries were not set up to take their place. These people were forced to seek employment as agricultural workers in the" countryside.
3. Eviction of small farmers and tenants from land.
4. Uneconomic holdings. The process of subdivision and fragmentation of holdings has continued unabated for a long period of time. This has rendered a large number of holdings uneconomic.
5. Increase in indebtedness. The moneylenders and mahajans often advance loans with the purpose of grabbing the land of small farmers. They adopt various malpractices like charging exorbitant rates of interest, manipulating accounts, etc., and once the small and marginal farmers fall into their trap, it becomes very difficult for them to get out.
6. Spread of the use of money and exchange system. Whereas, previously land was often given to the tenants to cultivate (from whom landlords obtained rent in the form of a portion of the produce), the present practice is to employ agricultural workers to do the job. These workers are paid wages.
7. Capitalist agriculture
CONDITIONS AND PROBLEMS OF AGRICULTURAL LABOURERS
The class of agricultural labourers is the most exploited and oppressed class in rural hierarchy.
1. Marginalisation of agricultural workers. The workforce in agriculture (cultivators plus agricultural labourers) was 97.2 million in 1951 and this rose to 185.2 million in 1991. As against this, the number of agricultural labourers rose from 27.3 million in 1951 to 74.6 million in 1991. This implies that (i) the number of agricultural labourers increased by almost three times over the period 1951 to 1991; and (ii) as a proportion of work force in agriculture. Agricultural labourers increased from 28 per cent in 1951 to 40 per cent in 1991. These facts indicate the fast pace of casualisation of workforce in agriculture in India. Moreover, the share of agriculture and allied activities in GDP at factor cost has consistently declined over the years - from 55.3 per cent in 1950-51 to 37.9 per cent in
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1980-81 (at 1999-2000 prices) and further to 14.0 per cent in 2011-12 (at 2004-05 prices).
2. Wages and income. Agricultural wages and family incomes of agricultural workers are very low in India. With the advent of the green revolution, money wage rates started increasing. However, as prices also increased considerably, the real wage rates did not increase much.
3. Employment and working conditions. The agricultural labourers have to face the problems of unemployment and underemployment. For a substantial part of the year, they have to remain unemployed because there is no work on the farms and alternative sources of employment do not exist.
4. Indebtedness. Because of the low level of their incomes, agricultural workers have to seek debts off and on. However, because of their extreme poverty, they are not in a position to provide any security.
5. Feminisation of agricultural labour with low wages. Female agricultural workers are generally forced to work harder and are paid less than their male counterparts.
6. High incidence of child labour. Incidence of child labour is high in India and the estimated number varies from 17.5 million to 44 million. It is estimated that one- third of the child workers in Asia are in India.
7. Increase in migrant labour. Green revolution significantly increased remunerative wage employment opportunities in pockets of assured irrigation areas while employment opportunities nearly stagnated in the vast rain fed semi-arid areas.
8. The landlord-labourer relationship. The relationship between the landlord and the labourer is not uniform throughout the country. There are substantial differences not only among different States but even among different villages of the same State as regards the period of employment, mode and time-period of payment, freedom of movement, bargaining power vis-a-vis landlords, beggar, etc.
MEASURES ADOPTED BY THE GOVERNMENT
1. Minimum wages. The Minimum Wages Act was passed as long back as in 1948 and since then the necessity of applying it to agriculture has been constantly felt.
2. Abolition of bonded labour. After Independence, attempts have been made to abolish the evil of bonded labour because it is exploitative, inhuman and violative of all norms of social justice. In the chapter on Fundamental Rights in the Constitution it has been stated that trading in humans and forcing them to do begar is prohibited and can invite punishment under law.
3. Providing land to landless labourers.
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4. Provision of housing sites. Laws have been passed in several States for providing house sites in villages to agricultural workers.
5. Special schemes for providing employment. Rural Employment (CSRE), National Rural Employment Jawahar Gram Samridhi Yojana (JGSY). National Food for Work Programme (NFFWP) MGNREGS.
6. Special agencies for development. The Special agencies - Small Farmers Development Agency (SFDA) and Marginal Farmers and Agricultural Labourers Development Agency (MFAL) - were created in 1970-71.
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CHAPTER 5: SERVICE SECTOR
INTRODUCTION
Every economy consists of three sectors. They are primary sector (extraction such as mining, agriculture and fishing), secondary sector (manufacturing) and the tertiary sector (service sector). Economies tend to follow a developmental progression that takes them from a heavy reliance on primary, toward the development of manufacturing and finally toward a more service based structure. Historically, manufacturing tended to be more open to international trade and competition than services. As a result, there has been a tendency for the first economies to industrialize to come under competitive attack by those seeking to industrialize later. The resultant shrinkage of manufacturing in the leading economies might explain their growing reliance on the service sector. However, currently and prospectively, with dramatic cost reduction and speed and reliability improvements in the transportation of people and the communication of information, the service sector is one of the most intensive international competition. The service sector is the most common workplace in India.
The service sector consists of the soft parts of the economy such as insurance, government, tourism, banking, retail, education, and social services. In soft-sector employment, people use time to deploy knowledge assets, collaboration assets, and process-engagement to create productivity, effectiveness, performance improvement potential and sustainability. Service industry involves the provision of services to businesses as well as final consumers. Services may involve transport, distribution and sale of goods from producer to a consumer as may happen in wholesaling and retailing, or may involve the provision of a service, such as in pest control or entertainment. Goods may be transformed in the process of providing a service, as happens in the restaurant industry or in equipment repair. However, the focus is on people interacting with people and serving the customer rather than transforming physical goods.
SERVICE SECTOR IN INDIA
Service Sector in India today accounts for more than half of India's GDP. According to data, the share of services contributes to 55.1 per cent of the GDP, where as industry, and agriculture in shares 26.4 per cent, and 18.5 per cent respectively. This shows the importance of service industry to the Indian economy and as service sector now accounts for more than half the GDP marks a watershed in the evolution of the Indian economy and takes it closer to the fundamentals of a developed economy. There was marked acceleration in the growth of services sector in the nineties. While the share of services in India's GDP increased by 21 per cent points in the 50 years between 1950 and 2000, nearly 40 per cent of that increase was concentrated in the nineties. While almost all service sectors participated in this boom, growth was fastest in communications, banking, hotels and restaurants, community services, trade and
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business services. One of the reasons for the sudden growth in the services sector in India in the nineties was the liberalization in the regulatory framework that gave rise to innovation and higher exports from the services sector. In the current economic scenario it looks that the boom in the services sector is here to stay as India is fast emerging as global services hub. Indian service industry covers a wide gamut of activities like trading, banking & finance, infotainment, real estate, transportation, security, management and technical consultancy among several others.
COMPOSITION OF SERVICE SECTOR IN INDIA
In India, the national income classification given by Central Statistical Organization is followed. In the National Income Accounting in India, service sector includes the following:
1. Trade, hotels and restaurants (THR) a. Trade b. Hotels and restaurants
2. Transport, storage and communication a. Railways b. Transport by other means c. Storage d. Communication
3. Financing, Insurance, Real Estate and Business Services a. Banking and Insurance b. Real Estate, Ownership of Dwellings and Business Services
4. Community, Social and Personal services a. Public Administration and defense (PA & D) b. Other services
PERFORMANCE OF SERVICES SECTOR IN INDIA
SECTORAL COMPOSITION OF GDP GROWTH
The analysis of the sectoral composition of GDP and employment for the period 1950-2000 brings out the fact that there has taken place ‘tertiarization’ of the structure of production and employment in India. During the process of growth over the years 1950-51 to 1999-2000, the Indian economy has experienced a change in production structure with a shift away from agriculture towards industry and tertiary sector. The share of agricultural sector in real GDP at 1993-94 prices declined from 55.53% in the 1950’s to 28.66 % in 1990’s.The share of industry and services increased from 16%to 27.12% and 28.09% to 44.22% respectively during the same period. During the 1950’s it was the primary sector which was the dominant sector of the economy and accounted for the largest share in GDP. But the whole scenario changed subsequently, and especially in the 1980’s. The service sector output increased at a rate of 6.63% per annum in the period 1980-81 to 1989-90 (i.e. pre-reform period) compared with
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7.71% per annum in the period 1990-91 to 1999-2000 (i.e. post- reform period). The tertiary sector emerged as the major sector of the economy both in terms of growth rates as well as its share in GDP in 1990s. It is to be noted here that while agriculture and manufacturing sectors have experienced phases of deceleration, stagnation and growth, the tertiary sector has shown a uniform growth trend during the period 1950-51 to 1999-2000. The share of this sector in GDP further increased to 55.1% in 2006-07 .This sector accounted for 68.6% of the overall average growth in GDP in the last five years between 2002-03 and 2006-07.
EMPLOYMENT SCENARIO
The sectoral distribution of workforce in India during the period 1983 to 2004-05 reveals that the structural changes in terms of employment have been slow in India as the primary sector continued to absorb 56.67% of the total workforce even in 2004-05, followed by tertiary and industrial sectors (24.62% and 18.70%) respectively. There has been disproportionate growth of tertiary sector, as its share in employment has been far less when compared to its contribution to GDP.
It is important to point out that, within the services sector employment growth rate is highest in finance, insurance, and business services, followed by trade, hotels and restaurants and transport etc. The community social and personal services occupy the last rank in growth rates of employment.
Further, there was a sharp drop in labour absorptive capacity of growth in the economy (employment elasticity of growth) from 0.40 to 0.15 during post -reform period (1993-94 to 1999-2000) initially, reflecting the phenomenon of jobless growth. However, during 1999-2000 to 2004-05 period the employment elasticity of growth registered an increase from 0.15 to 0.51.With the exception of one sub-sector of tertiary sector i.e. transport, storage, communication all other sub-sectors of services sector exhibited an increasing trend in employment elasticties and thereby overall elasticity of employment increased from 0.15 to 0.51.
PRODUCTIVITY GROWTH IN SERVICE SECTOR --POST-1980 SCENARIO
Goldar and Mitra (G-M, 2008) point out in their recent paper that the process of acceleration in growth started in 1980s rather than in 1990s “Of the 2.4 percentage point increase in the rate of economic growth that took place in the post-1980 period, about 40 percent is accounted for by a faster growth in TFP in services.” The three sectors viz. agriculture, industry and services have witnessed acceleration in the growth rates of output, output per worker and total factor productivity (TFP) in the post -1980 period. However, the increase is more marked in case of services. Partially the spurt in growth rate is attributable to productivity growth in certain sub-sectors of services sector. The acceleration in growth rate of output per worker in PA &D and other community, social and personal services might have resulted from the downsizing of the public sector because of privatisation and hikes in the salaries of the central and state government employees from time to time (i.e due to accounting reasons). Part of the
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productivity growth in the services sector might be an outcome of application of IT service. Despite increase in growth rate of labour productivity in service sector, measurement of service sector output and productivity are still debatable issues.
POLICY MEASURES FOR THE DEVELOPMENT OF THE SERVICES SECTOR
In post-1991 period, there were several measures undertaken by the government to develop services sector, especially through deregulation of some sub –sectors of services sector. Foreign direct investment (FDI) varying between 26 per cent (in print media) to 100% in information technology (IT) sector, business process outsourcing (BPOs),e-commerce activities, infrastructure etc) has been permitted . There are several other promotional measures taken by the government to sustain the growth of the services sector. For example, having realized that in knowledge- intensive world driven by IT , integration with global economy cannot take place without making quality telecom services accessible at affordable prices , a large number of steps like launching of National Telecom Policy 1994, New Telecom Policy 1999,and National Telecom Policy-2012, Broad Band Policy 2004 etc were undertaken. In addition to this, a number of promotional measures have been taken up in IT and ITES (Information Technology Enabled Services) segment, trade, tourism, banking and insurance and real estate sectors (For details see Joshi, forthcoming).
India has emerged as a top destination for off shoring as per Global Services Location Index 2007. There is a lot of scope for future expansion as only 10 % of the potentially addressable global IT/ ITES market has been realized. The remaining 90% (worth $300 billion) remains to be tapped.
PROBLEMS/CHALLENGES AHEAD
The sustainability of impressive growth of Indian economy has been questioned in the wake of some challenges in the form of lack of social infrastructure, physical infrastructure; IT infrastructure, agricultural and industrial sector reforms, rupee appreciation and US sub-prime crisis, etc. Besides, challenges in the field of IT and ITES like rising labour costs, rapid growth in demand for talented manpower/quality staff, high attrition rate, outsourcing backlash etc are some other limiting factors. The growth of IT and ITES is having social, economic, health, ethical and environmental implications also. Further, delay in the promotion of conducive business environment and good governance will enable us to catch up with the global giants in terms of world –wide presence and scale. It is also important to point out here that the measurement of output , productivity , non-availability of data or availability of data after a time lag are other problems confronted with in case of services . The problem gets further compounded because of the entry of new species of services (like IT, ITES etc ) and lack of development of concepts on the one hand and non-inclusion of unpaid households on the other. Further, quality of each unit of the same service varies from the other. Therefore, it is too difficult to achieve the same level of output in terms of quality has been pointed out.
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Further, quality improvements stemming from the application of new technologies are extremely hard to measure.
PROSPECTS FOR GROWTH IN THE SERVICES SECTOR
One of the major drivers of service sector growth in the post globalization era in India is the IT and ITES sector. That is why NASSCOM (2005) says that, “The IT and BPO industries can become major growth engines for India, as oil is for Saudi Arabia and electronics and engineering are for Taiwan. Saudi Arabia’s oil exports accounted for 46% of GDP in 2004; Taiwan’s electronics and engineering exports accounted for 17% of GDP in the same year. …. India’s IT and BPO industries could account for 10-12% of India’s GDP by 2015” (NASSCOM, 2005, p.80). According to NASSCOM (2005), India’s offshore IT and BPO industries hold the potential to create over 9 million jobs by 2010, 2.3 million direct jobs and 6.5 million indirect / induced jobs says NASSCOM. The revenue generation from total software and services segment is likely to touch $ 60-billion mark by 2010 as per NASSCOM estimates. In addition, there is a huge potential for growth in the services sector because of increase in disposable income, increasing urbanization, growing middle class, a population “bulge” in the working age groups providing ‘demographic window of opportunity,’ and emergence of a wide array of unconventional /new services like IT, ITES, new financial services (ATMs,credit cards) and tourism services (eco-tourism, health tourism) etc.
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CHAPTER 6: INDUSTRIES
INDUSTRIAL GROWTH AND POLICY
THE INDUSTRIAL SCENE AT INDEPENDENCE
The main features of the industrial scene in India on the eve of planning (1950) were as under:
There was the preponderance of consumer goods industries vis-a-vis producer goods
industries resulting in lopsided industrial development. In 1953, the ratio of consumer
goods to producer goods worked out to be 62:38.
The industrial sector was extremely underdeveloped with a very weak infrastructure.
The lack of government intervention in favour of the industrial sector was considered
as an important cause of under-development.
Export orientation had been against the country's interests.
The structure of ownership was highly concentrated.
Technical and managerial skills were in short supply.
INDUSTRIAL CONTROL REGIME 1950S TO 1970S
The system of Indian industrial licensing, therefore, has its origins in a combination of thinking resulting from the exigencies and requirements of a war situation, Indian nationalistic aspirations and the socialistic leanings of some of the founding fathers of the country. The leaders of the private sector of the time were also in favour of strong governmental assertion.
PERFORMANCE OF THE INDUSTRIAL LICENSING SYSTEM
Until the recent industrial and trade policy reforms, the establishment and operation of an industrial enterprise in India required approvals from the Central government at almost every step. In addition to these approvals, since the enactment of the MRTP Act in 1969, the firms covered under this needed to obtain separate MRTP clearances from the Department of Company Affairs. Further, resulting from the desire to promote small-scale industries, 836 items have been reserved for production in small-scale enterprises. Since 1956, there has also been a list of industries reserved for exclusive production in the public sector.
INDUSTRIAL POLICY REFORMS 1980 S
Industrial policy changes of the 1980s represented a response to the heavily felt need for domestic deregulation. Experiments with industrial delicensing, weakening of MRTP provisions to provide larger scope for large industrial houses, incentives for modernization of capital stock,
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policies for major industries such as textiles and sugar, gradual introduction of price decontrol for cement and aluminum, etc., were some of the major steps taken in the direction of domestic deregulation.
A major exception to this thrust was the continuation of the policy of reservation of production for the small-scale sector particularly since it constituted an important hurdle in the way of developing export capability in sectors such as garments, leather products, sports goods, etc., where India has a comparative advantage.
THE POLICY REGIME IN THE 1990S
A process of reflection and debate on the need for a change in policies had been set in motion in India in the second half of the 1970s, i.e., about the same time that China was preparing for a major change in policy. It is worth noting that China went ahead with full force towards market orientation and doubled its GDP between 1978 and 1991. By contrast, India used the decade of the 1980s for hesitant experimentation in domestic deregulation, while retaining its highly protectionist trade policy regime and keeping its loss-making public sector intact. The reform on the industrial policy front, however, coincided with a sharp deterioration in the fiscal accounts of the government. As the Government of India's policies became increasingly expansionary to support growing levels of current government expenditures on sharply rising interest payments, defence and subsidies, the gross fiscal deficit of the government increased from 6.2 per cent of GDP in 1980-81 to 8.3 per cent by 1990-91.
The response to the crisis therefore was twofold-more domestic deregulation and foreign competition and striving to attain macroeconomic balance. In opening up the economy to foreign trade and foreign investment, the policies represented a more radical break with the past.
NEW ECONOMIC POLICY 1991
The year 1991 is an important landmark in the economic history of post-Independent India. The country went through a severe economic crisis triggered by a serious balance of payments situation. The crisis was converted into an opportunity to introduce some fundamental changes in the content and approach to economic policy. The response to the crisis was to put in place a set of policies aimed at stabilisation and structural reform. While the stabilisation policies were aimed at correcting the weaknesses that had developed on the fiscal and the balance of payments fronts, the structural reforms sought to remove the rigidities that had entered into the various segments of the Indian economy. The structural reforms introduced in the early 1990s broadly covered the areas of industrial licensing, foreign trade, foreign investment, exchange rate management and the financial sector. Changes in foreign trade policy focused on reducing the tariff rates and dismantling quantitative controls over imports. The tariff rates have been brought down in stages. Some caution in this regard had become necessary to enable the Indian industries set up behind high protective tariff walls to adjust to the changed situation.
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The thrust of the New Economic Policy has been towards creating a more competitive environment in the economy as a means to improving the productivity and efficiency of the system. This was to be achieved by removing the barriers to entry and the restrictions on the growth of firms. The private sector was to be given a larger space to operate in as much as some of the areas, reserved exclusively earlier for the public sector were now to be opened to the private sector. In these areas, the public sector would have to compete with the private sector, even though the public sector might continue to play the dominant role in the foreseeable future. What was sought to be achieved was the improvement in the functioning of the various entities, whether they were in the private or in the public sector.
PUBLIC SECTOR REFORMS, PRIVATISATION AND INFRASTRUCTURE
A major gap in domestic policy reform has been in the area of public sector with maximum adverse effect on the infrastructure sectors with its consequences for the industrial sector as a whole. During the 1980s, while there was disillusionment with respect to the resource generation aspects of the public sector undertakings (PSUs), the objective of the public sector as the guiding spirit for development continued to be at the core of planning. Some effort was made to grant greater autonomy to the PSUs from the control of their administrative ministries, but even at the end of the 1980s there was little improvement in the situation with respect to the operating surpluses of the PSUs.
Public sector reform remained an area of darkness in the 1990s. A significant practical approach was adopted in which the better performing PSUs were given the freedom to access capital markets on the strength of their own performance. They were also given more autonomy in shaping their future. The non-performing PSUs, on the other hand, languished for want of budgetary support or reform.
Privatisation was not pursued as an option in the early phase of reforms. Instead, government policy concentrated on selective disinvestments of public sector equity with a view to finance fiscal deficits rather than address the issue of improving the returns on the capital invested. In 1997, the Government of India set up the Disinvestment Commission. The Commission gave a series of reports analysing the 50 or so cases of PSUs, which were referred to it and made detailed recommendations. Subsequently, the Commission was wound up and a Department of Privatisation was created. While there have been some major privatisations, e.g., BALCO, VSNL, Maruti and IPCL, it remains a highly contentious issue.
INDUSTRIAL POLICY: RECENT POLICY INITIATIVES
Industrial licensing had already been substantially dismantled. Drugs and pharmaceuticals including biotechnology were de-licensed in 2005. At the end of the Tenth Five Year Plan period, only the following manufacturing activities needed industrial license:
Distillation and brewing of alcoholic drinks;
Cigars and cigarettes of tobacco and manufactured tobacco substitutes;
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Electronic aerospace and defense equipment;
Industrial explosives;
Specified hazardous chemicals.
Apart from the licensing restrictions, there are some restrictions arising from certain industries reserved for the public sector and for the small-scale sector. Reservation for the public sector is now very limited, covering only manufacturing involving certain substances relevant for atomic energy (as well as production of atomic energy and provision of railway transport). The list of items reserved for SSIs has been reduced to 114. Larger units are allowed to manufacture items reserved for the small-scale sector only if they undertake an export obligation of 50 per cent of their industrial production.
The Foreign Direct Investment (FDI) policy was also successively liberalised during the Tenth Five Year Plan. Following a comprehensive review in 2006 it was further liberalised, particularly by allowing FDI under the automatic route for manufacture of industrial explosives and hazardous chemicals and making it easier for new investments by foreign investors who had entered into joint ventures with Indian partners earlier.
RECENT INDUSTRIAL GROWTH
Recent industrial growth, measured in terms of IIP, shows fluctuating trends. Growth had reached 15.5 per cent in 2007-8 and then started decelerating. Initial deceleration in industrial growth was largely on account of the global economic meltdown. There was, however, a recovery in industrial growth from 2.5 per cent in 2008-9 to 5.3 per cent in 2009-10 and 8.2 per cent in 2010-11. Fragile economic recovery in the US and European countries and subdued business sentiments at home affected the growth of the industrial sector in the current year. Overall growth during April-December 2011 was 3.6 per cent compared to 8.3 per cent in the corresponding period of the previous year.
Contribution to IIP Growth–April-December
Weight 2008 2009 2010 2011
Mining 14.16 6.4 32.1 9.4 -8.3
Manufacturing 75.53 89.4 46.8 85.6 85.6
Electricity 10.32 4.2 21.2 5.0 22.6
In terms of Use-based classification
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Basic foods 45.68 16.2 64.8 27.8 65.7
Capitals goods 8.83 52.2 -52.9 30.2 -12.0
Intermediates 15.69 3.7 24.1 13.6 -3.3
Consumer Goods
29.81 28.0 64.0 28.4 49.4
Durables 8.46 32.7 67.3 23.0 21.3
Non Durables 21.35 -4.8 -3.3 5.5 28.1
WHY DID THE REFORMS FAIL TO DELIVER THE EXPECTED RESULTS?
Labour Market Rigidity Hypothesis: The reformists believe that India's labour laws are the most protective of the organised labour, which makes firing of workers almost impossible, rendering labour a quasi-fixed capital, leading to substitution of capital for labor, yielding little employment growth. Such a reading of the labour law is perhaps facile as it overlooks the 'fine print' of exemptions and loopholes that are build into them.
Infrastructure Bottlenecks: That infrastructure bottlenecks are throttling industrial progress is undisputed.
The Cost of Doing Business: Two other challenges that beset manufacturers in India illustrate the nature of solutions required to attract more investments into manufacturing. The 'cost of doing business' is much higher in India than in other countries due to the plethora of forms and inspections that manufacturers have to comply with, some of them arising out of legislations long pending review, such as the Factories Act.
PUBLIC SECTOR IN THE INDIAN ECONOMY
THE RATIONALE
In India, the rationale for the public sector has been explicit or implicit in all plan documents as well as policy statements, although the emphasis has changed in degrees depending upon the constraints faced and the emerging major issues of the time.
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First, the concentration of economic power that would result from the uncontrolled operation of the market forces can be reduced through the extension in the public ownership of means of production.
Secondly, private investors may demand a higher risk premium for investment in certain industries than would be socially justified. Off- shore drilling of oil is one example in this connection.
Thirdly, the scales of investment efforts in certain heavy industries may be beyond the capital-raising capacity of the private sector e.g., steel mills, heavy electrical machinery.
Fourthly, the public sector, through the appropriate price policy for its output will generate investible surpluses for further investment in the economy.
Fifthly, by production as well as distribution of certain universal intermediate inputs like coal, steel, electricity etc., the State will be able to control the composition of private economic activity in a socially desirable direction.
Finally, the public sector would assume the role of a model employer and its employment and wage policies would have a moderating influence on the corresponding policies in the private sector.
PERFORMANCE OF CENTRAL PUBLIC SECTOR UNDERTAKINGS
There were altogether 248 CPSEs under the administrative control of various ministries/departments as on 31 March 2011. Out of these, 220 were in operation and 28 were under construction. The share of cumulative investment (paid-up capital plus long-term loans) in all the CPSEs stood at Rs. 6,66,848 crore as on 31 March 2011 ,showing an increase of 14.8 per cent over 2009-10. The share of manufacturing in gross block, during 2010-11, was 27.8 per cent. The share of mining, electricity, and services in total investment, in terms of gross block, was 23.0 per cent, 25.2 per cent, and 23.2 per cent respectively. The net profit of (158) profit-making CPSEs stood at Rs. 1,13,770 crore in 2010-11. The net loss of (62) loss-making enterprises, on the other hand, stood at Rs. 21,693 crore during the same period. The year also witnessed severe financial 'under-recoveries' by public-sector oil marketing companies (OMCs) as they had to keep the prices of petroleum products low in the domestic market despite high input prices of crude oil.
In spite of industrial deregulation and growing import competition, the public sector has broadly maintained its share in domestic output in producing private goods and services, and its composition has also remained roughly the same.
In contrast, however, the public investment ratio, after peaking at 12.5 per cent of GDP(factor cost) in 1986-87 nearly halved to 6.4 per cent by 2001-02, taking the ratio back to the level where it was in the mid-1950s. Clearly, what took the "big planners" three decades to accomplish, the "reformers" undid in less than two decades!
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MICRO AND SMALL ENTERPRISES (MSES)
ROLE OF SMES IN GLOBAL ECONOMY
Worldwide, MSMEs have been recognised as engines of economic growth. The overall contribution of small firms-formal and informal-to the GDP and employment remain about the same across low, middle and high- income group countries. As income increases, the share of the informal sector decreases and that of the formal SME sector increases. In Brazil, MSEs represent 20 per cent of the total GDP. Of the country's 4.7 million registered businesses, 96.8 per cent are MSEs and-along with the other 9.5 million informal enterprises-they employ 59 per cent of the economically active population. Similarly, informal and micro enterprises account for 39 per cent of labour force and contribute to 24 per cent of the GDP in South Africa; SMEs employ 27 per cent of the labour force and contribute 32 per cent to the GDP; while large enterprises employ 34 per cent people and account for 44 per cent of GDP. SMEs comprise over 90 per cent of all industrial units in Bangladesh contributing between 80 per cent and 85 per cent of the industrial employment and 23 per cent of the total civilian employment. The real importance of the SMEs, however, can be seen in China where over 68 per cent of the exports come from the SMEs.
DEFINING MSES-MSMED ACT, 2006
Definition of MSMEs
Manufacturing Sector
Micro enterprises Does not exceed Rs. 25 lakh
Small enterprises More than Rs. 25 lakh and less than Rs. 5 crore
Medium enterprises More the Rs. 5 crore and less than Rs. 10 crore
Service Sector
Micro enterprises Does not exceed Rs. 10 lakh
Small enterprises More than Rs. 10 lakh and less than Rs. 2 crore
Medium enterprises More the Rs. 2 crore and less than Rs. 5 crore
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CHAPTER 7: POVERTY
This chapter deals with one of the most difficult challenges faced by independent India-poverty. Poverty means hunger and lack of shelter. It also is a situation in which parents are not able to send their children to school or a situation where sick people cannot afford treatment. Poverty also means lack of clean water and sanitation facilities. It also means lack of a regular job at a minimum decent level. Above all it means living with a sense of helplessness. Poor people are in a situation in which they are ill-treated at almost every place, in farms, factories, government offices, hospitals, railway stations etc.
HOW POVERTY IS DEFINED?
Since poverty has many facets, social scientists look at it through a variety of indicators. Usually the indicators used relate to the levels of income and consumption. But now poverty is looked through other social indicators like illiteracy level, lack of general resistance due to malnutrition, lack of access to healthcare, lack of job opportunities, lack of access to safe drinking water, sanitation etc. Analysis of poverty based on social exclusion and vulnerability is now becoming very common.
SOCIAL EXCLUSION
According to this concept, poverty must be seen in terms of the poor having to live only in a poor surrounding with other poor people, excluded from enjoying social equality of better-off people in better surroundings. Social exclusion can be both a cause as well as a consequence of poverty in the usual sense. Broadly, it is a process through which individuals or groups are excluded from facilities, benefits and opportunities that others (their “betters”) enjoy. A typical example is the working of the caste system in India in which people belonging to certain castes are excluded from equal opportunities. Social exclusion thus may lead to, but can cause more damage than, having a very low income.
POVERTY LINE
At the centre of the discussion on poverty is usually the concept of the “poverty line”. A common method used to measure poverty is based on the income or consumption levels. A person is considered poor if his or her income or consumption level falls below a given “minimum level” necessary to fulfill basic needs. What is necessary to satisfy basic needs is different at different times and in different countries. Therefore, poverty line may vary with time and place. The present formula for estimating the poverty line is based on the desired calorie requirement. Food items such as cereals, pulses, vegetables, milk, oil, sugar etc. together provide these needed calories. The calorie needs vary depending on age, sex and the type of work that a person does. The accepted average calorie requirement in India is 2400
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calories per person per day in rural areas and 2100 calories per person per day in urban areas. Since people living in rural areas engage themselves in more physical work, calorie requirements in rural areas are considered to be higher than urban areas. The monetary expenditure per capita needed for buying these calorie requirements in terms of food grains etc. is revised periodically taking into consideration the rise in prices. On the basis of these calculations, for the year 2000, the poverty line for a person was fixed at Rs 328 per month for the rural areas and Rs 454 for the urban areas. In this way in the year 2000, a family of five members living in rural areas and earning less than about Rs 1,640 per month will be below the poverty line. A similar family in the urban areas would need a minimum of Rs 2,270 per month to meet their basic requirements. The poverty line is estimated periodically (normally every five years) by conducting sample surveys. These surveys are carried out by the National Sample Survey Organisation (NSSO).
POVERTY LINE ESTIMATES CONTROVERSY.
According to the latest estimates of the Commission, people with the daily consumption of more than Rs 28.65 in cities and Rs 22.42 in rural areas are not poor. It has been criticiesd by various “Social Activist” as a retrograde measure. According to it the number of poor in India has declined to 34.47 crore in 2009-10 from 40.72 crore in 2004-05 as per the estimates based on Tendulkar panel methodology which factors in spending on health and education, besides the calorie intake.
POVERTY LINE DEFINIT ION IN INDIA
The data pegged the poverty ratio at 29.8% of the population in 2009-10, down from 37.2% in 2004-05. However, in recent times, various committees led by economists have come up with different ways to measure the extent of poverty. The official line delivers a poverty rate of around 32% of the population. A committee under Suresh Tendulkar estimated it at 37%, while another led by NC Saxena said 50%, and in 2007 the Arjun Sengupta commission identified 77% of Indians as "poor and vulnerable". The World Bank's PPP estimate of Indian poverty was higher than 40% in 2005, while the Asian Development Bank arrived at almost 50%. The UNDP's Multidimensional Poverty Index finds the proportion of the poor to be higher than 55%.
INTER-STATE DISPARITIES
Poverty in India also has another aspect or dimension. The proportion of poor people is not the same in every state. Although state level poverty has witnessed a secular decline from the levels of early seventies, the success rate of reducing poverty varies from state to state. Recent estimates show that in 20 states and union territories, the poverty ratio is less than the national average. On the other hand, poverty is still a serious problem in Orissa, Bihar, Assam, Tripura and Uttar Pradesh. Orissa and Bihar continue to be the two poorest states with poverty ratios
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of 47 and 43 per cent respectively. Along with rural poverty, urban poverty is also high in Orissa, Madhya Pradesh, Bihar and Uttar Pradesh. In comparison, there has been a significant decline in poverty in Kerala, Jammu and Kashmir, Andhra Pradesh, Tamil Nadu, Gujarat and West Bengal. States like Punjab and Haryana have traditionally succeeded in reducing poverty with the help of high agricultural growth rates. Kerala has focused more on human resource development. In West Bengal, land reform measures have helped in reducing poverty. In Andhra Pradesh and Tamil Nadu public distribution of food grains could have been responsible for the improvement.
GLOBAL POVERTY SCENARIO
The proportion of people in developing countries living in extreme economic poverty— defined by the World Bank as living on less than $1 per day—has fallen from 28 per cent in 1990 to 21 per cent in 2001. Although there has been a substantial reduction in global poverty, it is marked with great regional differences. Poverty declined substantially in China and Southeast Asian countries as a result of rapid economic growth and massive investments in human resource development. Number of poor’s in China has come down from 606 million in 1981 to 212 million in 2001. In the countries of South Asia (India, Pakistan, Sri Lanka, Nepal, Bangladesh, Bhutan) the decline has not been as rapid. Despite decline in the percentage of the poor, the number of poor has declined marginally from 475 million in 1981 to 428 million in 2001. Because of different poverty line definition, poverty in India is also shown higher than the national estimates. In Sub-Saharan Africa, poverty in fact rose from 41 per cent in 1981 to 46 per cent in 2001. In Latin America, the ratio of poverty remained the same. Poverty has also resurfaced in some of the former socialist countries like Russia, where officially it was nonexistent earlier. The Millennium Development Goals of the United Nations calls for reducing the proportion of people living on less than $1 a day to half the 1990 level by 2015.
CAUSES OF POVERTY
1. One historical reason is the low level of economic development under the British colonial administration. The policies of the colonial government ruined traditional handicrafts and discouraged development of industries like textiles.
2. High growth rate of population.
3. Unequal distribution of land and other resources.
4. Major policy initiatives like land reforms which aimed at redistribution of assets in rural areas have not been implemented properly.
5. Many other socio-cultural and economic factors also are responsible for poverty. In order to fulfil social obligations and observe religious ceremonies, people in India, including the very poor, spend a lot of money.
6. High level of indebtedness is both the cause and effect of poverty.
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7. Low Productivity in Agriculture
8. Under Utilized Resources: The existence of under employment and disguised unemployment of human resources and under utilization of resources has resulted in low production in agricultural sector.
9. Inflation: The continuous and steep price rise has added to the miseries of poor. It has benefited a few people in the society and the persons in lower income group find it difficult to get their minimum needs.
ANTI-POVERTY MEASURES
Removal of poverty has been one of the major objectives of Indian developmental strategy. The current anti-poverty strategy of the government is based broadly on two planks (1) promotion of economic growth (2) targeted anti-poverty programmes. Over a period of thirty years lasting up to the early eighties, there were little per capita income growth and not much reduction in poverty. Official poverty estimates which were about 45 per cent in the early 1950s remained the same even in the early eighties. Since the eighties, India’s economic growth has been one of the fastest in the world. The growth rate jumped from the average of about 3.5 per cent a year in the 1970s to about 6 per cent during the 1980s and 1990s. The higher growth rates have helped significantly in the reduction of poverty. Therefore, it is becoming clear that there is a strong link between economic growths and poverty reduction. Economic growth widens opportunities and provides the resources needed to invest in human development. However, the poor may not be able to take direct advantage from the opportunities created by economic growth. Moreover, growth in the agriculture sector is much below expectations. This has a direct bearing on poverty as a large number of poor people live in villages and are dependent on agriculture.
NATIONAL RURAL EMPLOYMENT GUARANTEE ACT (NREGA) 2005
It was passed in September 2005. The Act provides 100 days assured employment every year to every rural household One third of the proposed jobs would be reserved for women. The central government will also establish National Employment Guarantee Funds. Similarly state governments will establish State Employment Guarantee Funds for implementation of the scheme. Under the programme if an applicant is not provided employment within fifteen days s/he will be entitled to a daily unemployment allowance.
POVERTY ALLEVIATION IN INDIA: CONCEPT NOTE OF 12TH FIVE YEAR PLAN
This concept note underlines the magnitude of poverty; strategies adopted and propose a policy plan required for poverty alleviation in India.
Introduction
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“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable” (Adam Smith, 1776). Recognising the problem, the Millennium Development Goals of the United Nations also contain a commitment to halve the proportion of the world’s population living in extreme poverty by 2015.
Poverty is widespread in India, with the nation estimated to have a third of the world's poor. The World Bank (2005) estimated that 41.6 percent of the total Indian population lived under the international poverty line of US $1.25 per day (PPP), reduced from 60 percent in 1981. Poverty eradication has been one of the major objectives of planned development in India. According to the criterion of household consumer expenditure used by the Planning Commission of India, 27.5 percent of the population was living below the poverty line in 2004–2005, down from 51.3 percent in 1977–1978, and 36% in 1993-1994 (Economic Survey 2009-10). The overwhelming fact about poverty in the country is its rural nature. Major determinants of poverty are lack of income and purchasing power attributable to lack of productive employment and considerable underemployment, inadequacy of infrastructure, affecting the quality of life and employability, etc.
1. Poverty Alleviation Programmes: Poverty alleviation programmes have assumed relevance as it is proved globally that the so-called 'trickle-down effect' does not work in all the societies and India is no exception to this. In recent times, there has been a significant shift in focus in the poverty literature away from the ‘trickle-down’ concept of growth towards the idea of ‘pro-poor growth’, which enables the poor to actively participate in and benefit from economic activities. Hence, the strategy of targeting the poor was adopted in India and the economic philosophy behind these special programmes was that special preferential treatment was necessary to enable the poor to participate in economic development (Raj Krishna, 1977). Inclusive growth also focuses on productive employment for the excluded groups. Poverty alleviation programmes have been designed from time to time to enlarge the income-earning opportunities for the poor. These programmes are broadly classified into:
2. Self-employment programmes: Creating self-employment opportunities began with
the introduction of the IRDP in 1978-79, TRYSEM (1979), DWCRA (1982-83), supply of improved toolkits to rural artisans (1992) and the Ganga Kalyan Yoajna (1996-1997). To remove conceptual and operational problems in the implementation of these programmes, a holistic programme covering all aspects of self-employment such as organisation of the poor into SHGs, training, credit, technology, infrastructure and marketing called Swarnjayanti Gram Swarozgar Yojana (SGSY), was started on April 1, 1999. Based on the feedback provided and recommendations made by various studies, National Rural Livelihood Mission (NRLM) was launched during 2009-10 to facilitate effective implementation of the restructured SGSY scheme in a mission mode. NRLM aims at reducing poverty in rural areas through
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promotion of diversified and gainful self-employment and wage employment opportunities.
3. Wage employment programmes: The main purpose of the wage employment
programmes is to provide a livelihood during the lean agricultural season as well as during drought and floods. Wage employment programmes were first started during the Sixth and Seventh Plan in the form of National Rural Employment Programme (NREP) and Rural Landless Employment Guarantee Programmes (RLEGP). These programmes were merged in 1989 into Jawahar Rozgar Yojana (JRY). A special wage employment programme in the name of Employment Assurance Scheme (EAS) was launched in 1993 for the drought prone, desert, tribal and hill area blocks in the country. Different wage employment programmes were merged into Sampoorna Gramin Rozgar Yojana in 2001. NREGS, launched in 2006, aims at enhancing the livelihood security of people in rural areas by guaranteeing hundred days of wage-employment in a financial year to a rural household whose adult members volunteer to do unskilled manual work. During 2008-09, 4.51 crore households were provided employment under the scheme.
4. Food security programmes: Under this, PDS is a very important poverty alleviation
programme directly acting as safety net for the poor. 5. Social security programmes include National Social Assistance Programme (NSAP),
Annapurna, etc. for the BPL. 6. Urban poverty alleviation programmes include Nehru Rozgar Yojana, Urban Basic
Services for Poor (UBSP), etc involving participation of the communities and non-governmental organizations.
Besides, other initiatives undertaken to alleviate poverty include price supports, food subsidy, land reforms, Area Development Programmes, improving agricultural techniques, free electricity for farmers, water rates, PRIs, growth of rural banking system, grain banks, seed banks, etc. Such endeavours not only reduced poverty but also empowered the poor to find solution to their economic problems. For instance, the wage employment programmes have resulted in creation of community assets as well as assets for the downtrodden besides providing wage employment to the poor. Self-employment programmes, by adopting SHG approach have led to mainstreaming the poor to join the economic development of the country. But the focus on the sustainable income generation still remains illusive. A review of different poverty alleviation programmes shows that there has been erosion in the programmes in terms of resource allocation, implementation, bureaucratic controls, non- involvement of local communities, etc.
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NABARD has also been contributing in Rural Poverty Allevaition through its various initiatives/ schemes like SHG Bank Linkage Programme, watershed development, tribal development, CDP, REDP, ARWIND, MAHIMA, support to weavers, RIDF, R&D Fund, etc.
Policy Plan required for Poverty Alleviation in India
To promote growth in agricultural productivity and non-farm rural activities
Public investment in rural infrastructure and agricultural research. Agricultural research benefits the poor directly through an increase in farm production, greater employment opportunities and growth in the rural non-farm economy.
Credit policies to promote farm investment and rural microenterprises
Policies to promote human capital to expand the capabilities of the poor
Development of rural financial markets
Self-Help Group Approach to be strengthened as it is a proven method of empowerment of the poor
Involvement of local communities and people’s participation in NRLM and MGNREGS.
Decentralization of the programmes by strengthening the Panchayati Raj Institutions
Public Distribution System (PDS) needs to be reformed and better targeted
Provision of safety nets like targeted food subsidies, nutrition programmes and health
Targeted poverty alleviation programmes to continue as the poor of the developing world may not have the patience to wait for the trickle-down effect.
Poverty Head Count Ratio: Major Indian States
States Rural Urban Total
1993-
94
2004-05
1993-94
2004-2005
1993-94
2004-2005
Andhra Pradesh 159 112 383 28 222 158
Assam 450 223 7.7 3.3 409 191
Bihar 582 430 34.5 28.7 550 11.1
Gujarat 222 19.1 279 13 242 16.8
Haryana 280 13.6 16.4 15.1 251 110
Karnataka 299 20.8 401 32.6 332 250
Kerala 258 13.2 24.6 20.2 254 150
Madhya
Pradesh 406 37.9 48.4 41.9 425 39
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Poverty By Social Groups: Rural 2004-05
States ST SC OBC OTHERS
Andhra Pradesh 30.5 15.4 9.5 4.1
Assam 14.1 27.7 18.8 25.4
Bihar 53.3 64 37.8 26.6
Chhattisgarh 54.7 32.7 33.9 29.2
Delhi 0.0 0.0 0.0 10.6
Gujarat 34.7 21.8 19.1 4.8
Haryana 0.0 26.8 13.9 4.2
Himachal Pradesh 14.9 19.6 9.1 6.4
Jammu & Kashmir 8.8 5.2 10.0 3.3
Jharkhand 54.2 57.9 40.2 37.1
Karnataka 23.5 31.8 20.9 13.8
Kerala 44.3 21.6 13.7 6.6
Madhya Pradesh 58.6 42.8 29.6 13.4
Maharashtra 56.6 44.8 23.9 18.9
Orissa 75.6 50.2 36.9 23.4
Maharashtra 379 29.6 352 322 369 301
Orissa 497 16.8 41.6 11.3 486 161
Punjab 120 9.1 11.4 1.1 118 81
Rajasthan 265 18.1 30.5 32.9 274 221
Tamil Nadu 325 22.8 39.8 222 350 225
Uttar Pradesh 423 33.7 35.4 31 409 331
West Bengal 408 28.6 22.4 11.8 357 211
India 373 28.3 32.4 25.1 360 215
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Punjab 30.7 14.6 10.6 2.2
Rajasthan 32.6 28.7 13.1 8.2
Tamil Nadu 32.1 31.2 19.8 19.1
Uttar Pradesh 32.4 44.8 32.9 19.7
Uttarakhand 43.2 54.2 44.8 33.5
West Bengal 42.4 29.5 18.3 27.5
All India 47.2 36.8 26.7 16.1
TERMS RELATED TO POVERTY
Head Count Ratio (HCR): proportion of total population that falls below poverty threshold income or expenditure. It is based on either national Poverty Line or dollar-a-day Poverty Line.
Poverty Gap Index (PGI): unlike HCR, it gives us a sense of how poor the poor are. It is equivalent to income gap below PL per head of total population, and expressed as a percentage of the poverty line.
Squared Poverty Gap index (SPG): Adds the dimension of inequality among the poor to the poverty gap index. For a given value of the PGI, population with greater dispersion of income among poor indicates a higher value for the SPG.
Lorenz curve: a curve that represents relationship between cumulative proportion of income and cumulative proportion of population in income distribution by size, beginning with the lowest income group. If perfect income equality, Lorenz curve will coincides with 45-degree line.
Gini coefficient: a commonly used measure of inequality; ratio of area between Lorenz curve and 45-degree line, expressed as a percentage of area under 45-degree line. If perfect equality, Gini coefficient takes value 0.If perfect inequality, equals 1. Internationally, Gini coefficient normally ranges between 0.25 & 0.7
Valmiki Ambedkar Awas Yojana (VAMBAY): The VAMBAY launched in December 2001 facilitates the construction and upgradation of dwelling units for the slum dwellers and provides a healthy and enabling urban environment through community toilets under Nirmal Bharat Abhiyan, a component of the scheme. The Central Government provides a subsidy of 50 per cent, the balance 50 per cent being arranged by the State Government.
Swarna Jayanti Shahari Rozgar Yojana (SJSRY): The Urban Self Employment Programme and the Urban Wage Employment Programme are the two special components of the SJSRY, which,
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in December 1997, substituted for various extant programmers implemented for urban poverty alleviation. SJSRY is funded on a 75:25 basis between the Centre and the States.
Antyodaya Anna Yojana (AAY): AAY launched in December 2000 provides food grains at a highly subsidized rate of Rs.2.00 per kg for wheat and Rs.3.00 per kg for rice to the poor families under the Targeted Public Distribution System (TPDS). The scale of issue, which was initially 25 kg per family per month, was increased to 35 kg per family per month from April 1, 2002. The scheme initially for one crore families was expanded in June 2003 by adding another 50 lakh BPL Families.
Pradhan Mantri Gram Sadak Yojana (PMGSY): The PMGSY, launched in December 2000 as a 100 per cent centrally Sponsored Scheme, aims at providing rural connectivity to unconnected habitations with population of 500 persons or more in the rural areas by the end of the Tenth Plan period. Augmenting and modernising rural roads has been included as an item of the NCMP. The programme is funded mainly from the accruals of diesel cess in the Central Road Fund. In addition, support of the multi-lateral funding agencies and the domestic financial institutions are being obtained to meet the financial requirements of the programme.
Prime Minister’s Rozgar Yojana (PMRY): PMRY started in 1993 with the objective of making available self-employment opportunities to the educated unemployed youth by assisting them in setting up any economically viable activity. While the REGP is implemented in the rural areas and small towns (population up to 20,000) for setting up village industries without any cap on income, educational qualification or age of the beneficiary, PMRY is meant for educated unemployed youth with family income of up to Rs.40, 000 per annum, in both urban and rural areas, for engaging in any economically viable activity.
Pradhan Mantri Gramodaya Yojana (PMGY): PMGY launched in 2000-01 envisages allocation of Additional Central Assistance (ACA) to the States and UTs for selected basic services such as primary health, primary education, rural shelter, rural drinking water, nutrition and rural electrification.
Indira Awaas Yojana (IAY): The Indira Awaas Yojana (IAY) operationalised from 1999-2000 is the major scheme for construction of houses for the poor, free of cost. The Ministry of Rural Development (MORD) provides equity support to the Housing and Urban Development Corporation (HUDCO) for this purpose.
Sampoorna Grameen Rozgar Yojana (SGRY): SGRY, launched in 2001, aims at providing additional wage employment in all rural areas and thereby food security and improve nutritional levels. The SGRY is open to all rural poor who are in need of wage employment and desire to do manual and unskilled work around the village/habitat. The programme is implemented through the Panchayati Raj Institutions (PRIs).
Swaranjayanti Gram Swarozgar Yojana (SGSY): SGSY, launched in April 1999, aims at bringing the assisted poor families (Swarozgaris) above the poverty line by organizing them into Self Help Groups (SHGs) through a mix of Bank credit and Government subsidy.
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National Food for Work Programme: In line with the NCMP, National Food for Work Programme was launched on November 14, 2004 in 150 most backward districts of the country with the objective to intensify the generation of supplementary wage employment. The programme is open to all rural poor who are in need of wage employment and desire to do manual unskilled work. It is implemented as a 100 per cent centrally sponsored scheme and the food grains are provided to States free of cost. However, the transportation cost, handling charges and taxes on food grains are the responsibility of the States.
National Social Assistance Programme: The National Social Assistance Programme (NSAP) was introduced as a 100 per cent Centrally Sponsored Scheme on 15th August 1995. It has three components: namely (i) National Old Age Pension Scheme (NOAPS), (ii) National Family Benefit Scheme (NFBS) and (iii) National Maternity Benefit Scheme (NMBS). The programme represents a significant step towards fulfillment of the Directive Principles in Articles 41 and 42 of the Constitution. NSAP supplements efforts of State Governments with the objective of ensuring minimum national levels of well-being and the Central assistance is not meant to displace the State’s own expenditure on Social Protection Schemes.
Jawahar Rozgar Yojana (JRY): JRY was launched as Centrally Sponsored Scheme on 1st April, 1989 by merging National Rural Employment Programme (NREP) and Rural Landless Employment Guarantee Programme (RLEGP). Its main objective was generation of additional gainful employment for the unemployed and under-employed people in rural areas through the creation of rural economic infrastructure, community and social assets with the aim of improving the quality of life of the rural poor.
Integrated Rural Development Programme: The Integrated Rural Development Programme (IRDP) was started in 1980-81 in all blocks of the country and continued as a major self-employment scheme till April 1, 1999. Then, it was restructured as the Swarnjayanti Gram Swarozgar Yojana. (SGSY) which aimed at self-employment of the rural poor. The objective will be achieved through acquisition of productive assets or appropriate skills that would generate an additional income on a sustained basis to enable them to cross poverty line.
Pradhan Mantri Gram Sadak Yojana: The primary objective of the PMGSY is to provide Connectivity, by way of an All-weather Road (with necessary culverts and cross-drainage structures, which is operable throughout the year), to the eligible unconnected Habitations in the rural areas, in such a way that all Unconnected Habitations with a population of 1000 persons and above are covered in three years (2000-2003) and all Unconnected Habitations with a population of 500 persons and above by the end of the Tenth Plan Period (2007). In respect of the Hill States (North-East, Sikkim, Himachal Pradesh, Jammu & Kashmir, Uttaranchal) and the Desert Areas (as identified in the Desert Development Programme) as well as the Tribal (Schedule V) areas, the objective would be to connect Habitations with a population of 250 persons and above.
The PMGSY will permit the Up gradation (to prescribed standards) of the existing roads in those Districts where all the eligible Habitations of the designated population size (refer Para 2.1
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above) have been provided all-weather road connectivity. However, it must be noted that Up gradation is not central to the Programme and cannot exceed 20% of the State’s allocation as long as eligible Unconnected Habitations in the State still exist. In Up gradation works, priority should be given to Through Routes of the Rural Core Network, which carry more traffic
Council for Advancement of People’s Action & Rural Technology (CAPART): Recognising the need for an organisation that would coordinate and catalyse the development work of voluntary agencies in the country, particularly to ensure smooth flow of benefits to the underprivileged and socio-economically weaker sections of society, Government of India, in September, 1986 set up the Council for Advancement of People’s Action and Rural Technology (CAPART), a registered society under the aegis of the Department of Rural Development, by merging two autonomous bodies, namely, People’s Action for Development of India (PADI) and Council for Advancement of Rural Technology (CAPART).
The main objectives of the CAPART are:-
To encourage, promote and assist voluntary action for the implementation of projects intending enhancement of rural prosperity.
To Strengthen and promote voluntary efforts in rural development with focus on injecting ew technological inputs;
To act as a catalyst for the development of technology appropriate for rural areas.
To promote, plan, undertake, develop, maintain and support projects/schemes aimed at all-round development, creation of employment opportunities, promotion of self-reliance, generation of awareness, organisation and improvement in the quality of life of the people in rural areas through voluntary action.
PROVISION OF URBAN AMENITIES IN RURAL AREAS (PURA): Holistic and accelerated development of compact areas around a potential growth centre in a Gram Panchayat (or a group of Gram Panchayat) through Public Private Partnership (PPP) framework for providing livelihood opportunities and urban amenities to improve the quality of life in rural areas.
DROUGHT PRONE AREAS PROGRAMME (DPAP): The basic objective of the programme is to minimise the adverse effects of drought on production of crops and livestock and productivity of land, water and human resources ultimately leading to drought proofing of the affected areas. The programme also aims to promote overall economic development and improving the socio-economic conditions of the resource poor and disadvantaged sections inhabiting the programme areas.
DESERT DEVELOPMENT PROGRAMME (DDP): The basic object of the programme is to minimise the adverse effect of drought and control desertification through rejuvenation of natural resource base of the identified desert areas. The programme strives to achieve ecological balance in the long run. The programme also aims at promoting overall economic development
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and improving the socio-economic conditions of the resource poor and disadvantaged sections inhabiting the programme areas.
“TECHNOLOGY DEVELOPMENT EXTENSION AND TRAINING” FOR WASTELANDS DEVELOPMENT IN NON-FOREST AREAS: Objectives of the programme
a) To operationalise appropriate, cost effective and proven technologies for development of various categories of wastelands specially problem lands affected by soil erosion, land degradation, salinity, alkalinity, water logging etc.
b) (b) To implement location specific pilot project as demonstration models for development of wastelands on a sustainable basis.
c) To take up pilot projects for development of wastelands through land based activities including pisciculture, duckery, bee-keeping, etc.
d) To disseminate research findings about new and appropriate technologies and the application of such technologies for promoting wastelands development.
e) To undertake mapping of wastelands including preparation of thematic maps relevant for the purpose of designing of watershed development projects/schemes using conventional and state-of-the-art technologies, methods and materials and to prepare watershed development project for identified areas.
f) To undertake and support preparation of watershed maps and atlas of micro-watershed as an aid to the planning and implementation of watershed development programs.
Hariyali: The objectives of projects under HARIYALI will be: -
a) Harvesting every drop of rainwater for purposes of irrigation, plantations including horticulture and floriculture, pasture development, fisheries etc. to create sustainable sources of income for the village community as well as for drinking water supplies.
b) Ensuring overall development of rural areas through the Gram Panchayat and creating regular sources of income for the Panchayat from rainwater harvesting and management.
c) Employment generation, poverty alleviation, community empowerment and development of human and other economic resources of the rural areas.
d) Mitigating the adverse effects of extreme climatic conditions such as drought and desertification on crops, human and livestock population for the overall improvement of rural areas.
e) Restoring ecological balance by harnessing, conserving and developing natural resources i.e. land, water, vegetative cover especially plantations.
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f) Encouraging village community towards sustained community action for the operation and maintenance of assets created and further development of the potential of the natural resources in the watershed.
g) Promoting use of simple, easy and affordable technological solutions and institutional arrangements that make use of, and build upon, local technical knowledge and available materials.
Computerization of Land Records: The scheme of Computerisation of Land Records (CLR) was started in 1988-89. This is a 100 per cent grant-in-aid scheme executed by the State Governments. The main objective of CLR scheme is that landowners should get computerized copies of Records of Rights (RORs) at a reasonable price. The ultimate objective of the scheme is ‘on-line management’ of land records in the country.
Under the scheme, 100% financial assistance is provided to States for completion of data entry work, setting up computer centers at the tehsil or taluk or block and sub divisional levels and monitoring cell at the State level. Funds are also provided under the scheme for imparting training on computer awareness and applications software to revenue officials for regular updation of records of rights and smooth operation of computer centers.
National Skill Development Mission consists of following three institutions:
Prime Minister’s National Council on Skill Development-under the chairmanship of Hon’ble Prime Minister, for policy direction and review of spectrum of skill development efforts in country.
National Skill Development Coordination Board-under the chairmanship of Dy. Chairman Planning Commission to enumerate strategies to implement the decisions of PM’s council.
National Skill Development Corporation (NSDC), a non-profit company under the Companies Act, 1956. The corporation is being funded by trust “National Skill Development Fund” to which the Government has contributed a sum of Rs.995.10 crores. The corporation is expected to mobilize about Rs.15, 000 crores from other governments, public sector entities, private sector, bilateral and multilateral sources. The corporation is expected to meet the skill training requirements of the labour market including that of unorganized sector. National Policy on Skill Development (NPSD) approved by the Government has set a target for skilling 500 million persons by the year 2022.
Rajiv Gandhi Grameen Vidutikaran Yojana: Under RGGVY, electricity distribution infrastructure is envisaged to establish Rural Electricity Distribution Backbone (REDB) with at least a 33/11KV sub-station in a block, Village Electrification Infrastructure (VEI) with at least a Distribution Transformer in a village or hamlet, and standalone grids with generation where grid supply is not feasible.
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Subsidy towards capital expenditure to the tune of 90% is being provided, through Rural Electrification Corporation Limited (REC), which is a nodal agency for implementation of the scheme. Electrification of un-electrified Below Poverty Line (BPL) households is being financed with 100% capital subsidy @ Rs.2200/- per connection in all rural habitations.
Rural Electrification Corporation is the nodal agency for implementation of the scheme. The services of Central Public Sector Undertakings (CPSU) are available to the States for assisting them in the execution of Rural Electrification projects. The Management of Rural Distribution is mandated through franchisees.
Under Phase-I of RGGVY, Ministry of Power has sanctioned 576 projects for 546 districts to electrify 1, 10,886 villages and to provide free electricity connections to 2.29 Crore BPL rural households. As on 30th Sept., 2012, works in 1, 05,851 villages have been completed and 201.18 lakh free electricity connections have been released to BPL households. 72 projects under Phase-II covering electrification of 1909 un-electrified villages, 46606 un-electrified habitations, 53,505 partially electrified villages, 25,947 partially electrified habitations and release of free electricity connections to 45,59,141 BPL households have also been sanctioned with an outlay of Rs. 7964.32 crore
The Bharat Nirman target for RGGVY was to electrify 1 lakh villages and to provide free electricity connections to 175 lakh BPL households by March 2012 which was achieved by 31st December, 2011.
National Rural Livelihood Mission (Aajeevika): Aajeevika - National Rural Livelihoods Mission (NRLM) was launched by the Ministry of Rural Development (MoRD), Government of India in June 2011. Aided in part through investment support by the World Bank, the Mission aims at creating efficient and effective institutional platforms of the rural poor enabling them to increase household income through sustainable livelihood enhancements and improved access to financial services.
NRLM has set out with an agenda to cover 7 Crore BPL households, across 600 districts, 6000 blocks, 2.5 lakh Gram Panchayat and 6 lakh villages in the country through self-managed Self Help Groups (SHGs) and federated institutions and support them for livelihoods collectives in a period of 8-10 years. In addition, the poor would be facilitated to achieve increased access to their rights, entitlements and public services, diversified risk and better social indicators of empowerment. NRLM believes in harnessing the innate capabilities of the poor and complements them with capacities (information, knowledge, skills, tools, finance and collectivization) to participate in the growing economy of the country.
Rashtriya Mahila Kosh (RMK): The National credit Fund for Women is an innovative mechanism for reaching credit to poor women. Through access to credit, it aims to raise the capacity of women by enhancing through productivity and economic self- reliance. It has provided credits to over 2.32 lakh women since its inception from 1993. It encourages formation of Self Help Groups (SHGs) for promotion of thrift and credit leading to income generation activities.
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JANANI SURAKSHA YOJANA (JSY): Janani Suraksha Yojana (JSY) is a safe motherhood intervention under the National Rural Health Mission (NRHM) being implemented with the objective of reducing maternal and neo-natal mortality by promoting institutional delivery among the poor pregnant women. The Yojana, launched on 12th April 2005, by the Hon’ble Prime Minister, is being implemented in all states and UTs with special focus on low performing states. JSY is a 100 % centrally sponsored scheme and it integrates cash assistance with delivery and post-delivery care. The success of the scheme would be determined by the increase in institutional delivery among the poor families The Yojana has identified ASHA, the accredited social health activist as an effective link between the Government and the poor pregnant women in 10 low performing states, namely the 8 EAG states and Assam and J&K and the remaining NE States. In other eligible states and UTs, wherever, AWW and TBAs or ASHA like activist has been engaged in this purpose, she can be associated with this Yojana for providing the services.
NATIONAL RURAL HEALTH MISSION –
The National Rural Health Mission (2005-12) seeks to provide effective healthcare to rural population throughout the country with special focus on 18 states, which have weak public health indicators and/or weak infrastructure.
These 18 States are Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Himachal Pradesh, Jharkhand, Jammu & Kashmir, Manipur, Mizoram, Meghalaya, Madhya Pradesh, Nagaland, Orissa, Rajasthan, Sikkim, Tripura, Uttaranchal and Uttar Pradesh.
The Mission is an articulation of the commitment of the Government to rise public spending on Health from 0.9% of GDP to 2-3% of GDP. It has as its key components provision of a female health activist in each village; a village health plan prepared through a local team headed by the Health & Sanitation Committee of the Panchayat; strengthening of the rural hospital for effective curative care and made measurable and accountable to the community through Indian Public Health Standards (IPHS); and integration of vertical Health & Family Welfare Programmers and Funds for optimal utilization of funds and infrastructure and strengthening delivery of primary healthcare.
It seeks to revitalize local health traditions and mainstream AYUSH into the public health system.
It aims at effective integration of health concerns with determinants of health like sanitation & hygiene, nutrition, and safe drinking water through a District Plan for Health.
It seeks decentralization of programmer for district management of health.
PRIME MINISTER’S EMPLOYMENT GENERATION PROGRAMME (PMEGP): Government of India has approved the introduction of a new credit linked subsidy programme called Prime Minister’s Employment Generation Programme (PMEGP) by merging the two schemes that
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were in operation till 31.03.2008 namely Prime Minister’s Rojgar Yojana (PMRY) and Rural Employment Generation Programme (REGP) for generation of employment opportunities through establishment of micro enterprises in rural as well as urban areas. PMEGP will be a central sector scheme to be administered by the Ministry of Micro, Small and Medium Enterprises (MoMSME). The Scheme will be implemented by Khadi and Village Industries Commission (KVIC), a statutory organization under the administrative control of the Ministry of MSME as the single nodal agency at the National level. At the State level, the Scheme will be implemented through State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs) and District Industries Centres (DICs) and banks. The Government subsidy under the Scheme will be routed by KVIC through the identified Banks for eventual distribution to the beneficiaries / entrepreneurs in their Bank accounts. The Implementing Agencies, namely KVIC, KVIBs and DICs will associate reputed Non Government Organization (NGOs)/reputed autonomous institutions/Self Help Groups (SHGs)/ National Small Industries Corporation (NSIC) / Udyami Mitras empanelled under Rajiv Gandhi Udyami Mitra Yojana (RGUMY), Panchayati Raj institutions and other relevant bodies in the implementation of the Scheme, especially in the area of identification of beneficiaries, of area specific viable projects, and providing training in entrepreneurship development.
Rajiv Gandhi Gramin LPG Vitaran Yojana (RGGLVY): Rajiv Gandhi Gramin LPG Vitaran Yojana (RGGLVY) was launched on October 16, 2009. The Scheme aims at setting up small size LPG distribution agencies in order to increase rural penetration and to cover remote as well as low potential areas (locations having potential of 600 cylinders (refill sales) per month). The agencies would penetrate deeper into the rural areas where regular distributorships become unviable due to the scale of operation and investment. RGGLV distributors may be viable for around 1,500 customers in the cluster of villages being served.
These agencies will be self operated: The distributorship himself will manage the agency, with the help of his family member and one or two employees.
There will be no arrangement for home delivery.
Age limit for the distributor is being kept as between 21 and 45 years leading to new employment opportunities for the rural youth.
Distributor under the scheme will have to be a permanent resident of the village(s) covered by particular location.
Total Sanitation Campaign (TSC) or Nirmal Bharat Abhiyan (NBA) is a Community-led total sanitation program initiated by Government of India in 1999. It is a demand-driven and people-centered sanitation program. It evolved from the limited achievements of the first structured programme for rural sanitation in India, the Central Rural Sanitation Programme, which had minimal community participation. The main goal of Total Sanitation Campaign is to eradicate the practice of open defecation by 2017. Community-led total sanitation is not focused on building infrastructure, but on preventing open defecation through peer pressure and shame. In Maharashtra where the program started more than 2000 Gram Panchayats have achieved
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"open defecation free" status. Villages that achieve this status receive monetary rewards and high publicity under a program called Nirmal Gram Puraskar.
Rajiv Awas Yojana envisages a ‘Slum-free India’ with inclusive and equitable cities in which every citizen has access to basic civic and social services and decent shelter. It aims to achieve this vision by encouraging States/Union Territories to tackle the problem of slums in a definitive manner, by a multi-pronged approach focusing on:
Bringing all existing slums, notified or non-notified within the formal system and enabling them to avail of the same level of basic amenities as the rest of the town;
Redressing the failures of the formal system that lie behind the creation of slums; and
Tackling the shortages of urban land and housing that keep shelter out of reach of the urban poor and force them to resort to extra-legal solutions in a bid to retain their sources of livelihood and employment.
The duration of Rajiv Awas Yojana will be in two phases: Phase-I, for a period of two years from the date of approval of the scheme and Phase-II which will cover the remaining period of the Twelfth Five Year Plan 2013-17 RAY will be run in a Mission Mode.
Rashtriya Swastha Bima Yojana: RSBY has been launched by Ministry of Labour and Employment, Government of India to provide health insurance coverage for Below Poverty Line (BPL) families. The objective of RSBY is to provide protection to BPL households from financial liabilities arising out of health shocks that involve hospitalization. Beneficiaries under RSBY are entitled to hospitalization coverage up to Rs. 30,000/- for most of the diseases that require hospitalization. Government has even fixed the package rates for the hospitals for a large number of interventions. Pre-existing conditions are covered from day one and there is no age limit. Coverage extends to five members of the family which includes the head of household, spouse and up to three dependents. Beneficiaries need to pay only Rs. 30/- as registration fee while Central and State Government pays the premium to the insurer selected by the State Government on the basis of a competitive bidding.
Swabhimaan is a campaign of the Government of India which aims to bring banking services to large rural areas without banking services in the country. It was launched on February 10, 2011. This campaign is to be operated by the Ministry of Finance, Government of India and the Indian Banks' Association (IBA) to bring banking within the reach of the masses of the Indian population.
Urban infrastructure Development Scheme for Small & Medium Towns aims at improvement in urban infrastructure in towns and cities in a planned manner. It shall subsume the existing schemes of Integrated Development of Small and Medium Towns (IDSMT) and Accelerated Urban Water Supply Programme (AUWSP).
The objectives of the scheme are to:
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Improve infrastructural facilities and help create durable public assets and quality oriented services in cities & towns
Enhance public-private-partnership in infrastructural development and
Promote planned integrated development of towns and cities.
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CHAPTER 8: EMPLOYMENT AND UNEMPLOYMENT
UNEMPLOYMENT
Unemployment is said to exist when people who are willing to work at the going wages cannot find jobs. In case of India we have unemployment in rural and urban areas. However, the nature of unemployment differs in rural and urban areas. In case of rural areas, there is seasonal and disguised unemployment. Urban areas have mostly educated unemployment. Seasonal unemployment happens when people are not able to find jobs during some months of the year. People dependent upon agriculture usually faces such kind of problem. There are certain busy seasons when sowing, harvesting, weeding and threshing is done. Certain months do not provide much work to the people dependant on agriculture. In case of disguised unemployment people appear to be employed. They have agricultural plot where they find work. This usually happens among family members engaged in agricultural activity. The work requires the service of five people but engages eight people. Three people are extra. These three people also work in the same plot as the others. The contribution made by the three extra people does not add to the contribution made by the five people. If three people are removed the productivity of the field will not decline. The field requires the service of five people and the three extra people are disguised unemployed. In case of urban areas educated unemployment has become a common phenomenon. Many youth with matriculation, graduation and post graduation degrees are not able to find job. A study showed that unemployment of graduate and post-graduate has increased faster than among matriculates. A paradoxical manpower situation is witnessed as surplus of manpower in certain categories coexist with shortage of manpower in others. There is unemployment among technically qualified person on one hand, while there is a dearth of technical skills required for economic growth. Unemployment leads to wastage of manpower resource. People who are an asset for the economy turn into a liability. There is a feeling of hopelessness and despair among the youth. People do not have enough money to support their family. Inability of educated people who are willing to work to find gainful employment implies a great social waste. Unemployment tends to increase economic overload. The dependence of the unemployed on the working population increases. The quality of life of an individual as well as of society is adversely affected. When a family has to live on a bare subsistence level there is a general decline in its health status and rising withdrawal from the school system. Hence, unemployment has detrimental impact on the overall growth of an economy. Increase in unemployment is an indicator of a depressed economy. It also wastes the resource, which could have been gainfully employed. If people cannot be used as a resource they naturally appear as a liability to the economy. In case of India, statistically, the unemployment rate is low. A large number of people represented with low income and productivity are counted as employed. They appear to work throughout the year but in terms of their potential and income, it is not adequate for them. Moreover, the employment structure is characterised by self-
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employment in the primary sector. The whole family contributes in the field even though not everybody is really needed. So there is disguised unemployment in the agriculture sector. But the entire family shares what has been produced. This concept of sharing of work in the field and the produce raised reduces the hardship of unemployment in the rural sector. But this does not reduce the poverty of the family; gradually surplus labour from every household tends to migrate from the village in search of jobs.
EMPLOYMENT
Let us discuss about the employment scenario in the three sectors mentioned earlier. Agriculture is the most labour absorbing sector of the economy. In recent years, there has been a decline in the dependence of population on agriculture partly because of disguised unemployment discussed earlier. Some of the surplus labour in agriculture has moved to either the secondary or the tertiary sector. In the secondary sector, small scale manufacturing is the most labour absorbing. In case of the tertiary sector, various new services are now appearing like biotechnology, information technology and so on.
EMPLOYMENT TRENDS IN INDIA
Structure of Employment
Any assessment of the employment performance of the Indian Economy is not meaningful without an analysis of the structural dimensions of employment. These dimensions define and determine the substantive meaning of employment in terms of its nature and quality. Only a small segment of the workforce is employed on a regular basis at reasonable levels of wages and salaries. A large part is self-employed in agriculture which continues to be the major source of employment and livelihood for majority of the Indian workers. And an overwhelming majority works in what is called the unorganized or the informal sector. These qualitative dimensions are, of course, interrelated and reinforce each other in the direction of keeping the quality of employment low. We look at these aspects of employment particularly focusing on the nature and extent of structural changes that have taken place in the recent decades, in this section.
Sectoral Employment Shares
As is well know, majority of Indian workers are engaged in agriculture and allied activities. With economic development, agriculture is expected to decline in importance in terms of its share in employment and output. Proportion of agriculture in total employment has declined over the years: from 74 per cent in 1972-73 to 68 per cent in 1983, 60 per cent in 1993-94 and to 57 per cent in 2004- 05. It has declined further to 51 per cent in 2009-11 (Table 16). It is particularly important to note that the decline in the employment share of agriculture has been much slower than the share of gross domestic product (GDP) from agriculture. Thus, while share of agriculture in GDP declined from 41 per cent in 1972-73 to 15 per cent in 2009-10 (Table 17), that in employment declined from 74 per cent to 51 per cent. And rate of decline in GDP share
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has been faster during 1993-94 to 2009-10, from 30 to 15 per cent; while the rate of decline in employment share has been relatively slow, from 64 per cent to 51per cent.
In the recent past, there has been deceleration in the growth of employment in India in spite of the accelerated economic growth. This can be explained in terms of steady decline in employment elasticity in all the major sector of economic activity except in construction. Overall employment elasticity declined in India from 0.52 during 1983 to 1993-94 to 0.16 during 1993-94 to 1999-2000. The decline was quite fast in agriculture as it declined from 0.70 during 1983 to 1993-94 to 0.01 during 1993-94 to 1999-2000.
Details on employment trends are available from various Rounds of the NSSO Before presenting an analysis of this information, it is necessary to understand the difference between labour force and workforce as defind by the NSSO. The Survey The first category consists of those who are seeking work. This is essentially the category that either finds employment or remains unemployed. Those who find employment are designated as the 'work force' by the NSSO and those who are unable to find employment are designated as ‘unemployed’. "Since the 'labour force' is the total of which the 'workforce' is a part, any changes in the former are bound to have an impact on the latter."! The second category, i.e., 'not in the labour force' consists of persons who are not seeking work. This withdrawal from the labour force could be on account of pursuit of education, sickness, domestic work, disability, etc.
1. While labour force increased by 25 million over the period 1993-94 to 1999-2000 and by 63 million over the period 1999-2000 to 2004-05, it declined marginally (by 0.3 million) over the period 2004-05 to 2009-10.
2. The segment-wise disaggregation of the labour force reveals that in the period 2004-05 to 2009-10, both rural and urban males experienced deceleration in growth rates as compared to the previous period. Nevertheless there was an addition of22 million men into the labour force in the five year period as compared to the 36 million in the previous periods On the other hand, 22 million women withdrew from the labour force in the period 2004-05 to 2009-10
3. During the period 1993-94 to 1999-2000, 23 million jobs were created' and over the next five years as many as 61 million jobs were created, only 1 million jobs could be created over the period 2004-05 to 2009-10. This is a dismal performance on the employment front particularly in view of the fact that the country registered a robust economic growth during this period. The CAGR of the work force declined from 2.9 per cent during the period 1999-2000 to 2004-05 to just 0.05 per cent during the period 2004-05 to 2009-10. Thus, one can say without hesitation that the country has witnessed the phenomenon of jobless growth in recent times.
4. The segment-wise disaggregation of the workforce shows that in the period 2004-05 to 2009-10, there was an addition of 22 million males to the workforce while 21 million females opted out of the workforce. While the male addition to the workforce was evenly distributed between rural and urban areas, the decline in the female workforce was mainly concentrated in rural areas.
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Why Did People Withdraw from the Labour Force?: The largest share of 44 per cent was that of people who opted out of the labour force to pursue education, 31 per cent opted out for attending to domestic duties, 15 per cent were in the 0-4 age group and the remaining categories (disabled, pensioners, etc.), added up to a 10 per cent share. The fact that a major part of the withdrawal of people from the labour force is due to education is an encouraging trend as it shows that 'India is studying'.
The second largest category is of those who opted out of the labour force to attend to domestic duties including activities like weaving, tailoring and gathering firewood for free for the households. These withdrawals are almost completely by females - particularly rural females.
LABOUR FORCE, WORKFORCE AND UNEMPLOYMENT (UPSS)
1993-94 1999—2000 2004-05 2009-10
in million
Labour force 381.94 406.84 470.14 469.87
Workforce 374.47 397.88 458.99 460.17
Unemloyed 7.49 8.96 11.15 9.70
ESTIMATED NUMBERS OF UPSS WORKERS ACROSS BROAD INDUSTRIAL CATEGORIES
Industry Percentage
1993-94 1999-2000
2004-05 2007-08 2009-10
1.
Agriculture 63.8 59.9 56.5 55.4 53.1
2.
Mining and Quarrying 0.7 0.6 0.6 0.5 0.7
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3.
Manufacturing 10.7 11.1 12.2 11.9 11.0
4.
Electricity, Gas and Sater Supply 0.4 0.3 0.3 0.3 0.2
5.
Construction 3.2 4.4 5.7 6.5 9.6
6.
Trade, Hotels and Restaurants 7.6 10.4 10.8 10.8 10.9
7.
Transport, Storage & Communications
2.9 3.7 4.0 4.4 4.4
8.
Other services 10.7 9.7 9.8 10.1 10.1
Total Employment 100.0 100.0 100.0 100.0 100.0
The decline in employment share of agriculture was mostly being compensated by an increase in the share of secondary sector in the pre-reform period, but since the economic reforms the tertiary sector has been the main gainer of the shift in employment. Yet increase in its employment share has not been commensurate with the increase in its share of GDP during 1993-4/2009-10. The share of secondary sector in employment has increased at a relatively faster rate while its share in GDP has remained constant at about one-fourth of the total. Within the secondary sector construction has sharply increased its share in employment particularly since 1999-2000, but its share in GDP has stagnated throughout the period under-reference, pre- and post-reform. Manufacturing increased its share both in employment and GDP, but rather slowly. In the tertiary sector, trade experienced a fast increase in its share in employment, and a significant though somewhat smaller increases in its share in GDP in the post-reform period but saw only a small increase in its employment share. Financial services registered a fast increase both in its employment and GDP share, though its share in employment is small (2.25) about one-seventh of its share in GDP (15.64%). Community social and personal services which used to be the largest activity in the tertiary sector, both in terms of employment and GDP, in the pre-reform period, saw a marginal decline in their share both in employment and GDP and is now the smallest in regard to GDP, though it continues to be the second largest, after trade, in terms of employment. The asymmetry in the rate of change in employment and GDP shares of different sectors and divisions, particularly between decline inP
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and employment shares of agriculture and correspondingly between rate of increase in GDP and employment in non-agricultural part of the economy, has serious implications in terms of differences in earnings and income between different sectors. Let us first look at the changes in the shares of agriculture and non-agricultural sectors in GDP and employment. In 1972-73, agriculture employed 74 per cent workers, but it also produced 41per cent of GDP. Per worker productivity and income in agriculture was significantly lower than in non-agricultural activities even then; the ratio being 1:3.6. In 2004-05 the share of agriculture was much lower at 20.2 per cent, but it was still employing 56.5 per cent of workers. The ratio between agricultural and non-agricultural productivity in that year works out to 1:5.9. In 2009-10 the ratio has gone up to 1:6. Thus there has been a large decline in the relative earnings of agricultural workers. That is partly because agricultural growth has been consistently much lower than that in the non-agricultural sectors, but, mainly, because a shift of workers from agricultural to non-agricultural activities as expected in the process of economic development has not taken place. Agriculture has grown at an average rate of 2 to 3 per cent per annum as against 5 to 6.5 per cent growth in the nonagricultural sector during the period under consideration. It is not generally realistic to expect a much higher growth rate in agriculture. But even if it grew at a rate of about 4 per cent per annum, as envisaged in the Eleventh Plan, it cannot employ many more persons productively. In fact, productivity per worker in agriculture is so low that even with a higher growth rate, it would need to reduce its workforce so as to provide a reasonable level of income to those engaged in it
EMPLOYMENT IN ORGANISED SECTOR
The Indian economy is divided into organised and unorganised sectors. The unorganised sector in the economy is very large. Whole of agriculture is in unorganised sector. Besides agriculture, most of mining, manufacturing, construction, trade, transport and communications, social and personal services are in the unorganised sector. By and large, organised sector is restricted to manufacturing, electricity, transport and financial services. The relatively much larger size of the unorganised sector vis-a-vis the organised sector would be clear from the fact that the latter provides employment to only about 6 to 8 per cent of the workers and the remaining 92 to 94 per cent are employed in the unorganised sector.
The organised sector is divided into the public sector and the private sector. The public sector had accounted for 67.7 per cent of the employment in the organised sector in 1981. Its share in employment in the organised sector rose to 71.3 per cent in 1991 but fell thereafter. This was a result of a conscious policy decision by the government to reduce employment in the public sector. As a result, of this policy, the share of public sector in employment in the organised sector fell to 68.9 per cent in 2001, 68.1 per cent in 2005 and further to 62.2 per cent in 2010.
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EMPLOYMENT IN THE ORGANISED SECTOR
Sectors 1981 2010 Rate of growth of employment (% per annum)
1994 to 2008
Public Sector 154.84 178.62 -0.65
Private Sector 73.95 108.46 1.75
Total 228.79 287.08 0.05
NATURE AND ESTIMATES OF UNEMPLOYMENT IN INDIA
Unemployment in underdeveloped countries is both open and disguised. Like all other underdeveloped countries, India presently suffers mainly from structural unemployment which exists in open and disguised forms.
NATURE OF UNEMPLOYMENT
Most of the unemployment in India is definitely structural. During the 1951-2011 periods, population in this country increased at an alarming rate of around 2.1 per cent per annum and with it the number of people coming to the labour market in search of jobs also rose rapidly, whereas employment opportunities did not increase most of the time correspondingly due to slow economic growth. Hence there has been "an increase in the volume of unemployment from one plan period to another. This unemployment, on account of its very nature, can be eliminated only by introducing certain radical reforms in the structure of the economy. Apart from structural unemployment, there is Keynesian involuntary unemployment which can be eliminated by increasing effective demand, as is done in developed countries. Though presently it would be wrong to ignore the Keynesian involuntary unemployment, yet the structural unemployment remains a greater cause of anxiety.
CONCEPTS OF UNEMPLOYMENT
Keeping in view the recommendations of the Committee of Experts on Unemployment, the National Sample Survey Organisation (NSSO) has developed and standardised concepts and definitions of labour force, employment and unemployment suitable to Indian conditions.
The three concepts of unemployment developed by the NSSO are: (i) Usual Status Unemployment, (ii) Current Weekly Status Unemployment, and (iii) Current Daily Status Unemployment.
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i. The Usual Status concept is meant to determine the Usual Activity Status - employed, or unemployed or outside the labour force The Usual Status unemployment rate is a person rate and indicates chronic unemployment because all those who are found "usually" unemployed in the reference year are counted as unemployed.
ii. The Current Weekly Status concept A person having worked for an hour or more on anyone or more days during the reference period gets the employed status. The Current Weekly Status unemployment rate, like the Usual Status unemployment rate, is also a person rate.
iii. The Current Daily Status A person who works for one hour but less than four hours is considered having worked for half a day. If he works for four hours or more during a day, he is considered as employed for the whole day. The Current Daily Status unemployment rate is a time rate.
The daily status flow rate is evidently the most inclusive, covering open as well as partial unemployment. It is therefore the rate which is most relevant for policy-making.
ESTIMATES OF UNEMPLOYMENT (1972-73 TO 1993-94)
The unemployment rates by the three alternative concepts of the Usual Status, the Current Weekly Status and the Current Daily Status have become available from the various Rounds of NSSO.
The rates of unemployment do not indicate any clear trends over the 21 years period, that is, from 1972-73 to 1993-94. However, if we compare unemployment position in 1993-94 with that in 1983 and 1972-73, we observe that there has been marginal decline in unemployment rates.
UNEMPLOYMENT IN POST REFORM PERIOD
Estimates of current daily status unemployment indicate a worsening of the unemployment situation during the period of economic reform in all the four population segments, viz., rural males, rural females, urban males and urban females.
Eleventh Five Year Plan identified the following weaknesses on the employment front during the period of economic reforms:"18
1. The rate of unemployment has increased from 6.1 per cent in 1993-94 to 7.3 per cent in 1999-2000 and further to 8.3 per cent in 2004-05.
2. Unemployment among agricultural labour households has risen from 9.5 per cent in 1993-94 to 15.3 per cent in 2004-05.
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3. While non-agricultural employment expanded at a robust annual rate of 4.7 per cent during the period 1999-2000 to 2004-05, this growth was largely in the unorganized sector.
4. Despite fairly healthy GDP growth, employment in the organised sector actually declined, leading to frustration among the educated youth who have rising expectations.
Estimate Rual Urban Total
2009-2010 2009-2010 2009-2010
1. UPSS 1.6 3.4 2.0
2. CWS 3.3 4.2 3.6
3. CDS 6.8 5.8 6.6
CAUSES OF UNEMPLOYMENT
C.B. Mamoria lists out the causes of unemployment in India in the following way:
(i) The policy of “laissez-faire” or free trade pursued by the British did not accelerate the process of industrialization in India. As a result, employment opportunities could not be generated on a large scale, during the British rule. This situation continued up to the end of their rule in India.
(ii) The unchecked growth of population from 1921 onwards posed the problems of finding job opportunities. For example, our population in 1921 was 251.3 million and it increased to 361.0 millions in 1951. It has reached a record figure of 122.3 crore in 2008.
(iii) The decline of traditional skills and the decay of small scale and cottage industries led to a great pressure on land and this in turn resulted in the greater exodus of people from the rural to the urban areas. This added to urban unemployment.
(iv) The low level of investment and the neglect of industrial sector could not help the process of creating job opportunities.
GR. Madan speaks of two main types of causes of unemployment: (A) “individual or personal factors “, and (B) “external factors” or “technological and economic factors “.
A. Individual or Personal Factors of Unemployment
(i) Age Factor: Age factor fixes limitations on the range of choice of job opportunities. Too young and too old people are not eligible for many of the jobs. Some young people due to their inexperience, and some old people due to their old age, fail to get some jobs. Young people do not get jobs soon after their studies. They will have to wait. People who are above 50 or 60 years are less adaptable and more prone to accidents. Their capacity to contribute to economic production is also relatively less.
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(ii) Vocational Unfitness: Many of our young people do not have a proper understanding of their own aptitudes, abilities and interests on the one hand, and the tasks or jobs or career they want to pursue, on the other. If willingness to do some job is not followed by the required abilities, one cannot find a job of one’s selection. Employers are always looking forward to find persons who have the ability, experience, interest and physical fitness to work. Sometimes, there may be more men trained in a particular profession than required. The demand is less than the supply, and hence, unemployment.
(iii) Illness and / or Physical Disabilities or Incapabilities: Due to the inborn or acquired disabilities or deficiencies some remain as partially employed or totally unemployed throughout their life. Illness induced by industrial conditions and the fatal accidents that often take place during the work may render a few other people as unemployed.
B. External Factors or Technological and Economic Factors
(i) Enormous Increase in Population: The population in India is growing at an alarming rate. Every year India adds to her population 120 to 130 lakh people afresh. More than this, every year about 5 million people become eligible for securing jobs. All these people who are eligible to work are not getting the jobs. Hence, population explosion in India is making the problem of unemployment more and more dangerous.
(ii) Trade Cycle: Business field is subject to ups and downs due to the operation of trade cycle. Economic depression which we witness in trade cycle may induce some problematic or sick industries to be closed down compelling their employees to become unemployed. Fluctuations in international markets, heavy imposition of excise duties, business strains observed in the trade cycles adversely affect the security of jobs of some men.
(iii) Technological Advance – Mechanisation – Automation: Technological advancement undoubtedly contributes to economic development. But unplanned and uncontrolled growth of technology may have an adverse effect on job opportunities. Since industrialists are more interested in maximizing production and profit they prefer to introduce labour-saving machines. They always search for ways and means of reducing the cost of production and hence go after computerization, automation, etc. The result is technological unemployment. This state of affairs is very much in evidence in the Indian context today.
(iv) Strikes and Lockouts: Strikes and lockouts had been an inseparable aspect of the Indian industrial field. Due to strikes and lockouts production used to come down and industries were incurring heavy losses. Workers used to become unemployed for a temporary period and some were being thrown out of job. This state of affairs continued almost up to 1990s, that is, till the launching of the [NEP] New Economic Policy. This, prolonged period of four decades our industries received severe setbacks due to labour strikes which affected adversely industrial growth and industrial potential
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for fetching jobs. After 1990s, things however, have been changing and labour strikes are becoming comparatively rarer.
(v) Slow Rate of Economic Growth: Job opportunities depend very much on economic growth. Since the rate of economic growth was very slow in the first 45 years after independence, the economy was not able to create enough job opportunities to the increasing number of job – seekers. For example, in 1980s, the rate of growth of the number of job-seekers increased by 2.2%, while the rate of growth of the number of job opportunities was only 1.5%. This difference led to an enormous increase in the number of unemployed persons.
(vi) Backwardness of Indian Agriculture: Age old mode of cultivation, too much dependence of too many people [more than 75%] on agriculture, widespread disguised unemployment, sentimental attachment towards land, etc., have adversely affected the – growth of Indian agriculture and its employment potential.
C. Other Causes of Unemployment: In addition to the two main types of the causes of unemployment as mentioned by G.R. Madan, we may add a few other factors causing the problem such as the following.
(i) Unpreparedness to Accept Socially Degrading Jobs: Some of our young men and women are not prepared to undertake jobs which are considered to be socially “degrading” or “indecent”. Example: Auto rickshaw and taxi-driving, working as salesmen or sales girls in shops, doing waiter’s work and clerical work in hotels, etc., could be mentioned here as examples. Since the spirit of the dignity of labor is not properly inculcated in them, they become the victims of “false prestige” and face the risk of unemployment.
(ii) Defects in our Educational System: Our system of education which appears like a remnant of the British colonial rule in India has its own irreparable defects and its contribution to the problem of unemployment can hardly be exaggerated. There is no co-ordination between our industrial growth, agricultural development and our educational system. Our education does not prepare the minds of our young men to become self-employed; on the contrary, it makes them to depend on government to find for them some jobs.
(iii) Geographic Immobility of the Workers: Occupational mobility and geographic mobility on the part of the workers lessen the gravity of the problem of unemployment. But in the Indian context, workers are not adventurous enough to move from one physical area to another in search of jobs, or to change their jobs to brighten their economic prospects. They are either clinging on to their traditional profession or occupations especially in the rural area, or concentrated in one or the other urban centre, sometimes without any job.
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(iv) Improper Use of Human Resources: Lack of planning for the efficient utilization of human resources for productive purposes has been one of the causes of unemployment in India. In fact, there has been no proper co-ordination between the availability of human resources and its utilization in the productive field. As a result, in some units, there is the dearth of qualified man power and in some other units; we find its excess.
(v) Lack of Encouragement for Self-Employment: Ever since the time of British, Indians have developed a tendency to give priority for salaried jobs rather than self-employment. Our education system has also been a failure in developing the spirit of self-employment among our youths. As a result, young people tend to wait for getting some salaried jobs in offices, factories or business firms and private or public firms and concerns. They often wait for such jobs for years together as unemployed or under-employed youths.
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CHAPTER 9: FINANCIAL SECTOR
FINANCIAL SYSTEM
Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products. This chapter discusses the meaning of finance and Indian Financial System and focus on the financial markets, financial intermediaries and financial instruments. The brief review on various money market instruments are also covered in this study.
India has a financial system that is regulated by independent regulators in the sectors of banking, insurance, capital markets, competition and various services sectors. In a number of sectors Government plays the role of regulator.
Ministry of Finance, Government of India looks after financial sector in India. Finance Ministry every year presents annual budget on February 28 in the Parliament. The annual budget proposes changes in taxes, changes in government policy in almost all the sectors and budgetary and other allocations for all the Ministries of Government of India. The annual budget is passed by the Parliament after debate and takes the shape of law.
Reserve bank of India (RBI) established in 1935 is the Central bank. RBI is regulator for financial and banking system, formulates monetary policy and prescribes exchange control norms. The Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 authorize the RBI to regulate the banking sector in India.
India has commercial banks, co-operative banks and regional rural banks. The commercial banking sector comprises of public sector banks, private banks and foreign banks. The public sector banks comprise the ‘State Bank of India’ and its seven associate banks and nineteen other banks owned by the government and account for almost three fourth of the banking sector. The Government of India has majority shares in these public sector banks.
India has a two-tier structure of financial institutions with thirteen all India financial institutions and forty-six institutions at the state level. All India financial institutions comprise term-lending institutions, specialized institutions and investment institutions, including in insurance. State level institutions comprise of State Financial Institutions and State Industrial Development Corporations providing project finance, equipment leasing, corporate loans, short-term loans and bill discounting facilities to corporate. Government holds majority shares in these financial institutions.
Non-banking Financial Institutions provide loans and hire-purchase finance, mostly for retail assets and are regulated by RBI.
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Insurance sector in India has been traditionally dominated by state owned Life Insurance Corporation and General Insurance Corporation and its four subsidiaries. Government of India has now allowed FDI in insurance sector up to 26%. Since then, a number of new joint venture private companies have entered into life and general insurance sectors and their share in the insurance market in rising. Insurance Development and Regulatory Authority (IRDA) is the regulatory authority in the insurance sector under the Insurance Development and Regulatory Authority Act, 1999.
RBI also regulates foreign exchange under the Foreign Exchange Management Act (FEMA). India has liberalized its foreign exchange controls. Rupee is freely convertible on current account. Rupee is also almost fully convertible on capital account for non-residents. Profits earned, dividends and proceeds out of the sale of investments are fully repatriable for FDI. There are restrictions on capital account for resident Indians for incomes earned in India.
Securities and Exchange Board of India (SEBI) established under the Securities and Exchange aboard of India Act, 1992 is the regulatory authority for capital markets in India. India has 23 recognized stock exchanges that operate under government approved rules, bylaws and regulations. These exchanges constitute an organized market for securities issued by the central and state governments, public sector companies and public limited companies. The Stock Exchange, Mumbai and National Stock Exchange are the premier stock exchanges. Under the process of de-mutualization, these stock exchanges have been converted into companies now, in which brokers only hold minority share holding. In addition to the SEBI Act, the Securities Contracts (Regulation) Act, 1956 and the Companies Act, 1956 regulates the stock markets.
Indian financial system consists of financial market, financial instruments and financial intermediation. These are briefly discussed below;
FINANCIAL MARKETS
A Financial Market can be defined as the market in which financial assets are created or transferred. As against a real transaction that involves exchange of money for real goods or services, a financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend.
Money Market- The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is dominated mostly by government, banks and financial institutions.
Capital Market - The capital market is designed to finance the long-term investments. The transactions taking place in this market will be for periods over a year.
Forex Market - The Forex market deals with the multicurrency requirements, which are met by the exchange of currencies. Depending on the exchange rate that is applicable, the transfer of
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funds takes place in this market. This is one of the most developed and integrated market across the globe.
Credit Market- Credit market is a place where banks, FIs and NBFCs purvey short, medium and long-term loans to corporate and individuals.
FINANCIAL INTERMEDIATION
Having designed the instrument, the issuer should then ensure that these financial assets reach the ultimate investor in order to garner the requisite amount. When the borrower of funds approaches the financial market to raise funds, mere issue of securities will not suffice. Adequate information of the issue, issuer and the security should be passed on to take place. There should be a proper channel within the financial system to ensure such transfer. To serve this purpose, Financial intermediaries came into existence. Financial intermediation in the organized sector is conducted by a wide range of institutions functioning under the overall surveillance of the Reserve Bank of India. In the initial stages, the role of the intermediary was mostly related to ensure transfer of funds from the lender to the borrower. This service was offered by banks, FIs, brokers, and dealers. However, as the financial system widened along with the developments taking place in the financial markets, the scope of its operations also widened. Some of the important intermediaries operating ink the financial markets include; investment bankers, underwriters, stock exchanges, registrars, depositories, custodians, portfolio managers, mutual funds, financial advertisers financial consultants, primary dealers, satellite dealers, self regulatory organizations, etc. Though the markets are different, there may be a few intermediaries offering their services in move than one market e.g. underwriter. However, the services offered by them vary from one market to another.
FINANCIAL INSTRUMENTS
Money Market Instruments: The money market can be defined as a market for short-term money and financial assets that are near substitutes for money. The term short-term means generally a period upto one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost.
Some of the important money market instruments are briefly discussed below;
Call /Notice-Money Market: Call/Notice money is the money borrowed or lent on demand for a very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money. Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and repaid on the next working day, (irrespective of the number of intervening holidays) is "Call Money". When money is borrowed or lent for more than a day and up to 14 days, it is "Notice Money". No collateral security is required to cover these transactions.
Inter-Bank Term Money: Inter-bank market for deposits of maturity beyond 14 days is referred to as the term money market. The entry restrictions are the same as those for Call/Notice
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Money except that, as per existing regulations, the specified entities are not allowed to lend beyond 14 days.
Treasury Bills: Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an IOU of the Government. It is a promise by the Government to pay a stated sum after expiry of the stated period from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction.
Certificate of Deposits: Certificates of Deposit (CDs) is a negotiable money market instrument nd issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time. CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI. Banks have the freedom to issue CDs depending on their requirements. An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e., issue of CD together with other instruments viz., term money, term deposits, commercial papers and intercorporate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet.
Commercial Paper: CP is a note in evidence of the debt obligation of the issuer. On issuing commercial paper the debt obligation is transformed into an instrument. CP is thus an unsecured promissory note privately placed with investors at a discount rate to face value determined by market forces. CP is freely negotiable by endorsement and delivery. A company shall be eligible to issue CP provided - (a) the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore; (b) the working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore and (c) the borrowal account of the company is classified as a Standard Asset by the financing bank/s. The minimum maturity period of CP is 7 days. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.
Capital Market Instruments: The capital market generally consists of the following long term period i.e., more than one year period, financial instruments; In the equity segment Equity shares, preference shares, convertible preference shares, non-convertible preference shares etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc.
Hybrid Instruments: Hybrid instruments have both the features of equity and debenture. This kind of instruments is called as hybrid instruments. Examples are convertible debentures, warrants etc.
MONETARY POLICY AND FISCAL POLICY
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Fiscal policy deals with the taxation and expenditure decisions of the government. Monetary policy deals with the supply of money in the economy and the rate of interest. These are the main policy approaches used by economic managers to steer the broad aspects of the economy. In most modern economies, the government deals with fiscal policy while the central bank is responsible for monetary policy. Fiscal policy is composed of several parts. These include, tax policy, expenditure policy, investment or disinvestment strategies and debt or surplus management. Fiscal policy is an important constituent of the overall economic framework of a country and is therefore intimately linked with its general economic policy strategy.
Fiscal policy also feeds into economic trends and influences monetary policy. When the government receives more than it spends, it has a surplus. If the government spends more than it receives it runs a deficit. To meet the additional expenditures, it needs to borrow from domestic or foreign sources, draw upon its foreign exchange reserves or print an equivalent amount of money. This tends to influence other economic variables. On a broad generalisation, excessive printing of money leads to inflation. If the government borrows too much from abroad it leads to a debt crisis. If it draws down on its foreign exchange reserves, a balance of payments crisis may arise. Excessive domestic borrowing by the government may lead to higher real interest rates and the domestic private sector being unable to access funds resulting in the “crowding out‟ of private investment. Sometimes a combination of these can occur. In
any case, the impact of a large deficit on long run growth and economic well-being is negative. Therefore, there is broad agreement that it is not prudent for a government to run an unduly large deficit. However, in case of developing countries, where the need for infrastructure and social investments may be substantial, it sometimes argued that running surpluses at the cost of long-term growth might also not be wise. sThe challenge then for most developing country governments is to meet infrastructure and social needs while managing the government’s finances in a way that the deficit or the accumulating debt burden is not too great.
MAIN OBJECTIVES OF FISCAL POLICY IN INDIA
The fiscal policy is designed to achieve certain objectives as follows :-
1. Development by effective Mobilisation of Resources: The principal objective of fiscal policy is to ensure rapid economic growth and development. This objective of economic growth and development can be achieved by Mobilisation of Financial Resources. The central and the state governments in India have used fiscal policy to mobilise resources.
The financial resources can be mobilised by:-
Taxation: Through effective fiscal policies, the government aims to mobilise resources by way of direct taxes as well as indirect taxes because most important source of resource mobilisation in India is taxation.
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Public Savings: The resources can be mobilised through public savings by reducing government expenditure and increasing surpluses of public sector enterprises.
Private Savings: Through effective fiscal measures such as tax benefits, the government can raise resources from private sector and households. Resources can be mobilised through government borrowings by ways of treasury bills, issue of government bonds, etc., loans from domestic and foreign parties and by deficit financing.
2. Efficient allocation of Financial Resources: The central and state governments have tried to make efficient allocation of financial resources. These resources are allocated for Development Activities which includes expenditure on railways, infrastructure, etc. While Non-development Activities includes expenditure on defence, interest payments, subsidies, etc. But generally the fiscal policy should ensure that the resources are allocated for generation of goods and services which are socially desirable. Therefore, India's fiscal policy is designed in such a manner so as to encourage production of desirable goods and discourage those goods which are socially undesirable.
3. Reduction in inequalities of Income and Wealth: Fiscal policy aims at achieving equity or social justice by reducing income inequalities among different sections of the society. The direct taxes such as income tax are charged more on the rich people as compared to lower income groups. Indirect taxes are also more in the case of semi-luxury and luxury items, which are mostly consumed by the upper middle class and the upper class. The government invests a significant proportion of its tax revenue in the implementation of Poverty Alleviation Programmes to improve the conditions of poor people in society.
4. Price Stability and Control of Inflation: One of the main objective of fiscal policy is to control inflation and stabilize price. Therefore, the government always aims to control the inflation by Reducing fiscal deficits, introducing tax savings schemes, Productive use of financial resources, etc.
5. Employment Generation: The government is making every possible effort to increase employment in the country through effective fiscal measure. Investment in infrastructure has resulted in direct and indirect employment. Lower taxes and duties on small-scale industrial (SSI) units encourage more investment and consequently generates more employment. Various rural employment programmes have been undertaken by the Government of India to solve problems in rural areas. Similarly, self employment scheme is taken to provide employment to technically qualified persons in the urban areas.
6. Balanced Regional Development: Another main objective of the fiscal policy is to bring about a balanced regional development. There are various incentives from the government for setting up projects in backward areas such as Cash subsidy, Concession
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in taxes and duties in the form of tax holidays, Finance at concessional interest rates, etc.
7. Reducing the Deficit in the Balance of Payment: Fiscal policy attempts to encourage more exports by way of fiscal measures like Exemption of income tax on export earnings, Exemption of central excise duties and customs, Exemption of sales tax and octroi, etc. The foreign exchange is also conserved by providing fiscal benefits to import substitute industries, imposing customs duties on imports, etc. The foreign exchange earned by way of exports and saved by way of import substitutes helps to solve balance of payments problem. In this way adverse balance of payment can be corrected either by imposing duties on imports or by giving subsidies to export.
8. Capital Formation: The objective of fiscal policy in India is also to increase the rate of capital formation so as to accelerate the rate of economic growth. An underdeveloped country is trapped in vicious (danger) circle of poverty mainly on account of capital deficiency. In order to increase the rate of capital formation, the fiscal policy must be efficiently designed to encourage savings and discourage and reduce spending.
9. Increasing National Income: The fiscal policy aims to increase the national income of a country. This is because fiscal policy facilitates the capital formation. This results in economic growth, which in turn increases the GDP, per capita income and national income of the country.
10. Development of Infrastructure: Government has placed emphasis on the infrastructure development for the purpose of achieving economic growth. The fiscal policy measure such as taxation generates revenue to the government. A part of the government's revenue is invested in the infrastructure development. Due to this, all sectors of the economy get a boost.
11. Foreign Exchange Earnings: Fiscal policy attempts to encourage more exports by way of Fiscal Measures like, exemption of income tax on export earnings, exemption of sales tax and octroi, etc. Foreign exchange provides fiscal benefits to import substitute industries. The foreign exchange earned by way of exports and saved by way of import substitutes helps to solve balance of payments problem.
OBJECTIVES OF THE MONETARY POLICY OF INDIA
1. Price Stability: Price Stability implies promoting economic development with considerable emphasis on price stability. The centre of focus is to facilitate the environment which is favourable to the architecture that enables the developmental projects to run swiftly while also maintaining reasonable price stability.
2. Controlled Expansion Of Bank Credit: One of the important functions of RBI is the controlled expansion of bank credit and money supply with special attention to seasonal requirement for credit without affecting the output.
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3. Promotion of Fixed Investment: The aim here is to increase the productivity of investment by restraining non essential fixed investment.
4. Restriction of Inventories: Overfilling of stocks and products becoming outdated due to excess of stock often results is sickness of the unit. To avoid this problem the central monetary authority carries out this essential function of restricting the inventories. The main objective of this policy is to avoid over-stocking and idle money in the organization
5. Promotion of Exports and Food Procurement Operations: Monetary policy pays special attention in order to boost exports and facilitate the trade. It is an independent objective of monetary policy.
6. Desired Distribution of Credit: Monetary authority has control over the decisions regarding the allocation of credit to priority sector and small borrowers. This policy decides over the specified percentage of credit that is to be allocated to priority sector and small borrowers.
7. Equitable Distribution of Credit: The policy of Reserve Bank aims equitable distribution to all sectors of the economy and all social and economic class of people
8. To Promote Efficiency: It is another essential aspect where the central banks pay a lot of attention. It tries to increase the efficiency in the financial system and tries to incorporate structural changes such as deregulating interest rates, ease operational constraints in the credit delivery system, to introduce new money market instruments etc.
9. Reducing the Rigidity: RBI tries to bring about the flexibilities in the operations which provide a considerable autonomy. It encourages more competitive environment and diversification. It maintains its control over financial system whenever and wherever necessary to maintain the discipline and prudence in operations of the financial system.
MAJOR MONETRY OPERATIONS OF RBI
Open Market Operations: An open market operation is an instrument of monetary policy which involves buying or selling of government securities from or to the public and banks. This mechanism influences the reserve position of the banks, yield on government securities and cost of bank credit. The RBI sells government securities to contract the flow of credit and buys government securities to increase credit flow. Open market operation makes bank rate policy effective and maintains stability in government securities market.
Cash Reserve Ratio: Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances .Higher the CRR with the RBI lower will be the liquidity in the system and vice-versa.RBI is empowered to vary CRR between 15 percent and 3 percent. But as per the suggestion by the Narshimam committee Report the CRR was reduced from 15% in the 1990 to 5 percent in 2002. As of November 2012, the CRR is 4.25 percent.
Statutory Liquidity Ratio: Every financial institute have to maintain a certain amount of liquid assets from their time and demand liabilities with the RBI. These liquid assets can be cash,
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precious metals, approved securities like bonds etc. The ratio of the liquid assets to time and demand liabilities is termed as Statutory Liquidity Ratio.There was a reduction from 38.5% to 25% because of the suggestion by Narshimam Committee. The current SLR is 23%.
Bank Rate Policy: Bank rate is the rate of interest charged by the RBI for providing funds or loans to the banking system. This banking system involves commercial and co-operative banks, Industrial Development Bank of India, IFC, EXIM Bank, and other approved financial institutes. Funds are provided either through lending directly or rediscounting or buying money market instruments like commercial bills and treasury bills. Increase in Bank Rate increases the cost of borrowing by commercial banks which results into the reduction in credit volume to the banks and hence declines the supply of money. Increase in the bank rate is the symbol of tightening of RBI monetary policy. Bank rate is also known as Discount rate. The current Bank rate is 9%.
Credit Ceiling: In this operation RBI issues prior information or direction that loans to the commercial banks will be given up to a certain limit. In this case commercial bank will be tight in advancing loans to the public. They will allocate loans to limited sectors. Few example of ceiling are agriculture sector advances, priority sector lending.
Credit Authorization Scheme: Credit Authorization Scheme was introduced in November, 1965 when P C Bhattacharya was the chairman of RBI. Under this instrument of credit regulation RBI as per the guideline authorizes the banks to advance loans to desired sectors.[7]
Moral Suasion: Moral Suasion is just as a request by the RBI to the commercial banks to take so and so action and measures in so and so trend of the economy. RBI may request commercial banks not to give loans for unproductive purpose which does not add to economic growth but increases inflation.
Repo Rate and Reverse Repo Rate: Repo rate is the rate at which RBI lends to commercial banks generally against government securities. Reduction in Repo rate helps the commercial banks to get money at a cheaper rate and increase in Repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. Reverse Repo rate is the rate at which RBI borrows money from the commercial banks. The increase in the Repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit. As the rates are high the availability of credit and demand decreases resulting to decrease in inflation. This increase in Repo Rate and Reverse Repo Rate is a symbol of tightening of the policy.
MONEY AND INFLATION
MONEY SUPPLY
Need for precise definition and measure of money supply arises from delivery of monetary services in an economy by various financial assets like currency, demand deposits, saving
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deposits, time deposits and the like. Hence it necessary to combine the potential flows of monetary services by each of these into one or more aggregates in order to define money
The Reserve Bank of India defines the monetary aggregates as:
M0 (Reserve Money): Currency in circulation + Bankers’ deposits with the RBI + ‘Other’ deposits with the RBI = Net RBI credit to the Government + RBI credit to the commercial sector + RBI’s claims on banks + RBI’s net foreign assets + Government’s currency liabilities to the public – RBI’s net non-monetary liabilities.
M1 (Narrow Money): Currency with the public + Deposit money of the public (Demand deposits with the banking system + ‘Other’ deposits with the RBI).
M2: M1 + Savings deposits with Post office savings banks.
M3 (Broad Money): M1+ Time deposits with the banking system = Net bank credit to the Government + Bank credit to the commercial sector + Net foreign exchange assets of the banking sector + Government’s currency liabilities to the public – Net non-monetary liabilities of the banking sector (Other than Time Deposits).
M4: M3 + All deposits with post office savings banks (excluding National Savings Certificates)
HOW TO MEASURE INFLATION IN INDIA?
Wholesale Price Index: India is one of the few countries where the WPI is considered as the headline inflation measure by the central bank. The preference over the CPI is often explained in terms of three criteria – national coverage, timeliness of release (now only limited to food products) and its availability in a disaggregate format. Of these criteria, only the last one is uncontroversial – the CPI numbers are not released to the public in the detail available for the WPI. This however does not appear to be an insurmountable problem to address, because the detailed data is collected; it is just not made public with sufficient timeliness. The set of weights in the base 2004-05=100 proposed by the Working Group has been adopted in the new WPI. It is interesting to note that the combined weight of food (primary food articles and manufactured food items) in the WPI has come down to 24% from 26.9% in the old base 1993-94=100. This appears inconsistent with both the reduction in the share of agricultural value added in gross domestic product (GDP) (by approximately 15 percentage points during this period) and that recorded by food products in the National Sample Survey (NSS) consumption expenditure basket, in rural and urban areas
GDP Deflator: The GDP deflator is another indicator of inflation, which is often considered to be broader than the CPI and the WPI. The GDP deflator in most countries is obtained by using a variety of primary price indices. These are used to deflate individual components of the GDP valued at current prices (either from the production or the demand side estimates)
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to obtain volume estimates. The GDP deflator is then defined implicitly as the ratio of the estimate at current prices to the one at constant prices. When this process is followed, the GDP deflator is legitimately recognised as a high quality measure of inflation. Nonetheless, given the delay in publication of national accounts it is seldom used as a headline indicator of inflation in a real-time setting.
Consumer Price Index: The overall CPI is meant to represent the cost of a representative basket of goods and services consumed by an average household. However, in India, the existing CPIs refer to specific segments of the population.
Types of CPI
Consumer Price Index for Agricultural Labourers (CPI-AW)
Consumer Price Index for Industrial Workers (CPI-IW)
Consumer Price Index for Urban Non-Manual Employees (CPI-UNME)
TAXATION IN INDIA
TAX BURDEN IN INDIA
The easiest way to know the tax burden is to find out tax-GDP ratio. When the process of economic planning began in India in 1950-51, the tax-GDP ratio was as low as 6.3 per cent. Since then it rose steadily up to 1990-91 and thereafter declined. Against 7.9 per cent in 1960-61, it was 10.4 per cent in 1970-71, 13.8 per cent in 1980-81, 15.4 per cent in 1990-91, 14.5 per cent in 2000-01 and 16.1 per cent in 2010-11. Until 1970-71, the tax burden in this country was not higher than that in other developing countries. During the 1990s the tax-GDP ratio had declined by 1 percentage point, particularly due to reduction in tax rates.
The tax revenue has recorded a considerable increase during the planning period. However, because of large scale poverty in the country, the base of direct taxes is very small. In addition, an important source of income is still out of the income tax. The agricultural income has been exempted from the Union income tax and the States are not inclined to levy it though they have statutory powers to do so.
TAX REVENUE OF THE CENTRAL GOVERNMENT
The total tax revenue of the Central government in 1970-71 was Rs. 2,451 crore. Of this, the share of direct taxes was Rs. 511 crore (i.e., 20.8 per cent) while the share of indirect taxes was Rs. 1,940 crore (i.e., 79.2 per cent).
In 2010-11, direct taxes contributed Rs. 3, 14, 606 crore which was as high as 55.8 per cent of the total tax revenue of Rs. 5, 63, 685 crore. Thus, direct taxes now account for more than half of the total tax revenue of the Central government.
TAX REVENUE OF THE STATE GOVERNMENTS
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The principal tax revenue sources of the State governments are the share of the States in the Central taxes and duties, commercial taxes, land revenue, stamp duties and registration fees, and the State excise duties on alcohol and other narcotics. Of all commercial taxes, sales tax has been the most important. However, this tax has now been replaced by Value Added Tax (VAT). Taxes on motor spirit and vehicles, entertainment tax and duties on electricity are other commercial taxes.
Land revenue by its nature is an inelastic tax and thus over the years revenue proceeds from this source have not increased much. Thus its contribution to States' tax revenue declined from 9 per cent in 1967-68 to 0.8 per cent in 2006-07. In other words, sales tax and share of States in Central taxes together accounted for 73.8 per cent (i.e., almost three-fourths) of the total tax revenue of the States in 2009-10.
TAXES ON INCOME AND WEALTH
In India, taxes levied on income and wealth by the Central government alone are important. Though the State governments have the power to levy a tax on agricultural incomes, yet in practice this tax has not developed as a major source of revenue of the States. The Central government levies a number of taxes on income and wealth of which (from the point of view of the revenue proceeds) only personal income tax and corporation tax are important.
PERSONAL INCOME TAX
Personal income tax is levied on the incomes of individuals, Hindu families, unregistered firms and other associations of people. For taxation purpose income from all sources is added.
Extraordinarily high tax rates in the past were highly unrealistic. They failed to reduce economic disparities. On the contrary, they put a high premium on tax evasion and, in practice, became a major factor in the growth of black money.
Following the thrust of the Kelkar Task Force recommendations for the simplification of direct and indirect taxes, the income tax structure in the Budget for 2005-06 was overhauled. The Finance Minister proposed new rates for different slabs. The marginal rate of 30 per cent was made applicable to taxable income beyond Rs. 2.5 lakh. Surcharge of 10 per cent was levied on taxable income level of Rs. 10 lakh or more. Moreover, the various kinds of exemptions for savings were replaced by a single consolidated exemption of Rs. 1 lakh.
CORPORATION TAX
Corporation tax is levied on the incomes of registered companies and corporations. The rationale for the corporation tax is that a joint stock company has a separate entity, and thus a separate tax different from personal income tax has to be levied on its income.
TAXES ON WEALTH AND CAPITAL
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Taxes which have been levied on wealth and capital are mainly three: estate duty, annual tax on wealth and gift tax.
Estate Duty was first introduced in India in 1953. It was levied on total property passing on the death of a person. The whole property of the deceased constituted the estate and was considered liable to pay estate duty. Central government decided to abolish it with effect from April 1, 1985.
An Annual Tax on Wealth was first introduced in May 1957 on the recommendations of Kaldor. It is levied on the excess of net wealth over exemption of individuals, joint Hindu families and companies. Like estate duty, wealth tax has also been a minor source of revenue.
A Gift Tax was first introduced in 1958. It was treated as complementary to the estate duty and annual tax on wealth. The gift tax was leviable on all donations except the ones given by the charitable institutions, government companies and private companies. Gift tax has been abolished on gifts made on or after October 1, 1998.
INDIRECT TAXATION
The principal indirect taxes levied in India are customs duties, excise duties, service tax and sales tax or VAT. Of these until the beginning of the World War II, customs duties had remained the most important source of revenue. Now the excise duties have emerged as the biggest source of revenue. Under the Constitution, the Central government has exclusive power to levy customs duties and excise duties on commodities other than alcoholic liquors and narcotics.
CUSTOMS DUTIES
While using its constitutional powers the Central government now levies duties on both imports and exports. From revenue point of view, the importance of export duty is limited. Import duties in India are generally levied on ad valorem basis which implies that they are determined as a certain percentage of the price of the commodity. On some commodities specific import duties, i.e., per unit taxes-on imports have been levied either singly or in addition to ad valorem duties. Due to their strategic importance in the country's economic development, imports of machinery and essential raw materials have been taxed lightly. As compared to import duties, export duties are less important from revenue as well as foreign trade regulation point of view.
Customs duties perform two major functions. First, like any other tax they raise revenue needed by the government, and second they regulate foreign trade of the country, more particularly the imports. In pursuance of these objectives during the pre-tax reform period, India had become a country with the highest level of customs tariff in the world, with basic duties supplemented by 'auxiliary' and additional or countervailing duties.
EXCISE DUTIES
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An excise duty IS 10 true sense a commodity tax because it is levied on production and has absolutely no connection with its actual sale. Thus in its form, it is very much different from a sales tax. However, from the point of view of tax shifting and the determination of incidence, there is little difference between an excise duty and a sales tax. Excise duties on commodities other than alcoholic liquors and narcotics are levied by the Central government.
At present, excise duties are levied by the Central government in a number of forms. This obviously complicates the tax structure and makes it difficult to assess the final burden. In view of this problem the government has not only converted many of the specific duties into ad valorem rates but the number of rate categories for a Central excise duty has also been reduced.
Taxation of inputs, such as raw materials, components and other intermediates has a number of limitations. It very often distorts the production structure, results in 'cascading' of taxes and does not allow correct assessment of the tax incidence. Therefore, the government removed these defects of the central excise system by progressively relieving inputs from excise and countervailing duties. Government introduced VAT to take care of this. However, on account of some formidable practical difficulties in this country, the Government proposed to introduce it in a phased manner. For instance, it initially levied a modified system of VAT (MODVAT) which is broadly revenue neutral. The government had no intention to provide substantial reliefs on excise. However, it is in favour of having a rationalised structure of excise duties. It has, therefore, restructured Central excise duties in the light of the recommendations made by the Chelliah Committee.
On theoretical grounds ad valorem rates of duties are to be preferred to specific ones. But on practical considerations particularly the need to prevent evasion, in a number of cases specific rates of duties have been introduced. Proliferation of specific rates of duty weakens the built-in revenue raising capacity of the tax structure. In spite of this limitation, the government feels that in future due to administrative exigencies it cannot do away with specific rates of duty completely.
The standard rate of excise duty was raised from 10 per cent to 12 per cent in Union Budget for 2012-13.
STATES' EXCISE DUTIES
The States have exclusive jurisdiction over the excise duties on alcohol and narcotics. It is an easy source of revenue and possible revenue proceeds from this source are high.
SERVICE TAX
Service tax was introduced in 1994-95 on three services telephone services, general insurance and share broking. Since then, every year the net has been widened by including more and more services under the tax net. As a result, the number of assessees has increased considerably over the years and so has been the revenue from this tax.
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The Finance Minister increased the rate of service tax from 10 per cent in 2011-12 to 12 per cent in the Union Budget for 2012-13. From July 1, 2012, all services have been brought under the service tax net expect a negative list of 38 services that are to be kept out of the service tax net.
GOODS AND SERVICES TAX (GST)
It is proposed to introduce a combined national level Goods and Service Tax (GST). This is similar in concept to State VAT for goods. It provides for input tax credit at every stage for tax already paid till the previous transaction. This will also attempt to provide a rational system by subsuming several State and Central level indirect taxes on goods and services.
PUBLIC DEBT AND DEFICIT FINANCING
Public debt in Indian context refers to the borrowings of the Central and State governments.
DEBT OBLIGATIONS OF THE CENTRAL GOVERNMENT
The outstanding liabilities of the Central government have increased considerably during the period 1980-81 to 2010-11 - from Rs. 59,749 crore to Rs. 39, 31, 105 crore. During the post-reform period (the period since 1991), the total liabilities increased by twelve and a half times.
INTERNAL LIABILITIES
Information on internal liabilities divided into four parts: (1) Internal debt, (2) Small savings, Deposits and Provident Funds, (3) Other Accounts, and (4) Reserve Funds and Deposits.
1. Internal Debt. Are market loans, treasury bills, and securities issued to international financial institutions?
(i) Market Loans. These have a maturity of 12 months or more at the time of issue and is generally interest bearing. The government issues such loans almost every year. These loans are raised in the open market by sale of securities or otherwise. In addition to market loans, the government has also issued bonds from time to time like gold bonds.
(ii) Treasury Bills. Treasury bills have been a major source of short-term funds for the government to bridge the gap between revenue and expenditure. They have a maturity of 91 or 182 or 364 days and are issued every Friday. Treasury bills are issued to the Reserve Bank of India, State governments, commercial banks and other parties.
(iii) Securities Issued to International Financial Institutions. The Government of India contributes towards the capital of international financial institutions such
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as International Monetary Fund, International Bank for Reconstruction and Development, and International Development Association. These contributions are by the way of non-negotiable, non-interest bearing securities and the Government of India is liable to pay the amount at the call of these institutions.
2. Small Savings, Deposits and Provident Funds: Small savings have consistently increased in volume over the years due to the rising money incomes in the economy and also due to the various innovative schemes introduced by the government. Some of these schemes involved attractive tax concessions (like 6- Year National Savings Certificates, VI, VII and VIII issues) and people were thus lured into channeling substantial amounts of money through these schemes. As far as provident funds are concerned, they are divided into two categories: (i) State Provident Fund and (ii) Public Provident Fund.
3. Other Accounts: These include mainly Postal Insurance and Life Annuity Fund, Hindu Family Annuity Fund, Borrowing against Compulsory Deposits and Income Tax Annuity Deposits, and Special Deposits of Non- Government Provident Fund.
4. Reserve Funds and Deposits: Reserve Funds and Deposits are divided into two categories: (i) interest bearing and (ii) non-interest bearing. They include Depreciation and Reserve Funds of Rail ways and Department of Posts and Department of Telecommunications, deposits of Local Funds, departmental and judicial deposits, civil deposits etc.
EXTERNAL LIABILITIES
Underdeveloped countries need foreign aid in the early stages of economic development to sustain a high level of investment, purchase capital equipment and machinery from abroad and to cover the balance of payments gap. The Government of India has raised foreign loans from a number of countries like USA, UK, France, former USSR, Germany etc. and international financial institutions like IMF, IBRD, IDA etc. As a result, external liabilities of the Central government have increased considerably from Rs. 11,298 crore as at end-March 1981 to Rs. 31,525 crore as at end-March 1991 and further to Rs. 1,56,347 crore as at end-March 2011.
DEBT OBLIGATIONS OF THE STATE GOVERNMENTS
To meet their increasing requirements of expenditure, the State governments have also to incur large debts like the Central government. Total liabilities of the State governments are divided into the following categories: (1) Internal debt, (2) Loans and advances from the Central government, (3) Provident funds, (4) Reserve funds, (5) Deposits and advances, and (6) Contingency funds.
COMBINED DEBT OF CENTRAL AND STATE GOVERNMENTS
As is clear from the Table, debt-GDP ratio has increased considerably in the post-1991 period - from 64.7 per cent as at end-March 1991 and 61.1 per cent as at end-March 1996 to as high as
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81.1 per cent as at end-March 2004 (it declined in later years and stood at 69.1 per cent as at end-March 2010). This raises questions regarding 'debt sustainability'. To rein in the public debt, serious efforts at reducing expenditures and increasing revenues are required to be made. However, because of economic slowdown, the government was forced to adopt fiscal stimulus packages in 2008-09. Massive government expenditures continued in 2009-10 and 2010-11 as well. Therefore, debt sustainability will remain a cause for concern.
COMBINED LIABILITIES OF THE CENTRE AND STATES
Combined Total Liabilities of Centre and States
Debt-GDP Ratio (Per cent)
Year (Rs. Crore) Centre States Combined
1990-91 3,68.824 55.22 22.50 64.75
2010-11 BE 51,12,250 50.09 23.11 64.91
GROWTH IN PUBLIC DEBT-GDP RATIO IS CRITICISED DUE TO FOLLOWING REASONS
First, public debt carries burden of interest which is to be paid out of the current revenue.
Second, public debt often does not yield direct or indirect returns and thus its redemption becomes difficult.
Third, public debt pre-empting financial resources may reduce availability of funds to the private sectors.
THESE CRITICISMS NOTWITHSTANDING DEBT FINANCING HAS BEEN CONSIDERED NECESSARY FOR THE FOLLOWING PURPOSES.
Smoothening out tax rates. Non-remunerative capital expenditure is usually lumpy in character. If such expenditure is financed through taxation, it may require considerable increase in the tax rates. Often there are practical difficulties in resource mobilisation in this manner. Moreover, higher rates might cause large distortions. Therefore, the appropriate policy would be to finance such capital formation though public debt.
Macroeconomic stabillsation. In a recessionary economy, when effective demand is lacking, the government can raise aggregate demand by pursuing a policy of deficit budgeting.
Financing war or other emergency expenditures. War or other emergency expenditures are often financed through borrowing.
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Current expenditure which results in human capital formation. It is generally agreed that recurrent expenditure on defence, law and order, and general administration should be met out of revenues. For inter-generational equity reasons the buildup of debt due to subsidies and interest payments should be avoided. However, certain types of current expenditures leading to creation of human capital may be met out of debt finance because of their favorable impact on the economy.
Remunerative capital formation. The government in a developing country is expected to playa useful role as a financial intermediary. It can use debt finance to obtain resources to be channelized to priority areas. Only the lending to help weaker sections may be at subsidized rates of interest.
BANKING SECTOR IN INDIA
A bank is a financial institution that provides banking and other financial services to their customers. A bank is generally understood as an institution which provides fundamental banking services such as accepting deposits and providing loans. There are also nonbanking institutions that provide certain banking services without meeting the legal definition of a bank. Banks are a subset of the financial services industry. A banking system also referred as a system provided by the bank which offers cash management services for customers, reporting the transactions of their accounts and portfolios, throughout the day.
HISTORY OF INDIAN BANKING SYSTEM
The first bank in India, called The General Bank of India was established in the year 1786. The East India Company established The Bank of Bengal/Calcutta (1809), Bank of Bombay (1840) and Bank of Madras (1843). The next bank was Bank of Hindustan which was established in 1870. These three individual units (Bank of Calcutta, Bank of Bombay, and Bank of Madras) were called as Presidency Banks. Allahabad Bank which was established in 1865 was for the first time completely run by Indians. Punjab National Bank Ltd. was set up in 1894 with head quarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. In 1921, all presidency banks were amalgamated to form the Imperial Bank of India which was run by European Shareholders. After that the Reserve Bank of India was established in April 1935. To streamline the functioning and activities of commercial banks, the Government of India came up with the Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965. Reserve Bank of India was vested with extensive powers for the supervision of banking in India as a Central Banking Authority. After independence, Government has taken most important steps in regard of Indian Banking Sector reforms. In 1955, the Imperial Bank of India was nationalized and was given the name "State Bank of India", to act as the principal agent of RBI and to handle banking transactions all over the country. It was established under State Bank of India Act, 1955. Seven banks forming subsidiary of State Bank of India was nationalized in 1960. On 19th July, 1969, major process of
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nationalization was carried out. At the same time 14 major Indian commercial banks of the country were nationalized. In 1980, another six banks were nationalized, and thus raising the number of nationalized banks to 20. Seven more banks were nationalized with deposits over 200 Crores. Till the year 1980 approximately 80% of the banking segment in India was under government’s ownership. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalised banks and resulted in the reduction of the number of nationalised banks from 20 to 19. On the suggestions of Narsimhan Committee, the Banking Regulation Act was amended in 1993 and thus the gates for the new private sector banks were opened.
CLASSIFICATION
Indian Banks are classified into commercial banks and co-operative banks. Commercial banks comprise: 1) schedule commercial banks (SCBs) and non-scheduled commercial banks. SCBs are further classified into private, public, foreign banks and regional rural banks (RRBs); and 2) co-operative banks which include urban and rural co-operative banks. As on Mar 31, 2011 the Indian banking system comprised 83 SCBs, 82 RRBs, 1,645 urban co-operative banks and 95,765 rural co-operative credit institutions.
Scheduled Banks: Scheduled Banks in India constitute those banks which have been included in the second schedule of RBI act 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42(6a) of the Act.
Regional Rural Bank: The government of India set up Regional Rural Banks (RRBs) on October 2, 1975. The banks provide credit to the weaker sections of the rural areas, particularly the small and marginal farmers, agricultural labourers, and small entrepreneurs.
THE MAIN REASONS WHY THE BANKS ARE HEAVILY REGULATED ARE AS FOLLOWS
To protect the safety of the public’s savings.
To control the supply of money and credit in order to achieve a nation’s broad economic goal.
To ensure equal opportunity and fairness in the public’s access to credit and other vital financial services.
To promote public confidence in the financial system, so that savings are made speedily and efficiently.
To avoid concentrations of financial power in the hands of a few individuals and institutions.
Provide the Government with credit, tax revenues and other services.
To help sectors of the economy that they have special credit needs for eg. Housing, small business and agricultural loans etc.
BASEL III NORMS
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Basel III (or the Third Basel Accord) is a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk agreed upon by the members of the Basel Committee on Banking Supervision in 2010–11, and scheduled to be introduced from 2013 until 2018
WHAT ARE THE MAJOR CHANGES PROPOSED IN BASEL III OVER EARLIER ACCORDS I.E. BASEL I AND BASEL II?
a. Better Capital Quality: One of the key elements of Basel 3 is the introduction of much stricter definition of capital. Better quality capital means the higher loss-absorbing capacity. This in turn will mean that banks will be stronger, allowing them to better withstand periods of stress.
b. Capital Conservation Buffer: Another key feature of Basel iii is that now banks will be required to hold a capital conservation buffer of 2.5%. The aim of asking to build conservation buffer is to ensure that banks maintain a cushion of capital that can be used to absorb losses during periods of financial and economic stress.
c. Countercyclical Buffer: This is also one of the key elements of Basel III. The countercyclical buffer has been introducted with the objective to increase capital requirements in good times and decrease the same in bad times. The buffer will slow banking activity when it overheats and will encourage lending when times are tough i.e. in bad times. The buffer will range from 0% to 2.5%, consisting of common equity or other fully loss-absorbing capital.
d. Minimum Common Equity and Tier 1 Capital Requirements: The minimum requirement for common equity, the highest form of loss-absorbing capital, has been raised under Basel III from 2% to 4.5% of total risk-weighted assets. The overall Tier 1 capital requirement, consisting of not only common equity but also other qualifying financial instruments, will also increase from the current minimum of 4% to 6%. Although the minimum total capital requirement will remain at the current 8% level, yet the required total capital will increase to 10.5% when combined with the conservation buffer.
e. Leverage Ratio: A review of the financial crisis of 2008 has indicted that the value of many assets fell quicker than assumed from historical experience. Thus, now Basel III rules include a leverage ratio to serve as a safety net. A leverage ratio is the relative amount of capital to total assets (not risk-weighted). This aims to put a cap on swelling of leverage in the banking sector on a global basis. 3% leverage ratio of Tier 1 will be tested before a mandatory leverage ratio is introduced in January 2018.
f. Liquidity Ratios: Under Basel III, a framework for liquidity risk management will be created. A new Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are to be introduced in 2015 and 2018, respectively.
g. Systemically Important Financial Institutions (SIFI): As part of the macro-prudential framework, systemically important banks will be expected to have loss-absorbing
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capability beyond the Basel III requirements. Options for implementation include capital surcharges, contingent capital and bail-in-debt.
MIROFINANCE
Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services.
Microfinance is not just about giving micro credit to the poor rather it is an economic development tool whose objective is to assist poor to work their way out of poverty. It covers a wide range of services like credit, savings, insurance, remittance and also non-financial services like training, counseling etc.
Microfinance sector has grown rapidly over the past few decades. Nobel Laureate Muhammad Yunus is credited with laying the foundation of the modern MFIs with establishment of Grameen Bank, Bangladesh in 1976. Today it has evolved into a vibrant industry exhibiting a variety of business models. Microfinance Institutions (MFIs) in India exist as NGOs (registered as societies or trusts), Section 25 companies and Non-Banking Financial Companies (NBFCs). Commercial Banks, Regional Rural Banks (RRBs), cooperative societies and other large lenders have played an important role in providing refinance facility to MFIs. Banks have also leveraged the Self-Help Group (SHGs) channel to provide direct credit to group borrowers.
With financial inclusion emerging as a major policy objective in the country, Microfinance has occupied centre stage as a promising conduit for extending financial services to unbanked sections of population. At the same time, practices followed by certain lenders have subjected the sector to greater scrutiny and need for stricter regulation.
SALIENT FEATURES OF MICROFINANCE
Borrowers are from the low income group
Loans are of small amount – micro loans
Short duration loans
Loans are offered without collaterals
High frequency of repayment
Loans are generally taken for income generation purpose
GAPS IN FINANCIAL SYSTEM AND NEED FOR MICROFINANCE
According to the latest research done by the World Bank, India is home to almost one third of the world’s poor (surviving on an equivalent of one dollar a day). Though many central government and state government poverty alleviation programs are currently active in India, microfinance plays a major contributor to financial inclusion. In the past few decades it has helped out remarkably in eradicating poverty. Reports show that people who have taken microfinance have been able to increase their income and hence the standard of living.
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About half of the Indian population still doesn’t have a savings bank account and they are deprived of all banking services. Poor also need financial services to fulfill their needs like consumption, building of assets and protection against risk. Microfinance institutions serve as a supplement to banks and in some sense a better one too. These institutions not only offer micro credit but they also provide other financial services like savings, insurance, remittance and non-financial services like individual counseling, training and support to start own business and the most importantly in a convenient way. The borrower receives all these services at her/his door step and in most cases with a repayment schedule of borrower’s convenience. But all this comes at a cost and the interest rates charged by these institutions are higher than commercial banks and vary widely from 10 to 30 percent. Some claim that the interest rates charged by some of these institutions are very high while others feel that considering the cost of capital and the cost incurred in giving the service, the high interest rates are justified.
CHANNELS OF MICRO FINANCE
In India microfinance operates through two channels:
1. SHG – Bank Linkage Programme (SBLP) 2. Micro Finance Institutions (MFIs)
SHG – BANK LINKAGE PROGRAMME
This is the bank-led microfinance channel which was initiated by NABARD in 1992. Under the SHG model the members, usually women in villages are encouraged to form groups of around 10-15. The members contribute their savings in the group periodically and from these savings small loans are provided to the members. In the later period these SHGs are provided with bank loans generally for income generation purpose. The group’s members meet periodically when the new savings come in, recovery of past loans are made from the members and also new loans are disbursed. This model has been very much successful in the past and with time it is becoming more popular. The SHGs are self-sustaining and once the group becomes stable it starts working on its own with some support from NGOs and institutions like NABARD and SIDBI.
MICRO FINANCE INSTITUTIONS
Those institutions which have microfinance as their main operation are known as micro finance institutions. A number of organizations with varied size and legal forms offer microfinance service. These institutions lend through the concept of Joint Liability Group (JLG). A JLG is an informal group comprising of 5 to 10 individual members who come together for the purpose of availing bank loans either individually or through the group mechanism against a mutual guarantee. The reason for existence of separate institutions i.e. MFIs for offering microfinance are as follows:
High transaction cost – generally micro credits fall below the break-even point of providing loans by banks
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Absence of collaterals – the poor usually are not in a state to offer collaterals to secure the credit
Loans are generally taken for very short duration periods
Higher frequency of repayment of installments and higher rate of Default
CONTROVERSY ON MFI
The Indian microfinance sector witnessed tremendous growth over the last five years, during which institutions were subject to little regulation. Some microfinance institutions were subject to prudential requirements; however no regulation addressed lending practices, pricing, or operations. The combination of minimal regulation and rapid sector growth led to an environment where customers were increasingly dissatisfied with microfinance services, culminating in the Andhra Pradesh crisis in the fall of 2010.
Leading up to the Andhra Pradesh crisis, microfinance institutions were experiencing a large influx of equity and debt investment. Some institutions were doubling their size each year, aiming to reach more customers and serve more areas. As institutions scaled up quickly, hiring and training processes were less thorough, resulting in employees who engaged in inappropriate collection practices and lending models that led to customer over-indebtedness. In August 2010, SKS Microfinance held the first initial public offering (IPO) for a microfinance institution in India, raising USD 347 million1 and drawing attention to the potential profits of the sector. Media reports took different viewpoints on the IPO, some celebrating the sector, and others characterizing the profits as taking advantage of the poor. Further reports cited links between Microfinance Institutions (MFIs) lending and suicides in Andhra Pradesh. The incident culminated when Andhra Pradesh Chief Minister passed the Andhra Pradesh Microfinance Ordinance 2010, which includes a number of measures that greatly restricts microfinance institutions‟ operations. As a result of the ordinance, and the general attitude towards
microfinance in Andhra Pradesh, loan repayments dropped dramatically3.
Due to low repayment rates, microfinance institutions, with exposure to Andhra Pradesh, suffered significant losses. Banks stopped lending to microfinance institutions all over India; for fear that a similar situation would occur elsewhere, resulting in a liquidity crunch for microfinance institutions, which are largely dependent on bank lending as a funding source. With the sector at a standstill, microfinance institutions, microfinance clients, banks, investors, and local governments were calling for new regulation to address the prominent issues of the sector. The Reserve Bank of India (RBI) responded by appointing an RBI sub-committee know as the Malegam Committee.
This committee aimed to address the primary customer complaints that led to the crisis, including coercive collection practices, usurious interest rates, and selling practices that resulted in over-indebtedness. The existing regulations did not address these issues, thus, who should respond to these issues, and how they should respond, was uncertain. This prolonged the general regulatory uncertainty and the resulting repayment and institutional liquidity issues.
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The Malegam Committee released their recommended regulations in January 2011. These recommendations were 'broadly accepted' by RBI in May 2011, though specific regulation was only released regarding which institutions qualify for priority sector lending at this time. Additionally, an updated version of the Micro Finance Institutions (Development and Regulations) Bill 2011 is in Parliament, which aims to provide a regulatory structure for microfinance institutions operating as societies, trusts, and cooperatives. Although this shows that regulators are taking steps to address the crisis issues and resolve regulatory uncertainty, banks have not resumed lending to microfinance institutions as of July 2011.
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CHAPTER 10: FOREIGN TRADE
BALANCE OF TRADE
The balance of payments (BOP) is the method countries use to monitor all international monetary transactions at a specific period of time. Usually, the BOP is calculated every quarter and every calendar year. All trades conducted by both the private and public sectors are accounted for in the BOP in order to determine how much money is going in and out of a country. If a country has received money, this is known as a credit, and, if a country has paid or given money, the transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance. But in practice this is rarely the case and, thus, the BOP can tell the observer if a country has a deficit or a surplus and from which part of the economy the discrepancies are stemming.
THE BALANCE OF PAYMENTS SUB-DIVISION
The BOP is divided into three main categories: the current account, the capital account and the financial account. Within these three categories are sub-divisions, each of which accounts for a different type of international monetary transaction.
THE CURRENT ACCOUNT
The current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account.
Within the current account are credits and debits on the trade of merchandise, which includes goods such as raw materials and manufactured goods that are bought, sold or given away (possibly in the form of aid). Services refer to receipts from tourism, transportation (like the levy that must be paid in Egypt when a ship passes through the Suez Canal), engineering, business service fees (from lawyers or management consulting, for example), and royalties from patents and copyrights. When combined, goods and services together make up a country's balance of trade (BOT). The BOT is typically the biggest bulk of a country's balance of payments as it makes up total imports and exports. If a country has a balance of trade deficit, it imports more than it exports, and if it has a balance of trade surplus, it exports more than it imports.
Receipts from income-generating assets such as stocks (in the form of dividends) are also recorded in the current account. The last component of the current account is unilateral transfers. These are credits that are mostly worker's remittances, which are salaries sent back into the home country of a national working abroad, as well as foreign aid that is directly received.
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THE CAPITAL ACCOUNT
The capital account is where all international capital transfers are recorded. This refers to the acquisition or disposal of non-financial assets (for example, a physical asset such as land) and non-produced assets, which are needed for production but have not been produced, like a mine used for the extraction of diamonds.
The capital account is broken down into the monetary flows branching from debt forgiveness, the transfer of goods, and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets (assets such as equipment used in the production process to generate income), the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, and, finally, uninsured damage to fixed assets.
THE FINANCIAL ACCOUNT
In the financial account, international monetary flows related to investment in business, real estate, bonds and stocks are documented.
Also included are government-owned assets such as foreign reserves, gold, special drawing rights (SDRs) held with the International Monetary Fund, private assets held abroad, and direct foreign investment. Assets owned by foreigners, private and official, are also recorded in the financial account.
THE BALANCING ACT
The current account should be balanced against the combined-capital and financial accounts. However, as mentioned above, this rarely happens. We should also note that, with fluctuating exchange rates, the change in the value of money can add to BOP discrepancies. When there is a deficit in the current account, which is a balance of trade deficit, the difference can be borrowed or funded by the capital account. If a country has a fixed asset abroad, this borrowed amount is marked as a capital account outflow. However, the sale of that fixed asset would be considered a current account inflow (earnings from investments). The current account deficit would thus be funded.
When a country has a current account deficit that is financed by the capital account, the country is actually foregoing capital assets for more goods and services. If a country is borrowing money to fund its current account deficit, this would appear as an inflow of foreign capital in the BOP.
BALANCE OF PAYMENTS CRISIS
A BOP crisis, also called a currency crisis, occurs when a nation is unable to pay for essential imports and/or service its debt repayments. Typically, this is accompanied by a rapid decline in the value of the affected nation's currency. Crises are generally preceded by large capital inflows, which are associated at first with rapid economic growth. However a point is reached
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where overseas investors become concerned about the level of debt their inbound capital is generating, and decide to pull out their funds. The resulting outbound capital flows are associated with a rapid drop in the value of the affected nation's currency. This causes issues for firms of the affected nation who have received the inbound investments and loans, as the revenue of those firms is typically mostly derived domestically but their debts are often denominated in a reserve currency. Once the nation's government has exhausted its foreign reserves trying to support the value of the domestic currency, its policy options are very limited. It can raise its interest rates to try to prevent further declines in the value of its currency, but while this can help those with debts denominated in foreign currencies, it generally further depresses the local economy.
FOREIGN TRADE AND TRADE POLICY
VALUE OF EXPORTS AND IMPORTS IN THE PLANNING PERIOD
In fact, a study of foreign trade data reveals that trade balance was positive in only two years during the entire period 1949-50 to 2010-11. These were the years of 1972-73 and 1976-77 when the country recorded small trade surpluses of $ 134 million and $ 77 million respectively. In all other years, deficits in balance of trade were recorded. What is a matter for concern is the fact that the trade deficit has increased significantly over the years.
Trade deficit in 2010-11 touched the highest ever level of $ 118.63 billion recorded in pest-Independence period. However, what is encouraging is the fact that while imports increased in volume terms by 10.1 per cent in this year, exports increased in volume terms by as much as 43.2 per cent.
COMPOSITION OF FOREIGN TRADE
Composition of Imports
In 1947-48, the main items of imports in India (in order of importance were: machinery of all kinds; oils (vegetable, mineral and animal); grains, pulses and flour; cotton, raw and 'waste; vehicles (excluding locomotives); cutlery, hardware, implements and instruments; chemicals, drugs and medicines; dyes and colours; other yarns and textile fabrics; paper, paper board and stationery; and metals other than iron and steel and manufactured. These imports together constituted more than 70 per cent of all imports.
The Second Plan (based on the Mahalanobis Model) introduced a programme of industrialization with heavy emphasis on the development of capital goods and basic industries. As a result, it became necessary to import capital equipment in large quantities to be imported in substantial quantities to keep the equipment in working order.
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For convenience, imports of the country have been divided into four broad groups: (i) Food and live animals chiefly for food, (ii) Raw materials and intermediate manufactures, (iii) Capital goods and (iv) Other goods.
Important facts regarding the composition of different import items are as follows:
1. There has been a substantial rise in the import expenditure on POL (petroleum, oil and lubricants) imports.
2. Since 1999-2000, data on imports of gold and silver have become available as their imports are now channelised through the official routes.
3. Import expenditure on 'non-electrical machinery, apparatus and appliances' rose considerably from $ 341 million in 1970-71 to $ 26,111 million in 2010-11.
4. Due to the increasing demand of the gems and jewellery industry (which has emerged as an important export earning industry) the imports of 'pearls, precious and semi-precious stones' have increased significantly.
5. Because of increasing domestic demand, edible oils also have had to be imported on a considerable scale in certain years.
6. Despite increasing domestic production of iron and steel, substantial quantities continue to be imported as domestic production has failed to keep pace with the rising demand.
7. Import expenditure on fertilisers and fertiliser materials increased considerably from $ 113 million in 1970-71 to $ 1,683 million in 1995-96.
Composition of Exports
Important points that emerge from regarding different export items are as follows:
1. The most important export item in 1960-61 was jute and it contributed 21 per cent (or a little more than one-fifth) of total export earnings. Since then its share has continuously declined (to 12.4 per cent in 1970-71 and 0.2 per cent in 2010-11).
2. The second most important export item in 1960-61 was tea and it contributed 19.3 per cent (i.e., almost one fifth) of total export earnings. Its share has also declined consistently to 9.6 per cent in 1970-71 and 0.3 per cent in 2010-11.
3. Consequent upon the programmes of industrialisation initiated during the planning period, the exports of engineering goods rose substantially. Engineering goods occupied the first place ill India's export earnings in 2010-11.
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4. During recent years, exports of petroleum products have increased significantly. Their exports were as high as $ 29,030 million in 2007-08 which was 17.8 per cent of total export earnings.
5. Exports of gems and jewellery have recorded a spectacular increase. From $59 million in 1970-71 (representing 2.9 per cent of total export earnings) the exports of gems and jewellery rose to $ 36,840 million in 2010-11 which was 14.7 per cent of total export earnings.
6. The results of industrialisation are also expressed through increases in the exports of chemicals and allied products.
7. Export of readymade garments has emerged as an important foreign exchange earner in recent years.
8. Export earnings from cotton yarn, fabrics, made-ups, etc., stood at $ 5,506 million in 2010-11 which was 2.2 per cent of total export earnings.
INDIA'S BALANCE OF PAYMENTS: THE PRE-1991 PERIOD
Current Account
Period I: 1956-57 to 1975-76. This period comprising the Second, Third and Fourth plans and first two years of the Fifth Plan saw heavy deficits in balance of payments and an extremely tight payments position. This period witnessed three wars (in 1962 with China and in 1965 and 1971 with Pakistan), several droughts (the most severe being the droughts of 1965-66 and 1966-67), and the first oil shock in 1973. Though the government resorted to severe import controls and foreign exchange regulations, the current account deficit stood at 1.8 per cent of GDP. Foreign exchange reserves were at a low level, generally less than necessary to meet three months' imports.
Period II: 1976-77 to 1979-80. This relatively short period was a golden period as far as the balance of payments is concerned. India had a small current account surplus of 0.6 per cent of the GDP during this period and also possessed foreign exchange reserves equivalent to about seven months' imports. The relatively comfortable position on the balance of payments front was due to the rapid increase in private remittances from oil exporting countries. A large number of Indian workers temporarily migrated to the oil- rich Middle East countries to work there as an unskilled worker, skilled technicians, office assistants, nurses etc. They kept sending their net earnings to their families in India. As a result, transfer payments to India on private account aggregated Rs. 3,128.7 crore over the Fifth Plan period.
Period III: 1980-81 to 1990-91. This period covering roughly the Sixth Plan (1980-81 to 1984-85) and Seventh Plan (1985-86 to 1989-90) was marked by severe balance of payments difficulties.
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Earnings from invisibles were substantial throughout the Sixth Plan period. They touched the highest level ever in the planning period during 1980-81. In that year they stood at Rs. 4,311 crore. In subsequent years of the plan, earnings from invisibles declined somewhat but in each year they were Rs. 3,500 crore or more. However, during the Seventh Plan period private remittances from middle-east countries showed tendencies of flattening out. As a result, earnings from invisibles declined consistently and fell to Rs. 1,025 crore in 1989-90.
Capital Account: Financing the Deficit
A study of capital account of the balance of payments reveals the methods of financing the deficit in the current account of the balance of payments. In periods I and II, the entire deficit was financed through inflows of concessional assistance and this kept the debt servicing burden low. In contrast, a substantial part of the deficit (indeed almost the entire incremental deficit, in dollar terms) had to be financed through non-concessional loans obtained on market related terms during period III.
Expecting prolonged balance of payment difficulties, the Government of India entered into an arrangement with the International Monetary Fund (IMF) under the Extended Fund Facility (EFF) in early 1980s. The EFF provides for assistance to member countries that need to make structural adjustments in their economies with a view to achieving balance of payments viability in the medium term. This facility enabled India to draw up to SDR 5 billion over a period of four fiscal years from 1980-81 to 1984-85. The availability of EFF helped India considerably in the financing of the current account deficit during 1980-81 to 1983-84. India terminated the EFF before fully utilising the amount originally contemplated. Following the Gulf crisis and deteriorating balance of payments situation, the Government of India resorted to substantial drawals from the IMF from 1990-91 onwards under one or other facility.
The above discussion shows that the balance of payments situation turned grim in Period III. With increasing trade deficits, flattening out of private remittances and a fall in concessional aid to finance the ever increasing deficits, India had to depend on high cost methods of financing the deficit, viz., external commercial borrowings, NRI deposits, short-term debt and assistance from IMF. The conditions attached to the IMF loans are generally not known but it is a common knowledge that such loans are packaged with high conditionality. As far as external commercial borrowings, NRI deposits and short- term debts are concerned, these three sources are not only more demanding and expensive in terms of debt-servicing obligations than external aid but are also more volatile, being more vulnerable to expectations about foreign exchange risks. Also, they represent a 'substantial future liability.
All these facts show that there was a marked 'turnaround' in the balance of payments situation in 1993-94. The year 1996-97 witnessed a reduction in current account deficit from $ 5.9 billion in 1995-96 to $ 4.6 billion. This was 1.2 per cent of GDP. Trade deficit rose to $ 17.8 billion in 1999-2000 but because of high earnings from invisibles, current account deficit was reduced to about $ 4.7 billion.
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From the point of view of balance of payments, most significant have been the three years 2001-02, 2002-03 and 2003-04. In all these years, there was a surplus on current account. The surplus on current account was 0.7 per cent of GDP in 2001-02, 1.2 per cent of GDP in 2002-03 and 2.3 per cent of GDP in 2003-04. It is the first time in post- Independence period that there was a current account surplus for three consecutive years. This surplus was also accompanied by strong net capital inflows.
After recording a surplus for three years in a row, the current account once again recorded a deficit in 2004-05. The current account deficit in this year was $ 2,470 million (which was 0.4 per cent of GDP).
REASONS FOR SATISFACTORY BALANCE OF PAYMENTS SITUATION IN POST-REFORM PERIOD
High Earnings from Invisibles
Rise in External Commercial Borrowings
Non-Resident Deposits
Role of Foreign Investment. Since 1991 the government has been offering various concessions, facilities and incentives to the foreign investors with a view to encouraging foreign investment into the country. Foreign investment is constituted of: (1) foreign direct investment, and (2) portfolio investment. Portfolio investment, in turn, consists of (i) foreign institutional investment and (ii) Euro equities and others (which include Global Depository Receipts (GDRs), American Depository Receipts (ADRs) and offshore funds and others).
THE MANAGEMENT OF BALANCE OF PAYMENTS
In this section we propose to discuss some important issues relating to the management of balance of payments. The issues are: (1) the linkages between fiscal and external policies, (2) issues relating to trade strategy, (3) exchange rate management, (4) issues pertaining to the capital account, (5) external debt, and (6) foreign currency reserves and reserve management strategy.
LINKAGES BETWEEN FISCAL AND EXTERNAL POLICIES
As noted by C. Rangarajan, imbalances in the external sector reflect the fundamental fact that aggregate absorption in the economy is ill excess of the domestically produced goods and services. 15 Accordingly, measures to reduce excess demand in the economy constitute an important policy ingredient of the adjustment towards creating a sustainable balance of payments environment. While excess absorption can originate either from the private or the public sector (or both), Rangarajan argues that, in reality, it is the fiscal deficit of the public sector the is found to be associated with excess demand and the consequent deterioration of the current account balance.
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IMPORT POLICY: THE PRE-REFORM PERIOD
The import policy of the Government of India in the pre-reform period had two important constituents: (i) import restrictions and (ii) import substitution.
Import Liberalisation in 1980s
The year 1977-78 initiated a new era of import liberalisation in the country. This process was carried forward ill 1980s. The annual import policies of 1980-81 to 1984-85 followed the liberal approach of providing necessary imported inputs for the industrial sector.
1. The Import Control Regime
According to lagdish Bhagwati and Padma Desai, import policy had the following adverse economic effects: (1) delays; (2) administrative and other expenses; (3) inflexibility; (4) lack of co-ordination among different agencies; (5) absence of competition; (6) bias towards creation of capacity despite underutilisation; (7) anticipatory and automatic protection afforded to industries regardless of costs; (8) discrimination against exports; and (9) loss of revenue.
EXPORT POLICY: THE PRE-REFORM PERIOD
The Three Phases of Export Policy
Phase I was characterised by export pessimism as, following Prebisch, Singer and Nurkse, it was believed that exports from developing countries faced a stagnant world demand and nothing much could be done to increase them. It was also believed that the terms of trade of these countries were destined to deteriorate over time regardless of the policies of developing countries.
Phase II can be considered to have begun in 1973 and lasted for about a decade. "In this phase, although this was not explicitly stated, it was recognised that import substitution policies by themselves could not bring about a viability in India's balance of payments ..... In this second phase exports were, therefore, accorded a high priority.
Phase III saw a more positive approach to export promotion strategy. While incentives for export production were enhanced on the one hand, exports themselves were now being seen as an integral part of industrial and development policies.
EXPORT PROMOTION POLICIES: AN OVERALL VIEW
Important export promotion measures undertaken by the Government of India during the pre-reform period were as follows:
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1. Cash Compensatory Support (CCS). This was introduced in 1966. It was designed to provide compensation for unrebated indirect taxes paid by exporters on inputs, higher freight rates, and market development costs.
2. Duty Drawback System. The object of the duty drawback system is to reimburse exporters for tariff paid on the imported materials and intermediates and central excise duties paid on domestically produced inputs which enter into export production. This is a worldwide practice and the rationale is straightforward. Custom duties and excise duties on inputs raise the cost of production in export industries and thereby affect the competitiveness of exports. Therefore, exporters need to be compensated for the escalation in their costs attributable to such customs and excise duties.
3. Replenishment Licences. In order to provide the export sector of the economy with access to importable inputs that enter into export production, at international prices, the import policy allowed special import facilities for registered exporters.
4. Advance Licences and Duty Exemption Scheme. Advance licences facilitated imports of specified raw materials without payment of any customs duty. Such licences were available only against confirmed export orders and/or letters of credit.
5. EPZs and 100 per cent EOUs. With a view to giving impetus to export drive, the government set up Export Processing Zones (EPZs) which provide almost free trade environment for export production so as to make Indian export products competitive in the world market.
6. Subsidies on Domestic Raw Materials. The most important scheme in this category was the International Price Reimbursement Scheme (IPRS) for steel, which equalised the difference between international and domestic prices of steel obtained from domestic sources.
7. Fiscal Concessions for Exports. Special fiscal treatment granted to exports took two forms, that which related to the payment of indirect taxes, and that which related to the payment of direct taxes. The first type of concession was incorporated in the duty drawback system and the regime of cash compensatory support which sought to reimburse indirect fares that were not refunded through the former. The second type of concession was incorporated in income tax provisions where earnings from exports were either partially exempted from income tax, or taxed at a lower rate.
8. Export Credit and Assistance to EPCs. Assistance was granted in the form of grants-in-aid to the Export Promotion Councils and approved organisations, export houses, consultancy organisations and individual exporters to undertake (a) market research, commodity research, area survey etc, (b) export publicity and dissemination of information, (c) trade delegations and teams, (d) participation in trade fairs and exhibitions, (e) establishment of offices and branches in countries abroad, (j) research
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and development schemes etc., and (g) any other scheme that would promote the development of market for Indian goods abroad.
9. Blanket Exchange Permit Scheme. A Blanket Exchange Permit Scheme was introduced by the government in June 1987. The scheme aimed to give a major thrust to the country's export promotion drive. Under the scheme, exporters were allowed, barring a few products, to utilise 5-10 per cent of their foreign exchange earnings for undertaking export promotion activities.
FOREIGN TRADE POLICY (2009-14)
The Policy Thrust: The Key Goals
The key objectives of FTP (2009-14) are as follows:
1. The short-term objective is to arrest and reverse the declining trend of exports and to provide additional support to sectors hit badly by recession in the developed world.
2. The policy aims to achieve an annual export growth of 15 per cent for two years 2009-11; with an annual export target of $ 200 by March 2011.
3. The Commerce Ministry hopes that for the remaining three years of the FTP, the country would return to a high export growth path of around 25 per cent per annum so that the exports of goods and services will double by March 2014.
4. The long-term policy objective for the government is to double India's share in global trade by 2020 (from 1.64 per cent in 2008 to 3.28 per cent 2020).
Main Features of FTP (2009-14)
1. Expansion of Focus Market Scheme. FTP (2009-14) has added 26 new markets to the Focus Market Scheme.
2. Incentives under FMS and FPS. Incentive available under the Focus Market Scheme (FMS) has been raised from 2.5 per cent to 3 per cent while incentive available under Focus Product Scheme (FPS) has been raised from 1.25 per cent to 2 per cent.
3. EPCG Scheme. FTP (2009-14) has allowed zero- duty import of capital goods for engineering and electronic products, basic chemicals and pharmaceuticals, apparels and textiles, plastics, handicrafts, and leather.
4. DEPB Extended. The Duty Entitlement Passbook Scheme, which neutralises the incidence of customs duty on the import content of export products, was extended by a year to December 2010.
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5. EOUs. Export-oriented Units (EOUs) have been allowed to sell products manufactured by them in DTA (domestic tariff area) up to a limit of 90 per cent instead of existing 75 per cent. EOUs will also be allowed to procure finished goods for consolidation, subject to certain safeguards.
6. Thrust for Value-Added Manufacturing.
7. Simplification of Procedures, Reduction in Transaction Costs.
FOREIGN CAPITAL
COMPONENTS OF FOREIGN CAPITAL
Foreign capital can be obtained either in the form of concessional assistance or non-concessional flows or foreign investment. Concessional assistance includes grants and loans obtained at low rates of interest with long maturity period. Such assistance is provided generally on bilateral basis (government to government) or through multilateral agencies like the World Bank, International Development-Association etc.
Non-concessional assistance includes mainly external commercial borrowings, loans from other governments/multilateral agenices on market terms and deposits obtained from non-residents. Foreign investment is generally in the form of private foreign participation in certain sectors of the domestic economy.
NEED FOR FOREIGN CAPITAL
1. Sustaining a high level of investment.
2. The technological gap.
3. Exploitation of natural resources.
4. Undertaking the initial risk: Many underdeveloped countries suffer from acute scarcity of private entrepreneurs. This creates obstacles in the programmes of industrialisation. An argument advanced in favour of the foreign capital is that it undertakes the 'risk' of investment in the host countries and thus provides the much needed impetus to the process of industrialisation.
5. Development of basic economic infrastructure.
6. Improvement in the balance of payments position.
INDIAN GOVERNMENT'S POLICY TOWARDS FOREIGN CAPITAL
1. No discrimination between foreign and Indian capital.
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2. Full opportunities to earn profits: The foreign interests operating in India would be permitted to earn profits without subjecting them to undue controls.
3. Guarantee of compensation: If and when foreign enterprises are compulsorily acquired, compensation will be paid on a fair and equitable basis as already announced in government's statement of policy.
However, the real 'opening up' came with the announcement of the new industrial policy in July 1991. In subsequent period, several other measures for promoting foreign investment have also been announced. The only sectors in which FDI is now prohibited are as follows:
1. Multi Brand Retail (Recently Cabinet has approved 49% FDI in it) 2. Atomic energy, 3. Lottery business, 4. Gambling and betting, 5. Business of chit fund, 6. Nidhi company, 7. Trading in transferable development rights, and 8. Activity/Sector not opened to private sector investment.
CHOICE OF EXCHANGE RATE REGIME
The two polar (or extreme) cases of exchange rate regimes are: (i) the fixed exchange rate regime, and (ii) the fully floating (or market-determined) exchange rate regime. Between these two extremes, one can think of a number of intermediate regimes which combine the important features of these two regimes in different ways. The supporters of the fixed exchange rate regime argue that it provides credibility, transparency, very low inflation and financial stability. Countries for which pegged exchange rates seem to be appropriate are small economies with a dominant trading partner that maintains a reasonably stable monetary policy.' The international experience also reveals that a large number of small economies have pegged their exchange rate regimes. For instance, small Caribbean island economies, some small Central American countries and some Pacific island economies peg to the US dollar. African countries like Lesotho, Namibia and Switzerland peg to the South African Rand. Countries like Nepal and Bhutan peg their currency to the Indian rupee.
The other extreme is the fully floating exchange rate regime. In this case, there is no government (or central bank) intervention and the currency's value is determined by the free play of demand and supply forces. The chief merit of flexible or floating exchange rate is the simplicity of its operative mechanism. The supporters of this exchange rate regime argue that it is much easier to change one price, namely the exchange rate, than to alter thousands or millions of individual prices, when an economy needs to enhance (or reduce) its international price competitiveness in the interest of balance of payments adjustment.
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Between the two extremes of 'hard pegs' and 'full float' there is a large spectrum of exchange rate systems that combine features of these two regimes in various degrees. Most countries in the present-day world are following intermediate regimes with country-specific features, no targets for the level of the exchange rate, and exchange market interventions to ensure orderly exchange rate movements. While the increasingly accepted view is that exchange rates should be flexible and not fixed or pegged, it is also emphasised that countries should be able to intervene or manage exchange rates if movements are believed to be destabilising in the short run.
Tarapore Committee on Fuller Capital Account Convertibility which submitted its Report on July 31, 2006 envisages an exchange rate policy for India aimed at maintaining the real effective exchange rate broadly within a +/-5 per cent band around a neutral level. This is essentially a plea for 'managed floating.
EXCHANGE RATE MANAGEMENT IN INDIA
Over the last six decades since Independence, the exchange rate system in India has transited from a fixed exchange rate regime where the Indian rupee was pegged to the pound sterling on account of historic links with Britain to a basket-peg during the 1970s and 1980s and eventually to the present form of market-determined exchange rate regime since March 1993.
Par Value System (1947-1971): After gaining Independence, India followed the par value system of the IMF whereby the rupee's external par value was fixed at 4.15 grains of fine gold.
Pegged Regime (1971-1992): India pegged its currency to the US dollar (from August 1971 to December 1991) and to the pound sterling (from December 1971 to September 1975).
The Period Since 1991: A two-step downward adjustment of 18-19 per cent in the exchange rate of the Indian rupee was made on July 1 and 3, 1991.
Liberalised Exchange Rate Management System: The Finance Minister announced the liberalised exchange rate management system (LERMS) in the Budget for 1992- 93. This system introduced partial convertibility of rupee. Under this system, a dual exchange rate was fixed under which 40 per cent of foreign exchange earnings were to be surrendered at the official exchange rate while the remaining 60 per cent were to be converted at a market-determined rate.
Market-determined Exchange Rate Regime (1993 to Present Day): The LERMS was essentially a transitional mechanism and provided a fair degree of stability. There was also a healthy build-up of reserves. As a result, there was a smooth changeover to a regime under which the exchange rates were unified effective March 1, 1993. Since then, the day-to-day movements in exchange rates have been largely market-determined.
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INDIA'S FOREIGN EXCHANGE RESERVES
Over the period 1991 to 2011, India's foreign exchange reserves increased considerably - from US $ 5.8 billion at end-March 1991 to $ 304.8 billion at end-March 2011. The traditional measure of trade based indicator of reserve adequacy, i.e., the import cover which shrank to three weeks of imports by the end of December 1990 also improved significantly to 14.4 months in 2007-08. It declined to 9.8 months in 2009-10 and stood at 9.6 months in 2010-11.
THE ISSUE OF CAPITAL ACCOUNT CONVERTIBILITY
Before taking up the discussion on capital account convertibility, it is important to understand the difference between 'flotation' and 'convertibility.' "Full float" means that the exchange rate is left to be determined by the demand and supply in the market, with no intervention by the central bank to influence the exchange rate in any manner whatsoever. 011 the other hand, "full (capital account) convertibility implies the unfettered right of residents and non-residents, to convert the domestic currency into foreign currency and vice versa, for capital account transactions involving changes in assets and liabilities in domestic and foreign currencies".
THE CASE FOR AND AGAINST CAPITAL ACCOUNT CONVERTIBILITY
The arguments put forward in favour of full capital account convertibility are as follows:
1. Liberal capital account leads to faster economic growth.
2. Developing countries need external capital to sustain an excess of investment over domestic saving and an open capital account can attract foreign capital.
3. Since effective implementation of capital controls becomes more and more difficult in a globalised economy, this de facto situation should be recognised de jure by lifting controls on capital account transactions.
4. Full capital account convertibility will force governments to behave more responsibly on fiscal balances. Unsustainable deficits would frighten investors, leading to capital flight from the country - and this danger would force governments to act more responsibly in controlling fiscal deficits.
While rewards are uncertain, risks are very obvious as a liberal capital account can amplify and prolong a crisis.
China has attracted huge capital inflows without the currency being convertible even on the current account. This shows that from the point of view of the foreign investor what matters is the economic and industrial performance of the country and not capital account convertibility.
The experience of Mexico in 1994, East Asian countries in 1997, Russia in 1998, Brazil in 1998-99 and Argentina in 2001 has highlighted the risk of capital account liberalisation. For instance,
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the East Asian countries had undertaken several steps in 1980s and 1990s to open up their capital accounts and had removed most of the restrictions on their financial markets. These steps led to massive capital inflows in these countries. A major part of these inflows were in the form of 'hot money'" which were extremely vulnerable to expectations and speculation.
INDIA'S APPROACH TO CAPITAL ACCOUNT CONVERTIBILITY
On account of the dangers of full capital account convertibility and the unhappy experience of other countries who opted for such convertibility, the Reserve Bank of India opted for a gradualist and phased capital account liberalisation programme. It started off by opting first for current account liberalisation in stages.
IMPORTANT CAPITAL ACCOUNT LIBERALISATION MEASURES
1. All deposit schemes for NRIs have been made fully convertible.
2. NRIs will be free to repatriate in foreign currency their current earnings in India such as rent, dividend, pension, interest and the like based on appropriate certification.
3. Indian citizens have been permitted to maintain foreign currency accounts out of foreign exchange earned/retained from travel expenses.
4. Indian companies are allowed to access ADRs/ GDRs (American Depository Receipts/Global Depository Receipts) markets through an automatic route without approval of the Ministry of Finance subject to specified norms and post-issue reporting requirements.
5. FDI is allowed up to 100 per cent on the automatic route in most sectors subject to sect oral rules/regulations applicable.
6. ECBs (external commercial borrowings) have now been allowed under an automatic route up to US $ 500 million under certain conditions.
7. Investment in overseas financial sector is also permitted subject to certain terms and conditions.
FOREIGN EXCHANGE REGULATION ACT (FERA), 1973
Foreign Exchange Regulation Act (FERA) was promulgated in 1973 and it came into force on January 1, 1974. Section 29 of this Act referred directly to the operations of MNCs in India. According to the Section, all non-banking foreign branches and subsidiaries with foreign equity exceeding 40 per cent had to obtain permission to establish new undertakings, to purchase shares in existing companies, or to acquire wholly or partly any other company.
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According to these guidelines, the principal rule was that all branches of foreign companies operating in India should convert themselves into Indian companies with at least 60 per cent local equity participation.
FOREIGN EXCHANGE MANAGEMENT ACT (FEMA), 1999
The Foreign Exchange Management Bill (FEMA) was introduced by the Government of India in Parliament on August 4, 1998. The Bill aims "to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
FEMA: A MAJOR DEPARTURE FROM FERA
As is clear from the name of the Act itself, the emphasis under FEMA is on 'exchange management' whereas under FERA the emphasis was on 'exchange regulation' or exchange control. Under FERA it was necessary to obtain Reserve Bank's permission, either special or general, in respect of most of the regulations there under. FEMA has brought about a sea change in this regard and except for Section 3 which relates to dealing in foreign exchange, etc., no other provisions of FEMA stipulate obtaining Reserve Bank's permission.
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CHAPTER 11: INTERNATIONAL ORGANISATIONS
THE INTERNATIONAL MONETARY FUND
The International Monetary Fund (IMF) is an international organization that was created on July 22, 1944 at the Bretton Woods Conference and came into existence on December 27, 1945 when 29 countries signed the Articles of Agreement. It originally had 45 members. The IMF's stated goal was to stabilize exchange rates and assist the reconstruction of the world’s international payment system post-World War II. Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds temporarily. Through this activity and others such as surveillance of its members' economies and policies, the IMF works to improve the economies of its member countries. The IMF describes itself as “an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” The organization's stated objectives are to promote international economic cooperation, international trade, employment, and exchange rate stability, including by making financial resources available to member countries to meet balance of payments needs. Its headquarters are in Washington, D.C., United States.
Any country may apply to be a part of the IMF. Post-IMF formation, in the early postwar period, rules for IMF membership were left relatively loose. Members needed to make periodic membership payments towards their quota, to refrain from currency restrictions unless granted IMF permission, to abide by the Code of Conduct in the IMF Articles of Agreement, and to provide national economic information. However, stricter rules were imposed on governments that applied to the IMF for funding. The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates secured at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement.
Voting power: Voting power in the IMF is based on a quota system. Each member has a number of “basic votes" (each member's number of basic votes equals 5.502% of the total votes), plus one additional vote for each Special Drawing Right (SDR) of 100,000 of a member country’s quota. Some members have a very difficult relationship with the IMF and even when they are still members they do not allow themselves to be monitored. Argentina for example refuses to participate in an Article IV Consultation with the IMF.
Benefits: Member countries of the IMF have access to information on the economic policies of all member countries, the opportunity to influence other members’ economic policies, technical assistance in banking, fiscal affairs, and exchange matters, financial support in times of payment difficulties, and increased opportunities for trade and investment.
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THE WORLD BANK
The World Bank is an international financial institution that provides loans to developing countries for capital programs. The World Bank's official goal is the reduction of poverty. The World Bank differs from the World Bank Group, in that the World Bank comprises only two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), whereas the latter incorporates these two in addition to three more: International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment Disputes (ICSID).
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (IBRD)
Founded in 1944 to help Europe recover from World War II, the International Bank for Reconstruction and Development (IBRD) is one of five institutions that make up the World Bank Group. IBRD is the part of the World Bank (IBRD/IDA) that works with middle-income and creditworthy poorer countries to promote sustainable, equitable and job-creating growth, reduce poverty and address issues of regional and global importance.
Structured something like a cooperative, IBRD is owned and operated for the benefit of its 187 member countries. Delivering flexible, timely and tailored financial products, knowledge and technical services, and strategic advice helps its members achieve results. Through the World Bank Treasury, IBRD clients also have access to capital on favorable terms in larger volumes, with longer maturities, and in a more sustainable manner than world financial markets typically provide.
Specifically, the IBRD:
supports long-term human and social development needs that private creditors do not finance;
preserves borrowers' financial strength by providing support in crisis periods, which is when poor people are most adversely affected;
uses the leverage of financing to promote key policy and institutional reforms (such as safety net or anticorruption reforms);
creates a favorable investment climate in order to catalyze the provision of private capital;
Provides financial support (in the form of grants made available from the IBRD's net income) in areas that are critical to the well-being of poor people in all countries.
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INTERNATIONAL DEVELOPMENT ASSOCIATION
The International Development Association (IDA) is the part of the World Bank that helps the world’s poorest countries. Established in 1960, IDA aims to reduce poverty by providing loans (called “credits”) and grants for programs that boost economic growth, reduce inequalities, and improve people’s living conditions.
IDA complements the World Bank’s original lending arm—the International Bank for Reconstruction and Development (IBRD). IBRD was established to function as a self-sustaining business and provides loans and advice to middle-income and credit-worthy poor countries. IBRD and IDA share the same staff and headquarters and evaluate projects with the same rigorous standards.
IDA is one of the largest sources of assistance for the world’s 81 poorest countries, 39 of which are in Africa. It is the single largest source of donor funds for basic social services in these countries. IDA-financed operations deliver positive change for 2.5 billion people, the majority of whom survive on less than $2 a day.
IDA lends money on concessional terms. This means that IDA charges little or no interest and repayments are stretched over 25 to 40 years, including a 5- to 10-year grace period. IDA also provides grants to countries at risk of debt distress.
In addition to concessional loans and grants, IDA provides significant levels of debt relief through the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).
Since its inception, IDA has supported activities in 108 countries. Annual commitments have increased steadily and averaged about $15 billion over the last three years, with about 50 percent of that going to Africa. For the fiscal year ending on June 30, 2012, IDA commitments reached $14.8 billion spread over 160 new operations.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation (IFC) is an international financial institution which offers investment, advisory, and asset management services to encourage private sector development in developing countries. The IFC is a member of the World Bank Group and is headquartered in Washington, D.C., United States. It was established in 1956 as the private sector arm of the World Bank Group to advance economic development by investing in strictly for-profit and commercial projects which reduce poverty and promote development. The IFC's stated aim is to create opportunities for people to escape poverty and achieve better living standards by mobilizing financial resources for private enterprise, promoting accessible and competitive markets, supporting businesses and other private sector entities, and creating jobs and delivering necessary services to those who are poverty-stricken or otherwise vulnerable. Since 2009, the IFC has focused on a set of development goals which its projects are
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expected to target. Its goals are to increase sustainable agriculture opportunities, improve health and education, increase access to financing for microfinance and business clients, advance infrastructure, help small businesses grow revenues, and invest in climate health.
MULTILATERAL INVESTMENT GUARANTEE AGENCY
Created in 1988 MIGA aims to encourage foreign direct investment by providing guarantees, known as political risk insurance, to foreign investors against loss caused by non-commercial risks in developing countries. MIGA, which is part of the World Bank Group, also provides technical assistance such as capacity building and advisory services to help countries attract foreign investment. In addition MIGA provides dispute mediation services to reduce future obstacles to investment. Since its creation MIGA has issued nearly $14.7 billion in guarantees for projects in 91 countries. 42 per cent of its activity is concentrated within areas considered to be high-risk and low-income, many of which are in Africa.
INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES
The International Centre for Settlement of Investment Disputes (ICSID) is an international arbitration institution which facilitates arbitration and conciliation of legal disputes between international investors. The ICSID is a member of the World Bank Group and is headquartered in Washington, D.C., United States. It was established in 1966 as a multilateral specialized dispute resolution institution to encourage international flow of investment and mitigate non-commercial risks. Although the ICSID is a member of the World Bank Group and receives its funding from the World Bank, it was established as an autonomous institution by a separate treaty drafted by the International Bank for Reconstruction and Development's executive directors and signed by member countries. The ICSID is contracted with and governed by its member countries, but has its own Secretariat which carry out its normal operations. The ICSID also helps administer dispute resolution proceedings under other treaties and for alternative arbitration mechanisms. The center also performs advisory activities and maintains several publications.
WORLD TRADE ORGANISATION AND GATT
The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).
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The organization is attempting to complete negotiations on the Doha Development Round, which was launched in 2001 with an explicit focus on addressing the needs of developing countries. As of June 2012, the future of the Doha Round remains uncertain: the work programme lists 21 subjects in which the original deadline of 1 January 2005 was missed, and the round is still incomplete. The conflict between free trade on industrial goods and services but retention of protectionism on farm subsidies to domestic agricultural sector (requested by developed countries) and the substantiation of the international liberalization of fair trade on agricultural products (requested by developing countries) remain the major obstacles. These points of contention have hindered any progress to launch new WTO negotiations beyond the Doha Development Round. As a result of this impasse, there have been an increasing number of bilateral free trade agreements signed. As of July 2012, there are various negotiation groups in the WTO system for the current agricultural trade negotiation which is in the condition of stalemate. WTO's current Director-General is Pascal Lamy
The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was established after World War II in the wake of other new multilateral institutions dedicated to international economic cooperation — notably the Bretton Woods institutions known as the World Bank and the International Monetary Fund. A comparable international institution for trade, named the International Trade Organization was successfully negotiated. The ITO was to be a United Nations specialized agency and would address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the ITO treaty was not approved by the U.S. and a few other signatories and never went into effect. In the absence of an international organization for trade, the GATT would over the years "transform itself" into a de facto international organization.
Uruguay Round: Well before GATT's 40th anniversary, its members concluded that the GATT system was straining to adapt to a new globalizing world economy. In response to the problems identified in the 1982 Ministerial Declaration (structural deficiencies, spill-over impacts of certain countries' policies on world trade GATT could not manage etc.), the eighth GATT round — known as the Uruguay Round — was launched in September 1986.
It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend the trading system into several new areas, notably trade in services and intellectual property, and to reform trade in the sensitive sectors of agriculture and textiles; all the original GATT articles were up for review. The Final Act concluding the Uruguay Round and officially establishing the WTO regime was signed April 15, 1994, during the ministerial meeting at Marrakesh, Morocco, and hence is known as the Marrakesh Agreement.
The agreements fall into a structure with six main parts:
The Agreement Establishing the WTO
Goods and investment — the Multilateral Agreements on Trade in Goods including the GATT 1994 and the Trade Related Investment Measures (TRIMS)
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Services — the General Agreement on Trade in Services
Intellectual property — the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Dispute settlement (DSU)
Reviews of governments' trade policies (TPRM)
Ministerial conferences: The topmost decision-making body of the WTO is the Ministerial Conference, which usually meets every two years. It brings together all members of the WTO, all of which are countries or customs unions. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements.
Ministerial Conference Year
1st Singapore ministerial conference 1996.
2nd Geneva ministerial conference 1998
3rd Seattle ministerial conference 1999
4th Doha ministerial conference 2001
5th Cancun ministerial conference 2003
6th Hong Kong ministerial conference 2005
7th Geneva ministerial conference 2010
8th Geneva ministerial conference 2011
9th Bali ministerial Conference (expected) 2013
Doha Development Agenda:
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues.
The organization's goals are to "maximize the trade, investment and development opportunities of developing countries and assist them in their efforts to into the world economy on an equitable basis." The creation of the conference was based on concerns of developing countries over the international market, multi-national corporations, and great disparity between developed nations and developing nations. In the 1970s and 1980s, UNCTAD was closely associated with the idea of a New International Economic Order (NIEO). The primary objective of the UNCTAD is to formulate policies relating to all aspects of development including trade, aid, transport, finance and technology. The Conference ordinarily meets once in four years. The first conference took place in Geneva in 1964, second in New Delhi in 1968, the third in Santiago in 1972, fourth in Nairobi in 1976, the fifth in Manila in 1979, the sixth in Belgrade in 1983, the seventh in Geneva in 1987, the eighth in Cartagena in 1992 and the ninth
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at Johannesburg (South Africa)in 1996. The Conference has its permanent secretariat in Geneva. One of the principal achievements of UNCTAD has been to conceive and implement the Generalized System of Preferences (GSP).
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB) is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia. The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly known as the United Nations Economic Commission for Asia and the Far East) and non-regional developed countries. From 31 members at its establishment, ADB now has 67 members - of which 48 are from within Asia and the Pacific and 19 outside. ADB was modeled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with member's capital subscriptions.
SAFTA
What is Safta?
It is an abbreviation for the South Asian Free Trade Area. It is a proposed FTA between the seven members of the Saarc group. These include Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
What is its ultimate goal?
It will replace the earlier South Asia Preferential Trade Agreement (SAFTA), which was limited in its scope. The ultimate aim of Safta will be to put in place a full-fledged South Asia Economic Union on the lines of the EU. Safta is scheduled for launch in January 2006 and will lead to reduction of tariffs for intra-regional trade among Saarc countries.
What falls within the ambit of Safta?
The agreement incorporates trade in goods. Services and investment are not part of the agreement.
What are the objectives guiding Safta?
Among its aims are: promoting and enhancing mutual trade and economic cooperation by eliminating barriers in trade, promoting conditions of fair competition in the free trade area, ensuring equitable benefits to all and establishing a framework.
G-8
The Group of Eight ('G8) is for the governments of eight of the world's largest economies. (It excludes, however, two of the actual eight largest economies by nominal GDP: China, 2nd,
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and Brazil, 7th). The forum originated with a 1975 summit hosted by France that brought together representatives of six governments: France, Germany, Italy, Japan, the United Kingdom, and the United States, thus leading to the name Group of Six or G6. The summit became known as the Group of Seven or G7 the following year with the addition of Canada. In 1997, Russia was added to the group which then became known as the G8. The European Union is represented within the G8 but cannot host or chair summits. Collectively, the G8 nations comprise 51.0% of 2011 global nominal GDP and 42.5% of global GDP (PPP). Each calendar year, the responsibility of hosting the G8 rotates through the member states in the following order: France, United States, United Kingdom, Russia, Germany, Japan, Italy, and Canada. The holder of the presidency sets the agenda, hosts the summit for that year, and determines which ministerial meetings will take place. Lately, both France and the United Kingdom have expressed a desire to expand the group to include five developing countries, referred to as the Outreach Five (O5) or the Plus Five: Brazil, People's Republic of China, India, Mexico, and South Africa. These countries have participated as guests in previous meetings, which are sometimes called G8+5.
G-20
The G-20 was formed in 1999 to give developing countries a more powerful voice in forming the global economy. Together these countries represent two-thirds of the world's people, and 85% of the its economy. The meetings started as an informal get-together of finance ministers and central bankers. During the 2008 financial crisis, the first ever G-20 summit was held on November 16-17 in Washington, DC. The leaders of the G-20 countries agreed to regulate hedge funds and debt-rating companies such as Standard & Poor's. They also sought to strengthen standards for accounting and derivatives. Insufficient regulations and standards were blamed for the crisis that turned into a global recession. For more, see U.S. Resists G-20 Summit Call for Global Financial Regulation.
The G-20 finance ministers and central bank governors continue to meet twice a year, usually in coordination with meetings of the International Monetary Fund, the World Bank, and the G-20 summits themselves.
Significant G-20 Summit Meetings:
April 1-2, 2009 - London: G-20 leaders pledged $1 trillion to the IMF and World Bank to help emerging market countries ward off the effects of the recession. For more see G-20 Global Plan Will Shorten Recession.
September 24-25, 2009 - Pittsburgh: Leaders established a Financial Stability Board that would implement financial reforms. They agreed to increase banks' capital requirements, regulate hedge funds, tax havens and executive pay. For more, see G-20 Summit Start of New World Order?
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June 26-27, 2010 - Toronto: Leaders agreed to cut their budget deficits in half by 2013, and eliminate deficits altogether three years later. For more, see G-20 Summit Focuses on Debt Reduction.
November 11-12, 2010 - Seoul: In advance of the G-20 meeting, finance ministers pledged to put a stop to the currency wars which threatened to create global inflation. For more, see G-20 Meeting Drives Stocks Up, Dollar Down.
November 2-4, 2011 - Cannes: The summit was dominated by discussions about addressing the Greek debt crisis. They also agreed on plans to create jobs. For more, see EU Satisfied with Achievements of G20 Summit
2012 Meeting: In June 18-19, 2012, the G-20 meeting was held in Los Cabos, Mexico. It focused on the euro zone debt crisis. The G-20 leaders pressured German Chancellor Angela Merkel to work with other European Union leaders to develop a more sustainable Grand Plan to resolve the Greece debt crisis. Germany does not want to continue to bail out Greece without continued austerity programs. That's because German taxpayers will ultimately face higher costs to fund the bailout, and Germany itself is already highly indebted.
In return for continued bailout funds, Germany would like a fiscal union to support the EU's monetary union. This means EU members would give up political control of their budgets to an EU-wide approval process. This is necessary before she would support Euro-wide bonds. (Source: Reuters, G-20 to Press Europe for Lasting Crisis Fix, June 18, 2012)
Its members include: The eight leading industrialized nations - U.S., Japan, Germany, UK, France, Italy, Canada and Russia. This group of countries also meets on their own, and are known as the G-8). Eleven emerging market and smaller industrialized countries: Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea, Turkey, plus the EU.
Why Is the G-20 Important?
The growth of Brazil, Russia, India and China (the BRIC countries) has driven the growth of the global economy. The G-8 countries grow slower. Therefore, the BRIC countries are critical for ensuring continued global economic prosperity.
In the past, the leaders of the G-8 could meet and decide on global economic issues without much interference from the BRIC countries. However, these countries have become more important in providing the needs of the G-8 countries: Russia provides most of the natural gas to Europe, China provides much of the manufacturing for the U.S., and India provides high tech services.
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ASEAN
The Association of Southeast Asian Nations (ASEAN) was formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand to promote political and economic cooperation and regional stability. Brunei joined in 1984, shortly after its independence from the United Kingdom, and Vietnam joined ASEAN as its seventh member in 1995. Laos and Burma were admitted into full membership in July 1997 as ASEAN celebrated its 30th anniversary. Cambodia became ASEAN’s tenth member in 1999.
The ASEAN Declaration in 1967, considered ASEAN’s founding document, formalized the principles of peace and cooperation to which ASEAN is dedicated. The ASEAN Charter entered into force on 15 December 2008. With the entry into force of the ASEAN Charter, ASEAN established its legal identity as an international organization and took a major step in its community-building process.
The ASEAN Community is comprised of three pillars, the Political-Security Community, Economic Community and Socio-Cultural Community. Each pillar has its own Blueprint approved at the summit level, and, together with the Initiative for ASEAN Integration (IAI) Strategic Framework and IAI Work Plan Phase II (2009-2015), they form the Roadmap for and ASEAN Community 2009-2015.
ASEAN commands far greater influence on Asia-Pacific trade, political, and security issues than its members could achieve individually. This has driven ASEAN’s community building efforts. This work is based largely on consultation, consensus, and cooperation.
Every year following the ASEAN Ministerial Meeting, ASEAN holds its Post-Ministerial Conference (PMC) to which the Secretary of State is invited. In 1994, ASEAN took the lead in establishing the ASEAN Regional Forum (ARF), which now has 27 members and meets each year at the ministerial level just after the PMC.
ASEAN REGIONAL FORUM
The Twenty-Sixth ASEAN Ministerial Meeting and Post Ministerial Conference, which were held in Singapore on 23-25 July 1993, agreed to establish the ASEAN Regional Forum (ARF). The inaugural meeting of the ARF was held in Bangkok on 25 July 1994.
Objectives: The objectives of the ASEAN Regional Forum are outlined in the First ARF Chairman's Statement (1994), namely:
To foster constructive dialogue and consultation on political and security issues of common interest and concern; and
To make significant contributions to efforts towards confidence-building and preventive diplomacy in the Asia-Pacific region.
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The 27th ASEAN Ministerial Meeting (1994) stated that "The ARF could become an effective consultative Asia-Pacific Forum for promoting open dialogue on political and security cooperation in the region. In this context, ASEAN should work with its ARF partners to bring about a more predictable and constructive pattern of relations in the Asia Pacific."
The current participants in the ARF are as follows: Australia, Bangladesh, Brunei Darussalam, Cambodia, Canada, China, European Union, India, Indonesia, Japan, Democratic Peoples' Republic of Korea, Republic of Korea, Laos, Malaysia, Myanmar, Mongolia, New Zealand, Pakistan, Papua New Guinea, Philippines, Russian Federation, Singapore, Sri Lanka, Thailand, Timor Leste, United States, and Vietnam.
ASEAN+3 comprise of 10 ASEAN nation and China, South Korean and Japan.
ASEAN+6 comprise of 10 ASEAN nation and China, Japan, South Korea, India, Australia and New Zealand.
EUROPEAN UNION
The European Union is a geo-political entity covering a large portion of the European continent. It is founded upon numerous treaties and has undergone expansions that have taken it from 6 member states to 27, a majority of states in Europe.
History
The precursor to the European Union was established after World War II in the late 1940s in an effort to unite the countries of Europe and end the period of wars between neighboring countries. These nations began to officially unite in 1949 with the Council of Europe. In 1950 the creation of the European Coal and Steel Community expanded the cooperation. The six nations involved in this initial treaty were Belgium, France, Germany, Italy, Luxembourg, and the Netherlands. Today these countries are referred to as the "founding members."
During the 1950s, the Cold War, protests, and divisions between Eastern and Western Europe showed the need for further European unification. In order to do this, the Treaty of Rome was signed on March 25, 1957, thus creating the European Economic Community and allowing people and products to move throughout Europe. Throughout the decades additional countries joined the community.
In order to further unify Europe, the Single European Act was signed in 1987 with the aim of eventually creating a "single market" for trade. Europe was further unified in 1989 with the elimination of the boundary between Eastern and Western Europe - the Berlin Wall.
The Modern-Day EU
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Throughout the 1990s, the "single market" idea allowed easier trade, more citizen interaction on issues such as the environment and security, and easier travel through the different countries.
Even though the countries of Europe had various treaties in place prior to the early 1990s, this time is generally recognized as the period when the modern day European Union arose due to the Treaty of Maastricht on European Union which was signed on February 7, 1992 and put into action on November 1, 1993.
The Treaty of Maastricht identified five goals designed to unify Europe in more ways than just economically. The goals are:
1) To strengthen the democratic governing of participating nations. 2) To improve the efficiency of the nations. 3) To establish an economic and financial unification. 4) To develop the "Community social dimension." 5) To establish a security policy for involved nations.
In order to reach these goals, the Treaty of Maastricht has various policies dealing with issues such as industry, education, and youth. In addition, the Treaty put a single European currency, the euro, in the works to establish fiscal unification in 1999. In 2004 and 2007, the EU expanded, bringing the total number of member states as of 2008 to 27.
In December 2007, all of the member nations signed the Treaty of Lisbon in hopes of making the EU more democratic and efficient to deal with climate change, national security, and sustainable development.
How a Country Joins the EU?
For countries interested in joining the EU, there are several requirements that they must meet in order to proceed to accession and become a member state.
The first requirement has to do with the political aspect. All countries in the EU are required to have a government that guarantees democracy, human rights, and the rule of law, as well as protects the rights of minorities.
In addition to these political areas, each country must have a market economy that is strong enough to stand on its own within the competitive EU marketplace.
Finally, the candidate country must be willing to follow the objectives of the EU that deal politics, the economy, and monetary issues. This also requires that they be prepared to be a part of the administrative and judicial structures of the EU.
After it is believed that the candidate nation has met each of these requirements, the country is screened, and if approved the Council of the European Union and the country draft a Treaty of
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Accession which then goes to the European Commission and European Parliament ratification and approval. If successful after this process, the nation is able to become a member state.
How the EU Works?
With so many different nations participating, the governance of the EU is challenging, however, it is a structure that continually changes to become the most effective for the conditions of the time. Today, treaties and laws are created by the "institutional triangle" that is composed of the Council representing national governments, the European Parliament representing the people, and the European Commission that is responsible for holding up Europe's main interests.
The Council is formally called the Council of the European Union and is the main decision making body present. There is also a Council President here and each member state takes a six month turn in the position. In addition, the Council has the legislative power and decisions are made with a majority vote, a qualified majority, or a unanimous vote from member state representatives.
The European Parliament is an elected body representing the citizens of the EU and participates in the legislative process as well. These representative members are directly elected every five years.
Finally, the European Commission manages the EU with members that are appointed by the Council for five year terms- usually one Commissioner from each member state. Its main job is to uphold the common interest of the EU.
In addition to these three main divisions, the EU also has courts, committees, and banks which participate on certain issues and aid in successful management.
IBSA
After the failed Cancún Conference of the World Trade Organisation (WTO), developing countries felt the need to strengthen their cooperation in trade, investment and economic diplomacy. The leaders of three regional goliaths spearheaded a new approach for South-South cooperation at the 2003 UN General Assembly Forum, resulting in a trilateral India-Brazil-South Africa agreement. The term, South-South cooperation signifies the cooperation between India (South Asia), Brazil (South America) and South Africa.
The establishment of IBSA was formalized by the Brasilia Declaration, which mentions India, Brazil and South Africa democratic credentials, their condition as developing nations and their capacity of acting on a global scale as the main reasons for the three countries to come together. Their status as middle powers, their common need to address social inequalities within their borders and the existence of consolidated industrial areas in the three countries are often mentioned as additional elements that bring convergence amongst the members of the Forum.
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IBSA concluded its first round of Summits of Heads of State and Government Summits in 2008. Over the years, IBSA has become an umbrella for various initiatives, both in the diplomatic field and in Public Administration sectors. Thus, the Group has also become an instrument for connecting India, Brazil and South Africa at all levels, aiming not only to increase these countries’ projection on the international scenario but to strengthen the relations amongst themselves.
IBSA keeps an open and flexible structure. It does not have a headquarter nor a permanent executive secretariat. At the highest level, in counts on the Summits of Heads of State and Government, whose last edition occurred on October 18th, and 19th, 2011, in South Africa. The next Summit will occur in 2013, in India.
The work of monitoring and coordinating the IBSA activities is a responsibility of Senior Officials of the Foreign Ministers, known as Focal Points.
In summary, the progress of the activities can be divided into four tracks:
(i) Political Coordination (ii) Sectoral Cooperation, through 16 Working Groups (iii) IBSA Fund for Alleviation of Poverty and Hunger (iv) Involvement of other actors beyond the Executive, e.g.: parliamentarians, Constitution
courts, civil society, businessmen and opinion makers.
ASIAN CLEARING UNION
The Asian Clearing Union (ACU), with headquarters in Tehran, Iran, was established on December 9, 1974 at the initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The primary objective of ACU, at the time of its establishment, was to secure regional co-operation as regards the settlement of monetary transactions among the members of the Union and to provide a system for clearing payments among the member countries on a multilateral basis. Currently, the members of ACU are the central banks of Bangladesh, Bhutan, Iran, India, Maldives, Nepal, Pakistan, Sri Lanka, and Myanmar.
FOOD AND AGRICULTURE ORGANIZATION
The Food and Agriculture Organization of the United Nations (FAO) is a specialized agency of the United Nations that leads international efforts to defeat hunger. Serving both developed and developing countries, FAO acts as a neutral forum where all nations meet as equals to negotiate agreements and debate policy. FAO is also a source of knowledge and information, and helps developing countries and countries in transition modernize and improve agriculture, forestry and fisheries practices, ensuring good nutrition and food security for all. Its Latin motto, fiat panis, translates into English as "let there be bread".
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The agency is directed by the Conference of Member Nations, which meets every two years to review the work carried out by the organization and to approve a Programme of Work and Budget for the next two-year period. The Conference elects a council of 49 member states (serve three-year rotating terms) that acts as an interim governing body, and the Director-General, that heads the agency.
FAO is composed of eight departments: Administration and Finance, Agriculture and Consumer Protection, Economic and Social Development, Fisheries and Aquaculture, Forestry, Knowledge and Communication, Natural Resource Management and Technical Cooperation.
BRICS
BRICS, originally "BRIC" before the inclusion of South Africa in 2010, is the title of an association of emerging national economies: Brazil, Russia, India, China and South Africa. With the possible exception of Russia, the BRICS members are all developing or newly industrialised countries, but they are distinguished by their large, fast-growing economies and significant influence on regional and global affairs. As of 2013, the five BRICS countries represent almost 3 billion people, with a combined nominal GDP of US$14.9 trillion, and an estimated US$4 trillion in combined foreign reserves. Presently, India holds the chair of the BRICS group.
Summit Participant Year Place
1st BRIC 2009 Russia
2nd BRIC 2010 Brazil
3rd BRICS 2011 China
4th BRICS 2012 India
5th BRICS(expected) 2013 South Africa
OECD
The Organisation for Economic Co-operation and Development, abbreviated as OECD and based in Paris (FR), is an international organization of 34 countries committed to democracy and the market economy. The forerunner to the OECD was the Organisation for European Economic Co-operation and Development (OEEC), formed in 1947 to administer American and Canadian aid under the auspices of the Marshall Plan following World War II. The OECD was established on 14 December 1960. It is based in Paris.
OPEC
The Organization of the Petroleum Exporting Countries is an intergovernmental organization of twelve oil-producing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. OPEC has had its headquarters in Vienna since 1965, and hosts regular meetings among the oil ministers of its
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Member Countries. Indonesia withdrew in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter again.
According to its statutes, one of the principal goals is the determination of the best means for safeguarding the organization's interests, individually and collectively. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry.
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CHAPTER 12: INDIA AND THE WTO
DOHA ROUND OF MULTILATERAL TRADE NEGOTIATIONS
After the Uruguay Round, there was a perception among the developing countries that the Uruguay Round has created imbalances by putting additional policy adjustment pressure on developing countries while providing only limited rights to them. They, thus, wanted a round that could correct those imbalances. On the other side, developed countries were of the view that some new agenda should be there for a new round of negotiations. Also, many of the agenda items of Uruguay Round were unfinished. So, the selection of the agenda had following three alternatives:
a) A comprehensive and ambitious new round, including a discussion of implementation issues (View endorsed by Developed Countries).
b) New round, but with a limited agenda, including a discussion of implementation issues (Intermediate solution).
c) No new round, but only implementation issues and built-in-agenda to be discussed (View endorsed by India and Low and Middle Income Countries).
Due to the differences in the views of the member countries, the draft of the ministerial text was revised a number of times. While the Doha Ministerial Declaration (DMD) was variously interpreted, the developing countries, in particular, had described it as a development round. Several commitments were undertaken in connection with the integration of the LDCs into the multilateral trading system and the global economy such as: commitment to the objective of duty-free, quota-free market access for products originating from LDCs and facilitate and accelerate the accession process of the LDCs to the WTO. Special and differential treatment (SDT) was mandated as an integral element of all negotiations.
The work programme adopted in 2001 for Doha round of negotiations had issues and concerns related to implementation, agriculture, services, market access for non-agricultural products, trade-related aspects of intellectual property rights, relationship between trade and investment, interaction between trade and competition policy, transparency in government procurement, trade facilitation, WTO rules, dispute settlement understanding, trade and environment, electronic commerce, small economies, trade, debt and finance, trade and transfer of technology, technical cooperation and capacity building, least-developed countries and special and differential treatment.
The main focus of the agenda was the needs of least developed and developing countries. However, various questions were raised on the prepared agenda itself:
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Text on implementation issues did not enjoy any legal standing.
Target of completing the Doha work programme by 2004 was described as over ambitious.
Mandate had certain interpretational complexities such as:
1) There was no fixed definition of ‘all forms of export subsidies’. The USA was of the view that focus was on export subsidies only. The EU was of the view that it covers all forms of export support. In developing countries’ view this was also applicable to subsidy provisions in other export competition elements such as export credit, food aids, state trading enterprises, etc.
2) There was no clarity on ‘substantial reduction in trade-distorting domestic support’. The EU had a view that it covers only amber box, while many others, including the Cairns Group and leading developing countries had a view that it also includes green box because of its sheer size of US$ 78 billion a year.
I. AGRICULTURE
Agriculture has always been the most debated sector in WTO rounds. Negotiations on agriculture sector under Doha had been carried out through Agreement on Agriculture (AoA), which was presented in Uruguay Round and entered into force during 1995, with the establishment of the WTO. The member countries have been protecting their domestic agriculture sector by a host of actions such as domestic support (that is, production subsidy, price supports, etc., affecting production level), export subsidy, imposition of tariff (most visible form of restricting market access), tariff quota and non-tariff measures. The AoA was primarily about reduction of barriers to trade in agricultural commodities, exercised through such measures.
Before the Uruguay Round, trade in agricultural commodities was highly distorted on account of excessive governmental interventions and support measures such as farm subsidy and price supports. The AoA of the Uruguay Round was the first ever multilateral initiative that provided framework of rules aimed at disciplining the unfair agricultural policies of the member countries, especially members of the OECD countries. In this agreement, both developed and developing countries had undertaken significant commitments to reduce domestic support, export subsidy and tariff and non tariff barriers, besides accepting disciplines on areas having trade-distorting effects. However, the Least Developed Countries (LDCs) were not required to make any such commitment.
However, the outcome was not satisfactory. Thus, all this led to inclusion of AoA in Doha round. The objectives of AoA under Doha Round are to achieve substantial improvements in market access; reduction of, with a view to phasing out, all forms of export subsidies; and substantial reduction in trade-distorting domestic support. Provision for Special and Differential Treatment (SDT) to LDCs is also a part of the agenda. The current negotiations on AoA revolve around
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three major issues- formula for tariff reduction, subsidies reduction and special safeguard mechanism.
TARIFF REDUCTION
The developed countries, represented by US and EU, have proposed a blended formula involving a mix of the Uruguay Round formula, Swiss formula and duty free for a certain percentage of tariff lines for reducing the tariff levels.
On the other hand, the developing countries, represented by G20, have not agreed to accept blended formula and around 75 developing countries, including India, have preferred the Uruguay Round formula because of the following structural flaws in blended formula11 :
It enables, on a self-declaratory basis, countries to opt for those tariff lines subject to minimal cuts (i.e. apply average based Uruguay Round formula) which are of higher commercial interest to many other member countries.
Developing countries have homogeneous tariff structure while developed countries’ tariff structure is characterised by clusters of very high tariff (tariff peaks). The use of the Swiss formula for a specific range of tariff lines in homogeneous tariff structures will lead to higher tariff reductions by developing countries. Simulations with regard to the Swiss formula have revealed that members entitled to “special and differential treatment” will be required to make proportionally high average tariff reductions than developed members.
At present, the draft blueprints issued for final deal on agricultural trade negotiations, circulated on February 8, 2008, have proposed a Tiered formula for reduction in Final Bound Tariff, t. As per the tiered formula, the tariff level has been divided into five slabs (different for developed and developing countries). The principle at work is ‘the higher the tariff, the greater the required reduction for that tariff’.
SUBSIDIES REDUCTION
Subsidy provision is a fiscal/monetary measure that distorts the price of an input or/and an output. Subsidy can take several forms such as production subsidy, subsidised interest rates on credit for production, minimum export price, etc. Subsidies have certain social and economic domestic objectives and, therefore, reduction in subsidies involves some drastic changes in policy at domestic level.
Regarding the reduction in subsidies, the developed countries are proposing that the member countries should make commitment to reduce all forms of agricultural subsidies.
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On the other hand, developing countries are of the view that their limited financial resources do not allow them to provide substantial agricultural subsidies; therefore, they are not responsible for distortions in agriculture being created by subsidy provisions. Developed countries should undertake reduction in subsidy provisions. Moreover, the developing countries’ agriculture sector is dependent on primitive production techniques, therefore, additional provisions should be made to enable them to pursue policies aimed at agricultural productivity growth. For instance, input subsidies given to crops wherein productivity levels are below the world average should be covered under the Green Box.
At present, the 2008 Draft has proposed a tiered formula for reduction in Overall Trade-Distorting Domestic Support (Base OTDS) for both developed and developing countries which has been defined as:
For Developed Countries
Base OTDS (X) = Final Bound Aggregate Measure of Support (AMS) specified in Part IV of a member’s schedule + (5 per cent of average total value of production for product-specific AMS + 5 per cent of average total value of production for non-product-specific AMS) + average of Blue Box payments or 5 per cent of average total value of agricultural production, whichever is higher
For Developing Countries
Base OTDS (X) = Final Bound AMS specified in Part IV of a member’s schedule + (10 per cent of average total value of production for product-specific AMS + 10 per cent of average total value of production for non-product-specific AMS) + average of Blue Box payments or 5 per cent of average total value of agricultural production, whichever is higher
As per the tiered subsidy reduction formula, three tiers have been defined for reducing subsidies by developed countries. The reduction is based on the principle of ‘the higher the subsidy, the greater the reduction to be made’. The developing countries, which have some subsidy reduction commitment, have been given special concession, they are required to reduce their subsidy by 2/3rd of the reduction made by developed countries at slab three and they have been given an implementation period of 8 years whereas developed countries have been given a period of 5 years.
India’s stand point on this particular issue is that any tariff reduction commitments can be considered by developing countries only after substantial reduction has actually been effected by the developed countries in all the three areas: market access, domestic support and export subsidies.
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Special Safeguard Mechanism (SSM): SSM is a measure designed to protect poor farmers by allowing countries to impose a special tariff on certain agricultural goods in the event of an import surge or price fall.
The developing countries want the availability of SSM to all of them irrespective of tariff reduction in the event of a surge in the imports or decline in prices to ensure food and livelihood security of their people.
On the other hand, the developed countries, particularly, the United States, have argued that while making the provision for SSM, the threshold to invoke such a measure has been set too low which implies that it will be too easy for developing countries to invoke SSM, for even a small size of decrease in international price of import or for a small size of increase in quantity of import.
As per the Lamy Text, the bound rate trigger has been given a value of 140 per cent, i.e., import volumes to rise by more than 40 per cent to enable increase of tariffs beyond the UR bound levels. India suggested a figure of 115 per cent and the US insisted on a trigger of 140 per cent. India has expressed its inability to accept this trigger, citing studies purportedly proving that substantial injury can occur at level above 110 per cent.
At present, the 2008 Draft has put forth a proposal for SSM with the following features:
SSM can be invoked for all tariff lines in principle.
SSM shall not be invoked for more than [3] [8] [products] 15 in a 12- month period.
Both price and volume-based measures can’t be invoked simultaneously.
The Volume based measure can be invoked if the quantity of import is more than at least 105 per cent of the base import. In such a scenario the imposing country can apply maximum additional duty on applied tariff with a condition on bound tariff.
The price based measure can be invoked if the c.i.f. import price is less than [70] per cent of average monthly price (MFN Basis) of proceeding 3 years period (trigger price), provided, the domestic currency at the time of importation has depreciated by at least 10 per cent over the preceding 12-months period.
II. MARKET ACCESS FOR NON-AGRICULTURAL PRODUCTS (NAMA)
Liberal market access for their products in the developed countries was the biggest expectation of developing countries from the Uruguay Round. The developed countries were providing more access to their non-agricultural market than their agricultural market as in the OECD countries the average tariff on agricultural products was 4-5 times the average tariff on industrial products. This multiple was 1.5-2 in developing countries.
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However, there was still continuation of tariff peaks and tariff escalation16 maintained by developed countries with respect to products of interest to developing countries such as textiles, clothing, footwear, leather goods, rubber, etc.
In the aftermath of Uruguay Round, major developed countries were found to be liberally using the technical barriers (Sanitary and Phytosanitary/SPS, Certification and other Technical Barriers to Trade/TBT) and WTO rules (that is, rules relating to anti-dumping measures, subsidies and safeguard duties). Following them, some large developing countries have also begun to use such practices. Thus, the non tariff barriers (NTBs) have emerged as potent instruments for the protection of domestic industry. The brunt of this development was largely borne by the developing countries at large.
In this scenario, negotiations for NAMA were undertaken under Doha Round. The main elements of the Doha Mandate were to negotiate modalities aiming at:
Reduction, or as appropriate elimination, of tariffs.
Reduction or elimination of tariff peaks, high tariffs and tariff escalation.
Removal of non-tariff barriers in particular on products of export interest to developing countries.
Providing special and differential treatment to LDCs.
The developed countries were of the view that reduction in tariff on non-agricultural commodities should be undertaken mainly by the developing countries as the average tariff levels in the OECD countries and some other developed countries were already low.
On the other hand, the developing countries were of the view that the mandate, through SDT had special dispensations for them. Therefore, they were not required to make huge reductions in tariff.
The rate of reduction is highest for high income countries (HICs) in agriculture sector. In case of NAMA, rate of reduction is higher for HICs for applied rates but for bound rates developing countries are required to undertake higher reduction. The greater lowering of bound rates by developing countries implies that their future policy space will be lesser.
However, it has been pointed out that despite the lower tariff levels applied in developed countries through Doha, the effective market access for LDCs in the EU will be negligible and still negative in the US, as the tariff lines on which tariff cuts have not been changed comprise the products which are of export interest for LDCs (Celine Carrere and Jaime de Melo, 2009).
III. SERVICES
From the view point of developing countries, one of the best outcomes of the Uruguay Round was General Agreement on Trade in Services (GATS).
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The principle at work was: each according to capacity and requirements. Further, there was an unconditional application of MFN principle. Thus, unlike other various GATT agreements, GATS did not impose stringent binding commitments on either the developing countries or on developed countries. With increasing importance of services exports in total world exports, GATS continued to remain a part of negotiations and was added in the agenda of Doha round.
Conceptually, the GATS commitments are based on two lines, horizontal commitments and sector-specific commitments. The horizontal commitments imply applicability to all sectors and sector specific commitments are applicable only to the sub-service sector being negotiated. Within each line there are two categories, viz., limitation on market access and limitation on national treatment . For each of the category, commitments have been made under four modes of supply of services which are:
Mode 1 - cross border supply, example exports and imports;
Mode 2 - consumption abroad, example tourism;
Mode 3 - commercial presence abroad, example foreign direct investment;
Mode 4- movement of natural persons, example working abroad for more than one year.
The benefit of GATS in terms of market access for developing countries was very little as in the schedule of commitments the developed countries had given a little concession in sectors of interest to developing countries, particularly under Mode 4 where the developing countries had competitive advantage. The maximum number of commitments was made in health care and education. With respect to movement of natural persons (Mode 4), sector-specific commitments of developed countries were mostly linked to commercial presence (Mode 3), implying liberalisation of foreign investment.
All the developed countries, and particularly the US, the EU and Canada, had imposed a wide range of conditions on market access and applied numerous domestic regulations to create barriers to the entry of skilled natural persons of developing countries into their markets. Further, under mode 4, an individual could not apply for any work in his own right on an individual basis. He had to be an employee of a company. Thus, GATS of the Uruguay Round did not provide much benefit to the developing countries and, therefore, it was made a part of Doha agenda.
IV. TRADE RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS (TRIPS)
The Agreement on Trade Related Aspects of Intellectual Property Rights was introduced in Uruguay Round of multilateral trade negotiations. It included seven types of intellectual property, namely, patents, copyrights, trade-marks, geographical indications, industrial designs, layout-designs, integrated circuits and undisclosed information. The primary focus of the TRIPS Agreement was on minimising the incidence of infringement of intellectual properties and, thus, encouraging innovations.
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The implications of such an agreement for developing countries was the most controversial and hotly-debated issue. It was argued that the agreement was aimed primarily at protecting the interests of patent/property right holders through the provision of compulsory licensing.
Some of the items put on the agenda of the TRIPS review under Doha round are discussed below:
Traditional Knowledge: The concept of traditional knowledge refers to genetic resources, indigenous medicinal knowledge and other resources. The problem of protection is that the traditional medicinal knowledge based on plants is usually not patentable - it is either obvious or it is in the public domain. However, a pharmaceutical product derived from plants via that traditional medicinal knowledge is patentable and the patent belongs to the pharmaceutical company.
Public Health Issues: TRIPS Agreement has implication for public health issues also, particularly for developing member countries. Infectious diseases kill over 10 million people each year, more than 90 per cent of whom are in the developing world. There is a lack of access by developing countries to several life saving drugs. The TRIPS agreement recognises that while protecting the products of innovation, the social needs should not be ignored, for e.g., in case of a public emergency, if a pharmaceutical manufacturer is not able to produce enough of a needed medicine for which it has a patent, the member country can require that company to license its medicines to another domestic manufacturer in order to supplement any anticipated shortfall. This practice is known as compulsory licensing. However, the Article 31(f) of the TRIPS agreement, which deals with the issue of compulsory licenses, provides that production under compulsory licensing must be predominantly for the domestic market. The basic problem is that many developing countries simply have no capacity to produce the necessary medicines, even under license.
Geographical Indications: The protection of geographical indications has been made a part of the agenda for restricting the acts of unfair competition. The geographical indications are defined by the TRIPS agreement as ‘indications which identify a good as originating in the territory of a member country, or a region or a locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin’. The protection of geographical indications through TRIPS requires more stringent domestic policies for member countries as the simple unfair competition laws such as misrepresentation can’t be relied upon for this.
V. AGREEMENT ON TRADE RELATED INVESTMENT MEASURES (TRIMS)
Many developing countries have been using their investment policies to achieve certain objectives of domestic growth such as technology access, employment generation, increased exports earnings, etc. For example, during the 1980s, India’s industrial policy had favoured conditional liberalisation of foreign (as well as domestic) investment, in the sense that only such investors which were willing to accept conditionalities such as obligations to export, phased
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indigenisation of manufacturing, etc., were allowed to invest. In this respect, the TRIMS agreement of the Uruguay Round was a direct attack on investment policies of developing countries. During the negotiations, attempts were made, specifically by the US, Japan and the EU, to widen the scope of such measures by expanding the list but it was opposed by developing countries.
The developed countries are of the view that all types of trade-restricting investment measures should be phased out. On the other hand, the developing countries are not in favour of removing all investment measures even if they restrict free trade flows. India has made its submission in the WTO regarding TRIMS as:
Developing countries are growing, therefore, they need some policy space to determine the manner in which investments should be regulated and channeled.
Focus should be on growth enhancing investments along with ensuring that there would not be any crowding out for small and medium enterprises.
Until recently, performance requirements were an integral part of growth strategies of developed countries, so even developing countries should be given that much flexibility.
These along with some other issues have been hindering the conclusion of Doha Round since its inception in 2001.
The importance of the conclusion of Doha Round has been highlighted by a study done by Antoine Bouet and David Laborde, 2008 which has concluded that there would be a potential loss of US$1,064 billion in world trade if world leaders failed in early conclusion of the Doha Development Round of trade negotiations.
CURRENT STATUS, INDIA’S STAND PO INT AND WAY FORWARD
INDIA AND THE WTO
India was one of the 23 founding contracting parties to the General Agreement on Tariffs and Trade (GATT) that was concluded in October 1947. India has often led groups of less developed countries in subsequent rounds of multilateral trade negotiations (MTNs) under the auspices of the GATT.
Despite being a founder member of GATT, India was never very active in various negotiating rounds until late righties. Since the Indian economy followed the import substitution-led growth strategy during sixties and seventies, gaining from the import liberalization at principal export markets (the EU and US) was never a prime objective. In addition, a considerable proportion of India’s trade was directed to the Soviet bloc countries, and the presence of this assured market weakened the incentive to search for newer outlets. On the other hand,
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opening the domestic market to foreign competition through progressive tariff cuts was perceived harmful for the local industries. Instead, the country was more willing to discuss trade and development related issues at UNCTAD forums in collaboration with other developing countries like Brazil (primarily through the G-77 network). Despite adoption of a proactive approach at WTO, India still feels comfortable to discuss trade-related issues at UNCTAD forums for coalition building among developing countries on areas pertaining to mutual interest.
INDIA’S PARTICIPATION IN WTO MEETINGS
During the Seattle-Doha period, India, for the first time, started communicating its dissatisfaction over several issues and sharing its position with other countries at various appropriate forums of WTO and other international bodies. Broadly speaking, a clearly distinguishable and proactive stand emerged before the Doha ministerial, and India became particularly concerned with: (i) non-realisation of anticipated benefits (e.g., Agreement on Textiles and Clothing and Agreement on Agriculture), (ii) inequities and imbalances in WTO (TRIPSs, Subsidies, Anti-dumping, etc.), and (iii) non-binding nature of special and differential provisions (market access, DSB, etc.).
WTO NEGOTIATIONS AND INDIA
The Doha Round of trade negotiation at the WTO has been under way since 2001. The negotiations cover several areas such as agriculture, market access for non-agricultural products, trade related intellectual property rights, rules (covering anti-dumping and subsidies) and trade facilitation. The conduct, conclusion and entry into force of the outcome of the negotiations are parts of a single undertaking that is “nothing is agreed until everything is agreed”.
INDIA’S STAND ON VARIOUS ISSUES
Agriculture : Overall tariff reductions on bound rates for developing countries of not more than 36 per cent. Thresholds of the four band tariff formula with linear cuts to be adequately higher for developing countries to take into account their ceilings.
Self-designation of an appropriate number of special products (SP) guided by indicators based on the three fundamental and agreed criteria of food security, livelihood security and rural development needs. The G-33 has proposed 20 per cent agricultural tariff lines as special products, of which 40 per cent must be exempted from any tariff cut. India cannot accept TRQ commitments on SPs since it would entail necessarily going below current applied rates on the most sensitive products, viz., SPs
An operational and effective Special Safeguard Mechanism (SSM) to check against global price dips and import surges, which is more flexible than the existing safeguard mechanism available
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mainly to developed countries. The G-33 and India remain firm that a priori exclusion of any product, particularly SPs from the ambit of the SSM cannot be justified or accepted.
Substantial and effective cuts in overall trade-distorting domestic support by the United States (70-75 per cent cut) and by the European Union (75-80 per cent cut), including resolving the issue of product specific caps on Aggregate Measurement of Support (AMS) and in the new Blue Box.
Non-agricultural Market Access: Choice of Swiss coefficients that ensures less than full reciprocity (LTFR) in percentage reduction commitments from bound rates. The current numbers in the chairman’s draft modalities, namely coefficients of 19-23 for developing countries and 8-9 for developed countries does not meet LTFR. A fair markup on the unbound tariff lines. Flexibilities those are adequate and appropriate to address the sensitivities of developing countries.
SERVICES
Commitments by the developed countries on substantial openings for India’s contractual service suppliers (CSS) and independent professionals (IPs) in Mode 4 relating to movement of natural persons.
Development of disciplines in Domestic Regulations in Mode 4 involving qualification and licensing requirements and procedures
RULES
Strengthening of disciplines in anti-dumping include mandatory application of lesser duty rule, prohibition of zeroing, stronger rules on reviews, including sunset review.
Against the enlargement of the scope of the Agreement on Subsidies and Countervailing Measures (ASCM) and/or limit existing flexibilities for the developing countries.
Effective special and differential (S&D) treatment in any new disciplines on fisheries subsidies, particularly in the light of employment and livelihood concerns for small, artisanal fishing communities and for retaining sufficient “policy space”.
The major issues in the current negotiations in the WTO are related to Agriculture and NAMA discussions which resumed on the basis of the draft modalities on Agriculture and NAMA issued by the Chairs of the respective Negotiating Groups on December 6, 2008. As per the draft agriculture modalities, developed countries would have to reduce their bound tariffs in equal annual installments over five years with an overall minimum average cut of 54 per cent. Developing countries would have to reduce their bound tariffs with maximum overall average cut of 36 per cent over a larger implementation period of ten years. Both developed and
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developing members would have the flexibility to designate an appropriate number of tariff lines as sensitive products, on which they would undertake lower tariff cuts. The revised draft modalities propose a special product (SP) entitlement of 12 per cent of agricultural tariff lines. The average tariff cut on SPs is proposed as 11 per cent, including 5 per cent of total tariff lines at zero cuts. This is a special and differential treatment for developing countries. In the case of NAMA negotiations, the tariff reductions are proposed through a non-linear Swiss formula with a three-tiered coefficient of 20, 22 and 25 for formula reductions linked to specific flexibilities for protecting sensitive NAMA tariff lines of developing countries, and a coefficient of 8 for tariff reduction of developed countries.
To conclude, while India, so far, may not have been able to gain a lot from the negotiations, it certainly came out of seclusion during the Doha Ministerial (2001) and is currently leading the developing country coalitions at WTO.
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CHAPTER 13: CURRENT AFFAIRS ON ECONOMY
UNION CABINET APPROVED 50 PERCENT REDUCTION IN THE RESERVE PRICES FOR CDMA SPECTRUM
The Union Government on 17 January 2013 approved a 50 per cent reduction in the reserve price of spectrum used by CDMA mobile operators.
Spectrum auction, for both GSM and CDMA, is supposed to be completed by 31 March 2013 and thereafter the markets will decide how much revenue the government will get.
With the reduction of reserve price to 50 percent pan-India 5MHz of 800 MHz spectrum (CDMA radio waves) will now cost 9100 crore rupees.
It was witnessed that auction of CDMA spectrum that took place in November 2012 did not attract bidders due to high reserve price. The reserve price set was 11 times higher than what operators paid in 2008.
Earlier CDMA spectrum price fixed by government was priced at 1.3 times more than the GSM spectrum in 1800 MHz band.
The Cabinet has already approved a 30 per cent cut in the reserve price of 1,800 MHz band spectrum used for offering GSM services.
The Supreme Court has recently allowed the companies whose licences were cancelled to continue operations till 4 February 2013 when the government is supposed to inform it of the final reserve or minimum price for the spectrum sale.
CABINET COMMITTEE ON ECONOMIC AFFAIRS APPROVED THE CONTINUATION OF JNNURM
The Cabinet Committee on Economic Affairs on 17 January 2013 approved the continuation of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) to sanction new projects and capacity building activities till 31st March, 2014 under Urban Infrastructure and Governance (UIG) and Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSSMT) components of JNNURM.
New Urban infrastructure projects in States / UTs would be approved till 31st March, 2014, and taking up new capacity building activities in Urban Local Bodies (ULBs) and States has also been approved.
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The proposal would enable provisioning of creation of urban infrastructure, particularly in small and medium towns, in all States and UTs. These projects would be subsumed in the next phase of the JNNURM for the 12th Five Year Plan.
CCEA APPROVED DEFREEZE IN THE TARIFF VALUE OF EDIBLE OILS AS PER INTERNATIONAL MARKET
The Cabinet Committee of Economic Affairs on 17 January 2013 approved the de-freezing of the tariff values of the all types of edible oils and notified that the tariffs of these oils would be decided on the basis of the existing international prices in the market.
Oils that would suffer the effect of this decision are Soyabean Oil – Crude Palm Oil - RBD (Refined Bleached Deoderized), Palm Oil – Crude, Palmolein – Crude, Palm Oil – others and Palmolein – others.
The decision would bring an advantage to the domestic refining industry because of the impact that the imports of the edible oils will do on the collected duty.
Background
Under Section 14 (2) of the Customs Act – 1962 – the tariff value is fixed on the edible oils mentioned would be notified fortnightly. The tariff value of the edible oils remained unchanged since 31 July 2006 as a result of fiscal measures to control inflation. This halt in increase in the tariff value have created a great difference between the notified tariff and the computed landed prices following the price of edible oils in the international market. This halt had an adverse impact on the domestic refining industry as well as the revenue collection.
UNION GOVERNMENT APPROVED OPEN POLICY AND LIFTED BAN ON EXPORT OF PROCESSED FOOD
Union Government on 17 January 2013 lifted ban on exports of processed foods and value added agricultural products in order to facilitate uninterrupted supply.
The uninterrupted export of such processed food products is projected to be regulated by duty. The list of exportable goods includes processed foods from agricultural commodities, such as wheat, rice, onion and milk.
Benefits of Lifting of Ban
The lifting of Ban is supposed to give a push to India’s weak merchandise exports and is estimated to add 5 billion dollar to exports over the next two year with West Asia identified as a key market for processed food from India.
It will help Indian exporters to move up the value chain as well as create additional employment in the country.
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An always open policy of this sector will not only help reduce wastage of perishable products but also encourage value addition.
Exports of processed or value-added products constitute a very small portion of overall exports and hence, their continuation would not affect the availability in the domestic market owing to very marginal processing capacity in the country.
It was seen that Exports of agricultural and processed foods have almost doubled to around 86018 crore rupees in 2012-13 from 43727 crore rupees in 2011-12.
Presently the major agricultural exports of India are that of raw or primary produce and unprocessed or semi processed agriculture commodities, which are vulnerable to restrictions attributing to various reasons such as bad weather conditions, deficient or delayed rainfall and food security issue.
The Government opened up export of rice and wheat since September 2011 and has emerged a large exporter of these commodities since then.
UNION GOVERNMENT RAISED LPG CAP TO NINE SUBSIDISED CYLINDERS PER YEAR
The Union government on 17 January 2012 hiked the cap on subsidised LPG cylinders from 6 to 9. The move will be effective from April 2013. The Government had also allowed oil companies to hike diesel prices by a small quantum periodically.
With the implication of raised cap the Consumers will be getting a quota of five subsidised cylinders between September 2012 and March 2013 and from 1 April 2013, they will be entitled to get nine cylinders per annum.
It was also decided in the meeting on Cabinet Committee on Political Affairs (CCPA) that there will be no change in LPG and kerosene rates. With this, the Election Commission has granted no objection to government's proposal for raising cap on LPG gas quota.
Subsidised LPG costs 410.50 rupees per 14.2-kg cylinder and any household requirement beyond current cap of 6 cylinders is to be bought at a price of 895.50 rupees per cylinder.
The finance ministry is keen to reduce the subsidy burden. Oil companies have estimated that if they had sold fuel at international rates they would have gained additional revenue of 1.63 lakh crore rupees in the current fiscal year.
The oil ministry has projected a subsidy loss of 37411 crore rupees on cooking gas in 2012-13 at 520.50 rupees per cylinder.
The Government is committed to ensure smooth supply of cooking gas to consumers. To ensure this, the government is planning to launch a system of rating gas dealers on the basis of time taken to deliver cylinders, which will allow customers to switch dealers.
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UNION GOVERNMENT IMPOSED 2.5 PERCENT IMPORT DUTY ON CRUDE EDIBLE OIL
Union government on 17 January 2013 imposed a 2.5 per cent import duty on crude edible oil with keeping the duties unchanged on refined cooking oil fearing a hike in retail prices.
The decision was taken at the meeting of Cabinet Committee on Economic Affairs (CCEA) in New Delhi with a view to protect domestic farmers. The Agriculture Ministry had proposed an increase in the duty on crude edible oil to protect the interest of palm growers, particularly from Andhra Pradesh.
Presently there is no import duty for crude edible oil but refined edible oil attracts an import duty of 7.5 per cent India imports about half of the total domestic requirement of cooking oil.
In 2011-12 oil years (November-October), the total import of vegetable oils (edible and non-edible oil) was at an all-time high of 10.19 million tonnes. In the first two months of the current oil year, imports were up 5 per cent.
The Agriculture Ministry sought for 7.5 per cent import duty on crude edible oil and 15 per cent on refined oil. But during the inter-ministerial meeting, the finance ministry felt such a sharp rise would lead to rise in inflation.
There is zero duty on crude edible oil and 7.5 per cent on refined edible oils. India imports over 50 per cent of its domestic demand. In 2011-12 oil years, the country imported a record 10.19 million tones of vegetable oils.
WORLD BANK SLASHED THE GLOBAL GROWTH FORECAST TO 2.4 PERCENT
The World Bank on 15 January 2013 projected that the world economy would expand 2.4 percent in 2013, little higher than the 2.3 percent achieved in 2012. In June 2012, the Bank forecasted the growth up to 3 percent, but due to the slow growth rate, high unemployment rate and less confidence in businesses across the developing nations it managed to revise the forecast earlier made.
The World Bank has reduced the projected growth rate of different countries. It has slashed the growth rate of Japan to its half from the one projected earlier and in case of US the growth rate has been slashed by 0.5 percent points. The bank also projected narrowing in the growth rate of the Euro Region. For emerging markets of Mexico, Brazil and India also the projection was lowered.
The report from the lead author of the Bank’s Global Economic Prospects Andrew Burns describes that the predicted recoveries of the bank in 2012 would be carried forward towards the end of the first quarter and second quarter of 2013.
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The bank report also has claimed that the ongoing political battle in United States for raising the borrowing limit and spending cuts by the Government would bring loss of confidence in the rate of dollar creating an alarming situation for the world financial market and effect the growth rate. It also pointed out the diplomatic tensions between China and Japan would also have an impact on the growth rate.
THE IMPLEMENTATION OF GAAR DEFERRED BY 2 YEARS, TO COME INTO FORCE FROM 1 APRIL 2016
The implementation of General Anti Avoidance Rules (GAAR) was deferred by two years by the government of India. It will now come into force from 1 April 2016. Earlier, the provisions of GAAR were to be implemented from 1 April 2014. GAAR will not apply to those Foreign Institutions Investors, FIIs who are not taking any benefit under an agreement under the Income Tax Act. Besides, it will also not apply to non-resident investors in FIIs.
The Parthasarathi Shome Committee in its final report submitted to Finance ministry on 30 September 2012 had suggested that GAAR should be deferred by three years. The report was made public on 14 January 2013. Union Government accepted major recommendations of the Shome Committee with some modifications.
Shome Committee was set up by Prime Minister Manmohan Singh in July 2012 to address the issue of GAAR.
SENSEX CROSSED CRUCIAL 20000 MARK AFTER TWO YEARS
The Bombay Stock Exchange Sensex for second time in a row on 15 January 2013 touched 2-years high. The shares remained supported inspite of government’s delayed implementation of the controversial rules related to tax avoidance.
However, till the time the RBI reviews the policy on 29 January 2013, analysts are expecting that the earnings would remain crucial catalysts for the Indian shares, as the investors would look for the signs of profit improvement in 2013. Analysts predicted that in the fiscal year 2013-14, the Sensex EPS would grow by 13-14 percent.
The BSE Sensex closed at 0.4 percent or 80.41 points at 19986.82 on 15 January 2013, which is the highest since 6 January 2011. Earlier it had touched the crucial 20000 level as well.
The Nifty, on the other hand, increased to 0.54 percent or 32.55 points, ending at 6056.60, closing more than 6000 for the second consecutive day.
Shares of the important companies such as ITC, Axis Bank, TCS and Bharti Airtel also increased.
UNION CABINET APPROVED 12517 CRORE RUPEES OF CAPITAL INFUSION IN 10 PSU BANKS
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The Union Cabinet on10 January 2013 approved a proposal of infusing 12517 crores rupees in public sector banks so that bank could enhance the lending activity and meet the capital adequacy norms.
As per the Finance Minister P Chidambaram about 9-10 public sector banks are going to be benefitted from the capital infusion programme. Also, the name of the banks, the amount for each bank and terms of the conditions will be decided in consultation with them at the time of infusion.
The government is supposed to Provide capital funds to PSBs during the year 2012-13 to the tune of 12517 crore to maintain their Tier-l CRAR (capital to risk-weighted assets ratio) at comfortable level.
The need for that is to make the PSU remain obedient with the stricter capital adequacy norms under BASEL-III as well as to support internationally active PSBs for their national and international banking operations undertaken through their subsidiaries and associates.
In principle approval of the Cabinet is accorded for need based additional capital infusion in PSBs from the year 2013-14 to 2018-19 for ensuring compliance to Capital Adequacy norms under Basel- III.
Benefits of the Capital Infusion in Banks
The capital investment will ensure fulfillment to the regulatory norms on capital adequacy and will cater to the credit needs of productive sectors of the economy as well as to withstand the impact of stress in the economy.
It will support national and international banking operations of PSBs and will boost the confidence of investors and market sentiments.
The infusion of. 12517 crore rupees in the equity capital of PSBs would enable them to expand their credit growth.
This additional availability of credit will cater to the credit needs of our economy and will also benefit employment oriented sectors, especially agriculture, micro and small enterprises, export, entrepreneurs etc. in promotion of their economic activities which would, in turn, contribute substantially to the growth of the economy.
The Government is committed in making all the PSBs financially sound and healthy so as to ensure that the growing credit needs of our economy are adequately met. To meet the credit requirement of the economy, banks would require capital funds commensurate to the increase in their Risk Weighted Assets (RWAs).
The government earlier had infused about 20117 crore rupees in public sector banks during 2010-11, and 12000 crore rupees in 2011-12.
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RBI: PRIVATE SECTOR OF INDIA REGISTERED A NET PROFIT OF 4.3 PERCENT IN FIRST HALF OF 2012-13
The data released from the Reserve Bank of India on 9 January 2013 reported that the Private Corporate Sector of India registered a net profit of 91800 crore rupees in the first half of 2012-13 (April to September), which is 4.3 percent higher than the one reported in the first half of the 2011-2012.
In terms of growth in Sales on the basis of the financial results of 2832 listed non-financial and non-government companies in the first half of the current fiscal the companies grew by 12.3 percent, which is equivalent to 14.34 lakh crore. The details of the report states that the operating profit (EBITDA) of these companies has gone up by 4.9 percent to 1.88 lakh crore rupees.
The report states that with a net profit margin of 17 percent, the performance of the Information Technology (IT) sector was better, when compared with the manufacturing and non-IT service sectors. The net profit margin of the non-IT service sector and manufacturing sector were 4.9 percent and 5.7 percent respectively. The manufacturing companies show a rise in its net profit by 2.4 percent, which is equivalent to 61200 crore rupees and the non-IT companies dropped down by 3.9 percent, from the one recorded previous year.
The companies involved in computer and activities related to it show a rise in net profit of 18.6 percent that is equivalent to Rs 18200 crore. The financial companies registered a net profit of 27.3 percent that was equivalent to Rs 8500 crore, when compared to previous year profit.
RBI SET UP WORKING GROUP TO REVIEW BANKING OMBUDSMAN SCHEME
The Reserve Bank of India in the month of January 2013 had set up a working group to evaluate and make improvements in the grievance redressal mechanism for bank customers.
The working group constituted in the Reserve Bank of India is going to review, update, and revise the Banking Ombudsman Scheme, 2006.
As per the RBI annual report of the Banking Ombudsman Scheme 2011-12, In Financial Year 2011-12, the banking ombudsman’s office of the RBI received around 72889 complaints. It disposed off 94 per cent of the customer complaints, about one-fourth of the total customer complaints were about banks’ failure to meet commitments and non-observance of fair practices code.
Also, it was seen that the Banking Ombudsman received 14492 card-related complaints in the reporting year. Unsolicited cards and charging of annual fee in spite of being offered ‘free’ card formed the basis of some of the complaints against the banks.
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Presently, we have 15 Banking Ombudsmen with unambiguous jurisdiction covering the 29 States and seven Union Territories in India.
ROLLOUT OF DIRECT BENEFITS TRANSFERS STARTED ON 1 JANUARY 2013
National Committee on Direct Cash Transfers in its meet with the Prime Minister of India Dr. Manmohan Singh decided to roll-out, the Direct Cash Benefits from 1 January 2013 in 43 identified districts of the country. The decision was taken to ensure that the benefits could be transferred electronically into the bank accounts of the individuals, without making delays and diversions of any type.
A high level meet was conducted on 13 December 2012 with the District Collectors of thee identified areas and fine tuned information related to steps that need to be taken in case of Direct Benefits Transfer.
Direct Benefits Transfer and it covers:
Transfer of cash benefits like pensions, scholarships, NREGA wages and others directly through the Government in the Bank or Post Office Accounts of identified beneficiaries under the Direct Benefits Transfer (DBT) programme. The program would also device necessary system so that the transfers can be done in a phased, time-bound manner for Direct Benefits Transfer.
Direct Benefits Transfer would not act as a substitute for delivery of public services and it would continue to be in place via normal delivery channels.
The Direct Benefits Transfer would not allow replacement of food through cash managed under Public Distribution System. The Government will be committed towards legislation of the National Food Security Act.
Rollout on 1.1.2013 mean in practice
The Rollout that would began on 1.1.2013 in 43 districts of 16 different states under 26 different schemes, which have been identified for first round of Direct Benefits Transfer. All these districts were selected on the basis of its coverage of bank accounts and Aadhaar.
FII INVESTMENT IN THE INDIAN STOCK MARKET SURPASSED MORE THAN 24000 CRORE RUPEES IN DECEMBER 2012
Foreign Institutional Investors (FIIs) in the month of December had pumped in more than Rs 24000 crore in the Indian stock market which is said to be the highest in 10 months timeline taking total FII inflow for the year 2012 to over US$ 24 billion dollars.
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As per the SEBI Data, In December, 2012 Foreign Institutional Investors (FIIs) were gross buyers of shares worth Rs 71595 crore while they sold equities amounting to Rs 47412 crore rupees. This translates into a net inflow of Rs 24183 crore or around.4.42 billion dollar.
Earlier in the month of February FIIs had infused Rs 25212 crore in stocks, which is counted to be second highest investment in Year 2012 since their entry into Indian capital markets in 1992.
If we take the latest inflows into count, FII investment in that case in the country’s equity market reached Rs 127455 crore ($24 billion) for the year 2012 with just one more trading session left.
Foreign investors are pouring money into the Indian stocks in hopes of cut in interest rates by the RBI. FIIs continued their positive standpoint on the Indian equities as the lack of investment options make the country an attractive destination.
In addition to equities, FIIs invested Rs 1178 crore rupees in the debt market the month taking the year’s tally to Rs 34462 crore.
As on 28 December 2012 the number of registered FIIs in the country stood at 1759 and total numbers of sub-accounts were 6358 during the same period.
About Foreign Institutional Investors
Foreign Institutional investors are those organizations which sum up huge amount of money and invest that amount in securities, real property and other investment assets. Some Foreign Institutional investors are also operating companies that decide to invest their profits to some degree in these types of assets.
The most common types of typical investors includes banks, insurance companies, retirement or pension funds, hedge funds, investment advisors and mutual funds. They act as highly specialized investors on behalf of others which are considered as their economic role.
UNION GOVERNMENT ANNOUNCED MORE INCENTIVES TO EXPORTERS HIT BY GLOBAL MELTDOWN
The union government on 26 December 2012 announced more incentives for the exporters who were hit hard because of global meltdown. An extension of 2 percent interest subsidiary would be provided for another year till March 2014.
Additionally, the Commerce and Industry Minister Anand Sharma decided an introduction of pilot scheme of 2 percent interest subsidiary for those project exports that took place through Exim Bank.
Any incremental export which would be done in the time duration of January to March 2013 would also be granted incentive. The ministry announced that the incentives would enable to push the exports in last quarter of 2012-2013 fiscal years.
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The objective of these incentives was stabilisation of the situation as well as shift from the negative territory to the positive one. Another objective of the incentives was keeping trade deficit under the control.
Exports during the period of April-November 2012 shrunk by 5.95 percent to US$ 189.2 billion. If the situation continues, it would be very difficult for India to achieve export target of US$ 360 billion dollar in 2012-2013 fiscal year.
THE MINIMUM SUPPORT PRICE OF WHEAT WAS INCREASED TO 1350 RUPEES PER QUINTAL
The Union government of India on 26 December 2012 raised the Minimum Support Price, MSP of wheat by 65 rupees per quintal to 1350 rupees per quintal. The decision was taken in a Cabinet meeting this morning in New Delhi Chaired by the Prime Minister, Manmohan Singh. The government also decided to export additional 25 lakh tonnes of wheat from its go-downs.
The CCEA approved the disinvestment of 12.5 per cent paid up equity capital to the Rashtriya Chemicals and Fertilizers. Current government holding is about 92.5 per cent. This will make the company compliant with the SEBI norms that 10 per cent float should be there. CCEA approved the proposal to export an additional 25 lakh tonnes of wheat. Earlier, we had approved export of 20 lakh tonnes of wheat of that a little over 17 lakh tonnes have been contracted.
INDIRECT TAX COLLECTION INCREASED AT 16.8 PERCENT TO 2.92 LAKH CRORE RUPEES IN APRIL-NOVEMBER 2012
The Finance Ministry announced that indirect tax collection increased at the rate of 16.8 percent to 2.92 lakh crore Rupees in the period of April-November 2012 in comparison to the yearly growth target of 27 percent.
It was announced that in first 8 months of 2011-2012 fiscal year, accumulation of the indirect taxes which include excise, services tax as well as customs, was 2.50 lakh crore Rupees.
Excise amounted to 108470 crore Rupees during April to November 2012, while accumulation from service taxes and customs was 78774 crore Rupees and 104864 crore Rupees respectively. In 2011-2012 fiscal year, the government had proposals of collecting 5.05 lakh crore Rupees in all, from customs, service taxes and excise, which would bring an expected growth of 27 percent from last year’s collection.
Targeted collection through customs for 2012-2013 was determined at 1.87 lakh crore Rupees. The targeted collection was 1.93 lakh crore Rupees through excise and 1.24 lakh crore Rupees through service tax.
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In the third week of December 2012, the government found it difficult for achieving customs, corporate tax as well as excise target as it was projected in Budget. This happened because there were unresponsive corporate profits.
During November 2012, indirect tax accumulation increased by 17.2 percent to 36081 crore Rupees in comparison to 30790 crore Rupees.
UN SLASHED WORLD GROWTH FORECAST TO 2.4 PERCENT FOR YEAR 2013
United Nations on 18 December 2012 slashed its global growth predictions to 2.4 percent for 2013 and 3.2 percent for the following year and warned of a lasting employment crisis for western countries.
The UN's World Economic Situation and Prospects 2013 report warned that the Debt crises in Europe and the United States and a slowdown in China could all throw the world economy into recession.
Earlier in the t month of June 2012 UN had predicted a growth forecast 2.7 percent for 2013 and 3.9 percent for the year after.
As per the Report, With existing policies and growth trends, it is going to take at least another five years for Europe and the United States to make up for the job losses caused by the Great Recession of year 2008-2009.
The report also predicted growth in South Asia averaging 5 percent in 2013, up from 4.4 percent in 2012, led by a moderate recovery in India.
FOREIGN INVESTMENTS THROUGH P-NOTES INCREASED TO 8-MONTH HIGHEST
Foreign investments in the Indian markets through P-notes or PNs (Participatory Notes) increased to 8-month high of around 1.75 lakh crore Rupees or 32 billion dollar in October 2012. This happened because different reform measures attracted the overseas investors towards the Indian markets.
Market regulator SEBI (Securities and Exchange Board of India) revealed in its data that the overall value of P-Note investments in India (debt, equity or derivatives) by October 2012 end increased to highest since February 2012, when the total value of investments like these were 1.83 lakh crore Rupees.
Apart from this, the overall value of P-notes issued with the derivatives as basics stood at 95536 crore Rupees by October 2012 end.
What are P-Notes or PNs?
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P-Notes or PNs or Participatory Notes are used by the HNIs or High Networth Individuals, foreign institutions as well as hedge funds. P-Notes allow them to invest their money in Indian markets via registered FIIs or Foreign Institutional Investors. This saves them cost as well as time related to direct registrations.
So basically, PNs are the tools or instruments which are issued by the registered FIIs to the overseas investors who are willing to invest in stock market of India without registering with market regulator SEBI.
UNION GOVERNMENT OF INDIA LOWERED THE GROWTH PROJECTION FOR CURRENT FISCAL TO 5.7 PERCENT
The Union Government of India on 17 December 2012 lowered down the growth projection for the current financial year 2012-13 from 7.6 percent that was estimated earlier to 5.7-5.9 percent. It also pitched for the supportive monetary and fiscal policies for improving the confidence of the investors. The projection was showcased in the Mid-Year Economic Analysis tabled in Indian Parliament.
BOMBAY STOCK EXCHANGE LAUNCHED SME PLATFORM INDEX AIMED AT TRACKING PRIMARY MARKET CONDITION
The Bombay Stock Exchange (BSE) on 14 December 2012 launched an SME index which primarily aims at tracking the current primary market conditions in the Indian capital market and measuring the growth in investors’ wealth over a period.
The index is going to be constituted by small and medium enterprises (SMEs) which are listed on the BSE SME platform. Presently, there are 11 companies which are listed on the SME platform and this index is going to have features similar to the BSE IPO index.
Through SME index the authorities can recognize the viability of the company and based on the report, people can invest in these companies, which will not only help the organisations to grow their businesses but also suppose to create employment.
Small and Medium Enterprises (SMEs) in India constitute an important segment of Indian economy. Currently, the contribution of SMEs alone is greater than 7 per cent to GDP and 45 per cent to industrial production. Small and Medium Enterprises (SMEs) is also the second largest provider of employment after agriculture.
SMEs also contribute to 40% of total exports directly and a significant amount of exports indirectly through large trading houses or third parties.
With the SME platform, companies did not have to rely on loans from banks, as they can raise funds through the market and play an important role in contributing to the economic growth of the country.
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Out of the 11 companies listed so far, 10 are trading above their issue prices, while one is below its IPO price.
RETAIL INFLATION INCREASED TO 9.90 PERCENT IN NOVEMBER 2012
Consumer Price Index (CPI) data released on 12 December 2012 showed that the retail inflation increased for the second successive month to 9.90 percent in November 2012 mainly because of the increase in price of food products like edible oil, sugar, vegetables as well as clothing. In October 2012, the retail inflation was 9.75 percent and in September 2012, it was 9.73 percent.
Maximum increase in the price in the month of November 2012 was in oil as well as fats segment, amounting to the annual inflation of 17.67 percent. Apart from oil, the price of sugar also increased by 16.97 percent and pulses on the other hand because costlier by 14.19 percent on yearly basis.
The prices of vegetables increased by 14.74 percent in November 2012, while the price of egg, fish and meat increased by 11.33 percent. Also, there was an increase in the price of footwear and clothing at 11.08 percent in November 2012.
In the urban areas, retail inflation increased to 9.69 percent in November 2012 in comparison to 9.46 percent in October 2012. However, in rural areas there was a very slight decrease in inflation to 9.97 percent in November 2012 from 9.98 percent in October 2012.
The rural, urban and combined All India provisional General (all groups) CPI numbers for the month of November 2012 are 126.9, 123.4 and 125.4, respectively.
It is important to note that the Reserve Bank will keep an increase in retail inflation in mind while taking review about the mid-quarter policy in the third week of December 2012. In October 2012, raising concerns over rising inflation, Reserve Bank had kept the standard interest rates unchanged.
CABINET COMMITTEE ON ECONOMIC AFFAIRS APPROVED THE SETTING UP OF CCI
The Union government of India on 13 December 2012 approved the setting up of a Cabinet Committee on Investment (CCI), to fast track investment clearances for mega projects. The decision was taken in the Union Cabinet meeting held under the chairmanship of Prime Minister Manmohan Singh. Prime Minister will head the CCI and he will also nominate the members of the committee. The CCI will expedite projects offering single window clearance for projects costing 1000 crore rupees or more by setting timelines for the concerned ministries.
The Union Cabinet also cleared the Land Acquisition Bill. Under the new bill consent of 80 percent land owners is mandatory for private acquisition of land where as for Public-Private-Partnership 70 per cent consent is required. The award of compensation will also be as per the new bill. The Cabinet also approved cutting the 1800-MHz band 2G spectrum auction reserve
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base price by 30 per cent for four circles that did not attract bidders in November. The circles are Delhi, Mumbai, Karnataka and Rajasthan. The Cabinet Committee on Economic Affairs also cleared a new urea investment policy.
INDIAN ECONOMY WOULD DOMINATE THE ECONOMY OF THE WORLD BY 2030: US INTELLIGENCE COMMUNITY REPORT
US intelligence community in its report called Global Trends 2030: Alternative Worlds which was released on 10 December 2012 declared that India would straddle international commerce and will also dominate the economy of the whole world by 2030. This would happen with decelerating Chinese economy as well as declining West.
Key points of the report:
India’s chance of powering would begin only after 2015 as China’s fortunes would start diminishing.
By the year 2030, Asia (mainly India) would return back to its position of being the powerhouse of the world, like it was before 1500.
Pakistan might not exist at all.
India will rush forward after 2020 as China would begin decelerating, primarily on certain demographic trends.
China is indeed ahead of India, but the gap between India and China would start zeroing in by 2030. The economic growth rate of India will surge while that of China will slow down.
In 2030, India might be rising as the economic powerhouse just like China is today. The current economic growth rate of China, 8-10 percent would become just a memory for the country.
•Overall size of the working-age population in China would increase in 2016 and decrease from 994 million to 961 million in 2030. Contrarily, working age population of India would most probably rise until around 2050.
The demographic opportunities of India will rise between 2015 to 2050. China’s opportunities’ window is from 1990 to 2025. Contrarily, US’s opportunity was best between 1970 to 2015.
Median age of India which is at present 26 will increase to 32 by 2030, which would still be the least among top 10 economies of world.
The report also mentioned that anytime after 2030, India instead of China would be having the largest middle-class consumption, which would be even larger than US and
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Europe combined. However, India might face trapping in the status of middle-income group in case the resources constraint, especially food, water and energy are not resolved. More investment would be required in science and technology sector in order to keep the pace of economy in the value chain.
It was however made clear that the journey of economic development of both India as well as China will not be smooth. But if the difficulties were handled well, India as well as China would be dominating the world in 2030.
About Global Trends 2030: Alternative Worlds
The latest National Intelligence Council's (NIC) Global Trends Report was released on 10 December 2012 by the Office of the Director of National Intelligence. This report is called Global Trends 2030: Alternative Worlds. Global Trends project offers expertise beyond government on certain factors like demography, environment, globalisation. The documents are prepared by Global Trends to assist the makers of policies in long-term planning on major issues which hold worldwide importance.
First Global Trends Report was released back in 1997. New global trends report is being published after every four years after the U.S. presidential elections. For the production of Global Trends 2030, a range of analytical tools, in-depth research as well as detailed modeling was employed.
SECURITY AND EXCHANGE BOARD OF INDIA (SEBI) ALLOWED 12 MORE ALTERNATIVE INVESTMENT FUNDS
Indian Market regulator Security and Exchange Board of India (SEBI) allowed 12 entities to set up Alternative Investment Funds (AIFs), a newly created class of pooled-in investment vehicles for real estate, private equity and hedge funds, in the last two months of October and November 2012.
The 12 Alternative Investment Funds AIFs that were registered with SEBI since October 2010 included India Realty Fund, Dar Mentorcap Film Fund, Capaleph Indian Millennium Small & Medium Enterprises Fund and Capaleph Indian Millennium Private Equity Fund.
SEBI in last few years had already allowed nine AIFs to set up shops in the country. As on 31 August 2012, a total of 20 applications were pending with SEBI for registration as AIFs.
As per the new SEBI guidelines, AIFs can operate broadly in three categories. The SEBI rules is applicable to all AIFs which also includes those operating as private equity funds, real estate funds and hedge funds.
The Category-I AIFs are those funds that get incentives from the government, SEBI or other regulators. It includes Social Venture Funds, Infrastructure Funds, Venture Capital Funds and SME Funds.
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The Category-II AIFs are those funds which can invest anywhere in any combination but are prohibited from raising debt, except for meeting their day-to-day operational requirements. These AIFs include PE funds, debt funds or fund of funds.
The Category-III AIFs are those trading with a view to make short-term returns and include hedge funds, among others.
RESERVE BANK OF INDIA (RBI) SIGNED CURRENCY SWAP AGREEMENT WITH BANK OF JAPAN
The Reserve Bank of India on 4 December 2012 signed a three year Bilateral Swap Arrangement (BSA) with the Bank of Japan for swapping of the local currencies to address short-term liquidity problems. The BSA will be effective from 5 December 2012.
The main idea behind the arrangement is to address short-term liquidity difficulties and supplement the existing international financial arrangements, as one of the efforts in strengthening mutual cooperation between Japan and India.
The Bilateral Swap Agreement (BSA) is going to enable both the countries to swap their local currencies either Japanese yen or Indian rupee against US dollar for an amount up to 15 billion dollars.
Earlier for a period of three years from June 2008 to June 2011 both the countries signed a similar agreement for an amount of 3 billion dollar.
The enhancement of the BSA is going to strengthen economic and financial cooperation between the two countries and accordingly to financial market stability. The BSA is activated when an IMF-support programme already exists or is expected to be established in the near future.
UNION COAL MINISTRY DECIDED TO DEALLOCATE FOUR COAL BLOCKS ALLOTTED TO 15 FIRMS
The Union Coal Ministry in the fourth week of November 2012 decided to deallocate four coal blocks allotted to 15 firms, including JSW Steel and Bhushan Steel and Strips. The four coal blocks are as following:- Gourangdih ABC coal block in West Bengal, New Patrapara coal block in Orissa, the Lalgarh coal block in Jharkhand and north Dhadu coal bloack. The ministry also asked the Monnet Ispat to deposit a bank guarantee of 62 crore rupees.
The Gourangdih ABC coal block in West Bengal was allotted to Himachal EMTA Power Ltd and JSW Steel Ltd. The Coal Ministry in its letter to the company stated that it has decided to forfeit 50 per cent of the Bank Guarantee related to the development of coal block as per the recommendation of Inter-Ministerial Group.
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The Ministry also decided to deallocate New Patrapara coal block in Orissa and to return the full bank guarantee amount without any deduction. The Coal Ministry in another letter to Monnet Ispat said that the Bank Guarantee as calculated by Coal Controller is to be deposited by the allottee company within one month from the date of letter failing which the block may be deallocated.
In case of Domco Smokeless Fuels, the Ministry decided to deallocate the Lalgarh (North) coal block in Jharkhand. With regard to North Dhadu coal block jointly allocated to four firms, the Ministry has decided to deallocate the North Dhadu coal block in addition to the forfeiture of full bank guarantee.
INDIA SIGNED 70 MILLION US DOLLAR LOAN AGREEMENT WITH WORLD BANK
Government of India on 22 November 2012 signed a 70-million US Dollar loan agreement with World Bank for financing the Karnataka Health Systems Development as well as Reform Project.
Primary objective of this project is improvisation of public-private collaboration, health services delivery and financial aid for vulnerable groups and underserved in Karnataka. The agreement was signed by the Joint Secretary, Department of Economic Affairs and India Operations Advisor of World Bank in New Delhi.
The components of the project include:
Strengthening present health programs of the Government of India
Innovations in the health financing as well as service delivery
Project management, evaluation as well as monitoring
Additional financing of this project is scheduled to be implemented till 31 March 2016.
RESERVE BANK OF INDIA ASKED BANKS NOT TO PROVIDE LOANS FOR PURCHASE OF GOLD
The Reserve Bank of India, in its notification released on 19 November 2012 directed banks not to provide loans to its customers for purchase of all types of gold, which includes primary gold, jewellery, bullion, gold coins, units of Gold Exchange Traded Funds (ETF) and units of gold mutual funds. The order was directed for discouraging people from getting involved in speculative activities.
The notification from the Reserve Bank of India also directed the banks not to grant advances against gold bullion to traders or dealers, as such advances would be utilised with the purpose of offering finance for gold purchase at auctions and speculative holding of stocks and bullion. This notification allowed the banks to provide finances to the jewelers for their general working capital requirements.
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The decision of RBI came up in response to the suggestion of the working Group constituted after the announcement if the Monetary Policy Statement of April 2012. The working group suggested that the banks are not permitted to finance purchase of any type of gold other than the working capital.
This decision of RBI came up in response to the significant growth in the imports of the gold in past few years that has created pressure on the current account deficit. The Gold imports of India in 2011-12 stood up at 60 billion dollar.
OMAN BANNED IMPORT OF EGGS AND CHICKEN FROM INDIA
The Sultanate of Oman on 10 November 2012 issued an official decree banning the import of eggs and chicken from India. Oman that is the biggest egg export market of India issued the ban following the recommendations of the World Organisation for Animal Health about the outbreak of bird-flu was confirmed by the Government run Turkey Farm at Hesaraghatta, Karnataka in the month of October.
The Sultanate of Oman banned import of eggs and chicken from India for second time in 2012 and this ban is going to affect the economic conditions of the poultry farmers of India as this ban would have an impact on a third of poultry export from India. Oman resumed the import of Poultry Products from India after a ban that lasted for five months in the last week of September. The previous ban was made in effect of reports of bird flu witnessed in Bihar.\
INCOME CEILING FOR LIG RAISED BY UNION GOVERNMENT OF INDIA
The Union Government of India on 15 November 2012 decided to raise cap on the annual income which is required for qualification for the benefits under the present housing schemes for the Low Income Groups (LIG) as well as Economically Weaker Sections (EWS). This step on the part of the government will provide benefit to 20 lakh people.
The Ministry for Housing and Urban Poverty Alleviation (HUPA) raised the income criterion for EWS housings from 60000 Rupees per year initially to 1 Lakh Rupees now. This clearly indicates that people with household income below 1 Lakh Rupees will be able to avail benefits of EWS housing scheme. Likewise, the income bar for LIG category has been raised to 2 lakh Rupees now.
This decision will be implemented during the 12th Five Year Plan. Instructions have been given to the state governments as well as the banks so that the decision could be implemented effectively.
People will now be able to get benefits under the Rajiv Awas Yogna (RAY) and EWS Housing Schemes. Additionally, the Union Minister added that they have the target of including 20 lakh people under this plan. It is the big step because more people would qualify for the home loans now.
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Definition of Economically Weaker Sections (EWS)
People falling within the income limit set by the Ministry of Urban Development fall under the category of Economically Weaker Sections (EWS). Ministry of Urban Development revised this income ceiling from Rs. 3,300 to Rs. 5,000. This income ceiling has been made applicable to loans for Interest Subsidy for Housing the Urban Poor Scheme (ISHUP) as well as Housing and Urban Development Corporation (HUDCO).
UNION CABINET OF INDIA CLEARED PROPOSAL FOR SPECTRUM SHARING
The Union Cabinet of India on 8 November 2012 approved levy of about 31000 crore rupees as one-time spectrum charge to be implemented on all incumbent telecom operators like Bharati Airtel, Vodafone, Idea and others. The proposed charges had been implemented to create a level ground between the old players and the new players of the telecom sector.
The Finance Minister of India P Chidambaram declared that the recommendations of the EGoM (Empowered Group of Ministers) was cleared and the GSM operators would have to pay for the airwaves that they hold beyond the 4.4 Mega-Hertz, the price determined at the auction and the operators holding more than 6.2 mega hertz airwaves would have to pay a retroactive fee from July 2008 onwards. The CDMA operators would have to pay for the airwaves that they hold beyond 2.5 Mega-Hertz as per the validity of the permits offered to them.
CIVIL AVIATION MINISTRY APPROVED NEW TRAFFIC RIGHTS TO INDIAN CARRIERS
The Civil Aviation Ministry in the first week of November 2012 approved new traffic rights to Indian carriers for the next three seasons to expand international air travel out of the country. The new cities include Rome, Madrid, Barcelona, Sydney, Melbourne, Nairobi, Al Najaf in Iraq, Moscow, Zurich, Macau, Tashkent and Ho Chi Minh City.
Air India and its subsidiary Air India Express got their number of weekly flights enhanced. Air India has also got the rights for the first time to fly on sectors like Delhi-Rome-Madrid/Barcelona, Delhi-Moscow, Delhi-Sydney/Melbourne, Mumbai-Nairobi and Mumbai-Al Najaf.
The allocation of flight traffic rights is expected to give a major boost to Indian carriers and spur growth in the civil aviation sector. The move will also enhance connectivity from various Indian cities to international destinations. It will also enhance competitiveness among airlines and is expected to bring down fares. Opening of several new international sectors and progressive increase in number of flights will also give a fillip to the domestic tourism sector which will result in overall economic growth of the country.
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GOVERNMENT DECIDED TO DIGITIZE CABLE TV NETWORK IN THIRTY EIGHT CITIES
The Union Government of India on 6 November 2012 decided to digitise Cable TV network in thirty eight cities, spread over 15 States, by 31 March 2013 in the second phase of digitisation.
Earlier, the digitization was completed in Delhi, Mumbai and Kolkata on the 31October 2012, while in Chennai the deadline was extended till the 9 November 2012 by the Madras High Court.
RBI EXPANDED THE LENDING NORMS ON PRIORITY SECTORS
The Reserve Bank of India (RBI) on 18 October 2012 extended the lending’s on the Priority sectors like housing, agriculture, small and medium enterprises, and expanded the scope of bank loans for these sectors up to 2 crore Rupees. These amendments would be in effect from 20 July 2012.
The decision came after discussions were held with the CMDs/CEOs of selected banks as well as the heads of Priority Sectors of selected banks and based on the same the new guidelines and amendments were made.
The banks were permitted by the central bank to offer loans up to an aggregate limit of 2 crore Rupees, to corporate that includes farmers’ producer companies, co-operatives and partnership firms of famers indulged in agricultural and allied activities including animal husbandry, bee-keeping, dairy, fishery and sericulture. The Priority loan would also be made available for pre-harvest and post-harvest activities like weeding, spraying, grading, harvesting and sorting. Export Credit loans for exporting one’s own farm produce would also be made availab le. The lending scheme fulfills the criterion mentioned under the MSMED Act-2006.
Bank loans to Micro and Small Enterprises (MSEs) those are engaged in providing services would be eligible for the direct finance of up to 2 crore Rupees per borrower per unit under priority sector. In case the loan amount per borrower increases the limit of 2 crore rupees, than it can be considered as the indirect finance for agriculture.
Loans under priority sector would also include loans provided to Government agencies for development of dwelling units or slum clearance and rehabilitation up to 10 lakh rupees. This provision also spreads for low income group and the economically weaker sections of the society in form of housing finance, construction and re-construction, purchase and more up to ceiling.
The Central Bank also guided the banks to keep a check on the loans, which are offered for the approved purposes. Thus the banks engaged in issuing loans would have to put forward a fine and channeled internal system and control in this regard. The apex court decision came to ensure that credit needs of people who don’t have access to institutional finance.
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12TH FIVE-YEAR PLAN FOCUSED ON IMPROVEMENT OF HEALTH, EDUCATION AND SANITATION
The Union Cabinet on 4 October 2012 approved the 12th five-year plan with its aim to renew Indian economy and use the funds from government in improving the facilities of education, sanitation and health. This plan has seen a three-fold increase in the budget constraints when compared to that of the 11th five-year plan. The plan would infuse a huge fund of 47.7 lakh crore rupees and this will help to accomplish the economic growth to an average level of 8.2 percent.
12th five-year plan is guided by the policy guidelines and principles to revive the following Indian economy, which registered a growth rate of meager 5.5 percent in the first quarter of the financial year 2012-13.
The plan aims towards the betterment of the infrastructural projects of the nation avoiding all types of bottlenecks. The document presented by the planning commission is aimed to attract private investments of up to US$1 trillion in the infrastructural growth in the 12th five-year plan, which will also ensure a reduction in subsidy burden of the government to 1.5 percent from 2 percent of the GDP (gross domestic product). The UID (Unique Identification Number) will act as a platform for cash transfer of the subsidies in the plan.
The plan aims towards achieving a growth of 4 percent in agriculture and to reduce poverty by 10 percentage points, by 2017.
The formulated draft of the plan would be presented for final approval before the National Development Council (NDC) that is headed by the Prime Minister having the Cabinet Ministers and Chief Ministers on board. National Development Council (NDC) is the apex decision making body and authority to signal the five year plan in the nation.
UNION GOVERNMENT CLEARED INCREASE OF FDI IN INSURANCE
The Union Government on 4 October 2012 approved the Companies Bill, 2011 and Pension Fund Regulatory and Development Authority (PFRDA) Bill, moving with its proposal to hike the foreign investment in the insurance sector to 49 percent from the present 26 percent with also opening up the pension sector for FDI. The decision was taken by Union Cabinet headed by Prime Minister Manmohan Singh.
The benefit of this amendment will go to the private sector insurance companies which require huge amount of capital and that capital will be facilitated with increase in FDI to 49 per cent.
With this, the state-run insurance companies will remain in the public sector. The government also gave green signal to foreign investment in pension funds and said the FDI limit could go up 49 per cent in line with cap in the insurance sector.
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Also with opening up the pension sector, PFRDA bill gives statutory powers to the interim regulator, constituted through an executive order in 2003.
However, it is not easy for the union government to pass this legislation in the parliament because the Opposition Bhartiya Janta Party (BJP) opposed the hike in FDI limit in insurance and insisted for the bill to be brought again in Parliament Standing Committee.
CVC INSTRUCTED CBI TO EXPAND THE SCOPE OF INVESTIGATION ON COALGATE
The Central Vigilance Commission on 24 September 2012 instructed the Central Bureau of Investigation to expand its investigation scope on Coal Block Allocation to private firms in between 1993 to 2004. The decision was made after CVC received a letter from the Coal Minister, Shriprakash Jaiswal seeking a probe from CBI on allocations made, since 1993.
Widening of the scope of investigation will bring into scanner the allocation done to private companies during the reign of P.V. Narasimha Rao led congress government after 1993, including United Front Government from 1996 to 1998 and BJP-led NDA government from 1996 to 1998. Report of Comptroller and Auditor General of India (CAG) - Vinod Rai on coal block allocations tabled in the parliament states-
Due to arbitrary allotment of the coal blocks the Indian exchequer suffered a loss of Rs 1.86 lakh crore equivalents to $ 37 billion
Up to 31 March 2011 total 194 coal blocks were allotted to different private and government parties with an aggregate quantity of 44,440 million tonnes of coal
The beneficiary of these allotments as per CAG report were 25 major companies of India including Essar Power, Jindal Steel and Power, Hindalco and Tata Power
To bring out transparency in the process, the CAG suggested competitive bidding as a better solution.
FOREIGN INVESTMENT CAP HIKED TO 74 PERCENT FOR BROADCASTING SERVICES
The Government of India on 20 September 2012 hiked the foreign investment cap for the broadcasting service providers to 74 percent. The registered hike in foreign investment cap is for service providers of Direct to Home (DTH), modernized cable network and mobile television. This move of the government will allow the global players in acquiring major stakes in the broadcasting companies. Before his decision was passed, the eligibility of DTH and multi-system cable operators to make foreign investment was limited to 49 percent only.
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In its decision last week, the Cabinet Committee on Economic Affairs cleared its stand on the companies of broadcast content that the TV news Channels and FM radio channels can have a foreign investment cap of 26 percent. This decision was made to make sure that majority of control remains back in the hands of Indian Partner.
GAAR REPORT SUBMITTED BY THE SHOME COMMITTEE TO THE FINANCE MINISTRY
The GAAR report was submitted on 1 September 2012 to the finance minister of India by the Shome Committee constituted by the Central Board of Direct Taxes, after the approval of Prime Minister of India. The committee in its report has tried to create a balance in between the investors being invited to the country and protection of the tax base from tax avoidance and evasion, using aggressive tax planning.
The committee in its findings has stated that the GAAR guidelines should be introduced in the country at the time of economic stability. Hence, it has recommended the postponement of its implementation by 3 years. Committee’s recommendation also states about the implementation of the findings with complete spirit and has laid emphasis on transition period of the taxpayers and preparedness of the administrators. To provide clarity on GAAR’s applicability provisions in different situations 27 illustrations were made and are mentioned under different conditions like:
Tax Mitigation- GAAR can’t be invoked
Tax Avoidance- SAAR is applicable hence GAAR is not invoked
Court Approved Amalgamations or demergers
Tax Avoidance- GAAR invoked
Tax Evasion can directly be dealt of law without invoking the GAAR
Following the Finance Act 2012, the introduction of the General Anti-Avoidance Rules (GAAR) was done into the Income Tax Act, 1961. The committee briefly analysed the provisions of GAAR as per the inputs available from stakeholders and following the recommendations made the amendments in the Act were made for finalization of the guidelines for the Income Tax Rules, 1962.
Shome’s Committee
The expert committee on GAAR (General Anti-Avoidance Rules) was constituted under the Chairmanship of Dr. Parthasarsthi Shome with members, namely Shri N. Rangachary (Former Chairman of IRDA and CBDT), Dr. Ajay Shah (Prof. NIPFP) and Shri Sunil Gupta (Joint Secretary-Tax Policy and Legislation, Department of Revenue) for undertaking the consultations of stakeholders and finalization of guidelines for GAAR. The main objective of the committee was to get feedbacks from the stakeholders and prepare new guidelines or to amend the previous guidelines after examining the things finely.The committee was constituted by the Central Board of Direct Taxes after being approved by the Prime Minister of India.
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PROPOSAL FOR 51 PERCENT FDI IN MULTI-BRAND RETAIL AND 49 PERCENT IN AVIATION PASSED
The Union Cabinet on 14 September 2012 cleared the proposal of foreign direct investment (FDI) for 51 percent in the multi-brand retail chains and 49 percent in Aviation power exchanges industry.
Passing of the proposal have cleared the floor for welcoming the multi-brand retail chains like Wall mart and Tesco and Carrefour in the country for setting up of their shops and retail outlets. Similarly, the 49 percent of FDI allowed in aviation and Power exchanges will bring in funds for the domestic carriers on a verge of death and will help in enhancement of power availability and distribution management, respectively.
Conditions put forward for investors in the proposal for the multi-brand retails
The proposal makes a clear stand that investors looking ahead for investments will have to take the permission in form of approvals from the Foreign Investment Promotion Board
Investment of minimum $100 million is a must for any foreign investor planning to invest in India, out of which 50% of the investment should be made in creation of back-end infrastructure. Back-end investment means investments that is made in quality control, warehouse creation, cold storage, design improvement, manufacturing, processing and packaging
The investors will have to get 30% of the production of their total products by the small-scale industries
The proposal also clears that the agricultural produce like pulses, flowers, fruits, vegetables, poultry item, fishery, meat and others can be unbranded
Investors can invest in the 51 cities with a minimum population of 10 lakh people as per the census presented in the year 2011
For making investment in the aviation sector, the proposals have
This will help in making equity invasion for the aviation companies seeking financial support at the time when maximum of the domestic airlines are passing through a phase of losses.
Investors who are not functional in airline business can own equity of 49 percent directly or indirectly in the Indian Aviation Companies.
FDI in Power Exchanges will be guided via
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49 percent of FDI in power trading exchanges will be taken care of as per the regulation laid down by SEBI and Central Electricity Regulatory Commission (Power Market) Regulations) 2010
The commerce minister stated that Foreign Institutional Investors cannot exceed a limit of 26 percent investment and the paid-up capital will be restricted to 23 percent
FII can be permitted under automatic routes whereas; the FDI will be scrutinized under the route approved by the government
The generation of electricity, power transmission and distribution along with trading will be done in accordance to the provisions of the Electricity Act 2003
The current policy allows FDI up to 100 percent in power sector (atomic energy is an exception)
What does it mean for different economic sections of India?
Economy: Help in reversal of the economic slowdown, attract the investment of billions of dollars from foreign market and spin jobs to a greater extent
Kirana Stores: Will lower down the selling price, because they will purchase the supplies from deep down retailers
Retailers: Can sell their equity up to 51% to the global leaders
Farmers: They can sell their produce directly at higher prices and the presence of middle man will end
States: Decision to allow the retail giants or prohibit lies in the hands of states
Common Man: A chance to gain big discount with many options to shop
UPA government: Got a chance to wash away the blames of policy paralysis
REPORT: INDIAN EXTERNAL DEBTS ARE WITHIN MANAGEABLE LIMITS
The Department of Economic Affairs (DEA) published its annual publication- India’s external debt: a status report 2011-12. As per the published report, India’s external debt in the end of March 2012 was $345.8 billion, which is 13% high than the previous year’s debt or $ 39.9 billion from where India stood at the end of March 2011. The publication points out about the upward movement of the stress that is put on the current account deficit (CAD) of the nation because of the risks thrown on it, from the external sectors that comprises Fall in the reserve cover for imports and external debt, depreciation in the exchange rate of rupee, rise in the level of external debts and the increased share of the short term commercial borrowing in the complete external debt quantum.
The finance ministry cleared on 10 September 2012 that there can be a rise in the global economic risks that may rise with a weakened recovery and a slow growth scopes that may lead into high debts and seek growth finances even in the advanced economies. This clearance was
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based on Indian Vulnerability Index indicators, which has been experiencing the euro zone debt crisis and the global slowdown.
A detailed analysis of India’s position in external debt at the end of March, 2012 has been presented in the status report. It is also based on the data released by the Reserve Bank of India on 29 June 2012. The report not only presents the analysis of external debts trend and composition on the country but it also presents a comparative picture of this debt in reference to other developing nations of the world with respect to the fluid global economic situations.
The best part of the report produced is that instead of all the facts presented and developments India’s debt is within manageable limits and can be indicated by the debt service ratio to 6 percent and external debt-to-GDP ratio of 20 percent in 2011-2012. Thus India continues to be within the less vulnerable countries when it comes to external debt indicators compared to that of the indebted countries.
The Global Development Finance, 2012 from World Bank, India stood at the fifth position for absolute debt stocks when compared with the 20 other developing debtor countries. But when taken care of the ration of external debt to that of the gross national income, India was at the fifth position from the lowest side.
CABINET GAVE A NOD TO TWO SUBSIDIARIES OF AIR INDIA: AIESL AND AITSL
To split off the ground handling and engineering services of Air India, Union cabinet under the chairmanship of Prime Minister Dr. Manmohan Singh approved a proposal of Rs 768 crore on 6 September 2012. Now the two units Air India Engineering Services Limited (AIESL) and Air India Transport Services Ltd. (AITSL) will be operational as two completely owned subsidiaries and treated as separate profit centers.
The approval came after waiting for almost two years since; Air India board agreed for the separate operations of the two units and sent it for clearance to the Ministry Of Civil Aviation. Ministry gave its nod to the proposal in the month of April.
AIESL will be operational in line of repair, maintenance and overhaul (MRO) business for Air India only but also for airlines owned by different groups. It’s expected that the unit can bring back a potential turnover of about $ 1.5 billion MRO business in Asia Pacific.
Air India that has reportedly suffered a loss of about 7,853 crore in the financial year 2011-2012 is hoping to gain a total equity infusion of Rs 30,000 Crore by 2021 under the turnaround and restructuring time devised by the government.
J.R.D. Tata founded Air India and is also known as the Father of Civil Aviation in India. Air India took its first flight on 15 October 1932. Air India is known as the national flag carrier of India.
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UNION GOVERNMENT APPROVED 14000 CRORE RUPEES FUND TO SPUR PRODUCTION OF HYBRID AND ELECTRICAL VEHICLE
The government of India on 29 August 2012 approved a 14000 crore rupees fund to spur the production of hybrid and electrical vehicles in the country. According to a new policy approved, Automobile companies and the government plan to put six million electric vehicles on road by 2020. The government under the new policy will fund research and development, infrastructure and subsidies.
With an aim at reducing the burden on fossil fuels, the Union government in national budget 2011 had proposed a plan to develop electric and hybrid vehicles. Later, the government set up a National Council for Electric Mobility led by heavy industries minister Praful Patel, and a National Board for Electric Mobility to ensure uniform rules in all the states.
According to an estimate about 130000 electric vehicles were sold in India in 2011-12. Electric scooters cost between 26000 rupees and 43000 rupees in Indian market, while country’s only indigenously built electric car Reva starts at 3.5 lakh rupees. Japan-based Nissan Motor Co. Ltd’s electric car, Leaf, is the largest-selling car in the world that runs on battery. It costs 33000 dollar (around 18 lakh rupees) in the US and its battery cost is at least half the car’s price.
The government has long been contemplating a policy to reduce its dependence on oil which makes up a substantial part of India’s huge import basket. The hybrid and electric vehicles have emerged as a better alternative of traditional oil-based vehicles over the years.
SEBI ALLOWED PARTIAL FLEXIBILITY IN IDRS FOR INVESTORS
India’s market regulator Security and Exchange Board of India (SEBI) on 28 August 2012 allowed partial flexibility in the conversion of Indian Depository Receipts (IDRs) into equity shares by investors. The SEBI move is aimed at retaining domestic liquidity besides; it is also expected to attract foreign entities to enroll their IDRs on India stock exchanges.
In another circular released by the RBI, the central bank put an overall cap of 5 billion dollar for raising of capital through IDRs by foreign companies in Indian markets. The RBI measure will help Indian investors to convert their depository receipts into equity shares of the issuer company and vice versa.
PUBLIC ACCOUNTS COMMITTEE (PAC) CALLED FOR DETERRENT PENAL PROVISIONS AGAINST UNITS IN SEZS
Parliament's Public Accounts Committee on 23 August 2012 decided to bring the three latest CAG reports on coal allocations, GMR-run Delhi airport and Reliance Power, onto its agenda for the year 2012.
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The Public Accounts Committee (PAC) in its meeting on 23 August 2012 called for deterrent penal provisions against units in Special Economic Zones which default duty payments to the exchequer. PAC in a report adopted in the meeting recommended an oversight mechanism which would ensure no misuse of the SEZ policy.
The PAC panel based its findings on a sample of 22 SEZ units. The panel found that out of an overall export of Rs 7149.23 crore made by 22 SEZ units, the actual export content was only Rs 1999.27 crore (28%) and the remaining Rs 5149.96 crores (72%) related to Domestic Tariff Area earnings.
Panel Findings & Recommendations
The report stated that low figures of actual physical export of goods were typical of most SEZ units. The aim of SEZ Act was to boost exports and earning of foreign exchange by giving these units certain duty waivers and incentives. PAC however observed that there is no mandatory requirement of undertaking exports in the SEZ legislation. Since the units located in SEZs enjoy tax benefits and are expected to fuel economic growth, PAC recommended revisiting the scheme.
The committee recommended that all SEZs undertake physical export of at least 51% of their product, and even import tax waivers raw material for goods falling under the Domestic Tariff Area (DTA) is to be considered on the credit account of the SEZ firms.
It was noted that SEZ units could sell their goods, including by products, and services in DTA on payment of applicable duty including at nil rate with no requirement to payback the duty foregone on inputs used in the clearance of products. This policy will put SEZ units at a distinctly advantageous position compared to similar units in the DTA.
INDIA EASED EXTERNAL OVERSEAS BORROWING RULES TO ENABLE EASIER ACCESS TO CHEAP DOLLAR FUNDS
The high-level committee on external commercial borrowings (ECB),chaired by secretary, department of economic affairs Arvind Mayaram on 22 August 2012 decided to further liberalise the foreign borrowing norms.
India eased overseas borrowing rules to enable easier access to cheap dollar funds to housing finance companies such as HDFC, small industry financier SIDBI. It was decided to permitted non-resident entities to provide rating enhancement facility to Indian borrower. India’s measure to ease overseas borrowing is expected to boost capital inflows by permitting lower rated companies to raise dollar funds. Even a company with low credit rating will be able to raise foreign funds using credit enhancement facility that states that third party is to assure the lender that he will be compensated if the borrower defaulted.
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The government permitted foreign entities to provide credit enhancement to rupee bonds of Indian companies which will improve their appeal to investors. The minimum maturity period of such rupee bonds was reduced from seven years to three years.
Manufacturing sector too now will enjoy access to cheap dollar funds and they will be thus able to revive investments plans stuck on account of high costs. Earlier, only infrastructure and infrastructure finance companies could issue rupee-denominated bonds with guarantees from multilateral or regional financial institutions.
The decision taken by the high-level committee on 22 August 2012 includes the following:
Foreign institutional investors were permitted to invest in these bonds up to US$5 billion within the overall corporate bond limit of US$45 billion.
The minimum maturity period for rupee bonds was reduced to three years
Credit enhancement to provide an enabling mechanism for Indian companies to raise foreign debt
Costly credit observed to be one of the key issue impeding investments.
The panel also decided to increase the maturity of such buyers credit to maximum five years thereby allowing companies flexibility in payment. Extending refinance facility to SPVs will ease debt financing for infra projects.
Advantages for Lower-rated Companies
The guarantee for domestic companies from offshore entities effectively lifts the credit ratings of the bonds thereby benefitting lower-rated borrowers. Indian companies have always been constrained in their funding options due to high domestic interest rates and difficulties in tapping markets overseas.
The actions targeting credit guarantees will benefit sectors such as telecoms and energy, where foreign companies often operate via Indian units, but whose domestic borrowing get constrained if they had lower ratings than their parent companies.
Infrastructure and manufacturing companies can re-finance a higher proportion of their rupee borrowings via cheaper overseas debt. These infrastructure and manufacturing companies can now tap overseas loans up to 75% of their average forex earnings over the previous three financial years from 50% previously.
UNION FINANCE MINISTRY APPROVED 49 PERCENT FDI IN INSURANCE AND PENSION SECTOR
In a move aimed at encouraging investment sentiment in the country, the Union Finance Ministry on 22 August 2012 approved 49 percent foreign direct investment in insurance and pension sector. Earlier the permitted level of FDI in the insurance and pension sector was 26 percent.
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The proposal for 49 percent FDI in insurance and pension sector was made during Pranab Mukherjee’s tenure at the finance minister office. However, the decision on the same was delayed because of resistance from the cronies.
With the approval of Union Finance Ministry, the bill will now be discussed in the cabinet and will require to be approved by the parliament. The chances of the bill getting through in the monsoon session of the parliament are very low as opposition parties have been consistently stalling the house on the issue of coal scam. The monsoon session is set to end on 27 August 2012.
As per the Insurance Regulatory and Development Authority (IRDA) estimates, over the next five years, the insurance sector requires a capital infusion of more than 12 billion dollar. The Union Government has been trying hard to introduce the major reforms to revive the ailing economy. The measures such as FDI in multi -brand retail and civil avaiation, implementation of Goods and Services Tax (GST) have, however, faced fierce opposition from different political parties.
Indian economy is rapidly moving towards the grim economic situation similar faced during the recession. The economy needs some big ticket reforms to reverse the pessimistic economic environment. India's GDP growth fell to 6.5 percent during 2011-12 but the fourth quarter growth rate dropped to 5.3 percent, the slowest in past nine years. Business confidence among the investors and business leaders has touched the historic low as industrial output and trade figures are constantly going down.
The tight monetary policy measures adopted by the central bank to check inflation has actually aggravated the situation as high interest rates are hugely impacting the overall growth scenario. Indian industries have been reiterating that there is an urgent need to create conditions for revival of private investment.
The FDI in insurance might prove to be a start of the long pending reform but the Union Finance Minister P Chidambaram will have to work hard on political front to make it possible. Earlier the government had to defer the decision on the bill as it faced opposition from its allies such as Trinammol Congress.
RBI STIPULATED THE NORMS FOR SECURITISATION OF LOANS BY NBFCS
Extending the guidelines of securitisation of loan from banks to non-banking finance companies (NBFC), India’s Central Bank Reserve Bank of India on 21 August 2012 tightened the securitisation norms for NBFCs. The RBI instructed that a non-banking finance company will have to retain at least 5 per cent of the loan being sold to another entity.
The RBI in its revised guidelines also stipulated that NBFC cannot sell or securitise a loan unless three monthly installments have been paid by the borrower. The latest directives from the RBI are aimed at checking unhealthy practices and distributing risk to a wide spectrum of investors.
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These guidelines have to implemented by NBFCs in two phases by the end of October 2012. Earlier, the RBI had issued similar guidelines with regards to securitisation of loans by banks.
REGULATOR SEBI PERMITTED SEVEN ALTERNATIVE INVESTMENT FUNDS (AIFS) TO START OPERATION IN INDIA
Market regulator Securities and Exchange Board of India (SEBI) in August 2012 permitted seven Alternative Investment Funds (AIFs) to start operation in India under a newly formulated route that enable pooling of funds for investments in areas such as real estate, private equity and hedge funds. Six AIFs registered with the regulator in August 2012, while one was granted registration back on 23 July 2012. SEBI had published its guidelines with regard to AIF in May 2012.
The seven AIFs that registered with SEBI include IFCI Syncamore India Infrastructure Fund, Utthishta Yekum Fund, Indiaquotient Investment Trust, Forefront Alternate Investment Trust, Excedo Realty Fund, Sabre Partners Trust and KKR India Alternate Credit Opportunities Fund.
Funds established or incorporated in India for the purpose of pooling in of capital from Indian and foreign investors for investing would have to follow a pre-decided policy. SEBI decided to allow promoters of listed companies can offload 10 per cent of equity to AIFs such as such as SME Funds, Infrastructure Funds, PE funds and Venture Capital Funds registered with the market regulator to attain minimum 25 per cent public holding.
AIFs, as per SEBI guidelines can operate broadly in three categories and it is mandatory for them to get registered with the regulator. The SEBI rules apply to all AIFs, including those operating as private equity funds, real estate funds and hedge funds, among others.
AIF Categories
The Category I AIFs are those where funds stand a chance of getting certain incentives or concessions from the government, SEBI or other regulators in India and include Social Venture Funds, Infrastructure Funds, Venture Capital Funds and SME Funds.
The Category II AIFs are those funds which can invest anywhere in any combination but are prohibited from raising debt, except for meeting their day-to-day operational requirements. These AIFs include PE funds, debt funds or fund of funds, as also all others falling outside the ambit of Category I and Category III.
The Category III AIFs are those trading with an objective to make short term returns and include hedge funds, among others.
INTER-MINISTERIAL GROUP RECOMMENDED LINKING PATENTED DRUG PRICES TO PER-CAPITA INCOME
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An inter-ministerial group formed in 2007 and entrusted with the responsibility of regulating prices of patented medicines recommended using a per capita income-linked reference pricing mechanism. The proposal by the group is expected to reduce prices of several patented dugs by up to one-third. However it will hit the profitability of foreign companies.
The committee suggested fixing the price of patented drugs by comparing the price at which these drugs are procured by governments in the UK, Canada, France, Australia and New Zealand. The committee recommended that the retail price is to be fixed by adjusting it to the per capita income of the country. The new mechanism is to be applicable for patented drugs that don’t have any therapeutic equivalents in the market.
For patented drugs that have similar alternatives in the market, the price is to be fixed in such a manner that it should not lead to an overall increase in the treatment cost. If the global launch of the patented drug takes place in India, the retail price will have to be based on the cost of developing the drugs and other factors. Prices of patented drugs are currently unregulated. Patented drugs account for 1% of the $13-billion domestic market. This share is expected to grow to 5% of the estimated $50-60 billion drug market by 2020.
The Indian Pharmaceutical Alliance, the representative body of big Indian drugmakers, supported the reference-based system. The Organisation of Pharmaceutical Producers of India (OPPI), the lobby body of multinationals however stated that the cross-country per capita income-linked proposal is fundamentally flawed.
The Indian government is of the opinion that if patented drugs are not regulated, these would remain unaffordable for most Indians. A WHO study stated that as many as 79% of Indian patients pay for their healthcare expenditure from their own pockets. However it must also be noted that if the government fixes the prices of these drugs at excessively low levels, companies may stop selling drugs in the market.
Historical Backdrop
India had adopted a new product patent regime in 2005 after it became a signatory to TRIPS, an international intellectual property protection agreement, providing 20 years of marketing exclusivity to the patent holder. Global innovator companies such as GSK, Bayer AG, Novartis, Merck & Co and Bristol Myers Squibb who started launching their drugs in India continue to remain jittery about the government’s policies aimed at reducing healthcare costs. They complain that India’s implementation of intellectual property rights has been unsatisfactory.
INDIA’S NSE BECAME THE WORLD’S LARGEST BOURSE IN EQUITY SEGMENT AS PER WFE’S GLOBAL RANKING
As per the latest global ranking compiled and published by the World Federation of Exchanges (WFE) in August 2012, the National Stock Exchange of India (NSE) become the world’s largest bourse in terms of the number of trades in equity segment for the first six months of 2012. A
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total of 735474 trades took place in the equity segment of NSE in the January-June period of 2012, making it the world’s largest exchange on this parameter. NSE was followed by NYSE Euronext and Nasdaq OMX at the second and the third positions.
Industry experts attributed the recent position of NSE acquired by the bourse to growing investor base, use of latest technology and new products. NSE's platform is connected to two lakh trading terminals in more than 2000 towns and cities across the country.
NSE is the second largest exchange globally after Korea Exchange for index options. Eurex was the third largest exchange worldwide in terms of total number of index options traded during the first six months of 2012.
BSE recorded a total of 187824 trades during this period in its equity segment. The total number of listed companies is much larger in case of the BSE, the exchange however lags behind NSE significantly in terms of volume and value of trades.
The latest data published by WFE indicated that investors from tier-three cities contributed more than 45 per cent of total cash market retail turnover in the financial year 2011- 12. The tier-three cities account for more than half of the total retail investor base on NSE platform.
UNION CABINET SETS BASE PRICE FOR AUCTION OF 2G SPECTRUM AT 14000 CRORE RUPEES
The Union Cabinet on 4 August 2012 approved the reserve price for auction of 2G spectrum as well as spectrum usage charges (SUC). The Cabinet set the reserve price of 14000 crore rupees for the 5 megahertz pan-India spectrum in the 1800 megahertz band. The price is 22 percent lower than the telecom regulator's suggestion. An auctioneer will be soon appointed to conduct a fresh auction.
The Cabinet also endorsed the EGoM's recommendation that the reserve price for the 800 megahertz band, which is used by CDMA operators, be fixed at 1.3 times the price for 1800 megahertz band.
Telecom Regulatory Authority of India (TRAI) had recommended the base price at 18000 crore rupees, which drew a heavy criticism from telecom companies, who argued that the base price suggested by TRAI is irrational.
The fresh auction of 2G spectrum was necessitated after the Supreme Court scrapped 122 telecom licences on 2 February 2012 as it found the process of spectrum allocation cramped with flaws.
RBI DIRECTED NBFCS TO MAINTAIN NET-OWNED FUNDS (NOF) AT RS 3 CRORE BY 31 MARCH 2013
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The Reserve Bank of India (RBI) in a notification issued on 3 August 2012 stated that all registered non-banking financial companies (NBFCs) which who intend to convert themselves into non-banking financial company-micro finance institutions (NBFC-MFIs) would have to seek registration with immediate effect, not later than 31 October 2012.
The central bank also mentioned that the NBFCs have to maintain net-owned funds (NOF) at Rs 3 crore by 31 March 2013, and at Rs.5 crore by 31 March 31 2014. If the NBFCs fail maintain the NOF they will have to ensure that lending to the micro finance sector, that is, individuals, SHGs or JLGs, which qualify for loans from MFIs to be restricted to 10 per cent of the total assets.
The NBFCs operating in the north-eastern region are to maintain the minimum NOF at Rs.1 crore by 31 March 2012, and at Rs.2 crore by 31 March 2014.
Operational Flexibility
To promote operational flexibility the NBFCs are to ensure that the average interest rate on loans during a financial year does not exceed the average borrowing cost during that financial year plus the margin, within the prescribed cap. The RBI notification also stated that while the rate of interest on individual loans may exceed 26 per cent, the maximum variance permitted for individual loans between the minimum and the maximum interest rate cannot exceed 4 per cent.
The average interest paid on borrowings and charged by the MFI will have to be calculated on the average monthly balances of outstanding borrowings and the loan portfolio, respectively.
Cap Margin
The RBI also decided that the cap on margins as defined by the Malegam Committee are not to exceed 10 per cent for large MFIs (loans portfolios exceeding Rs.100 crore) and 12 per cent for others. The measure was initiated to ensure that in a low cost environment, the ultimate borrower will benefit, while in a rising interest rate environment and that the lending NBFC-MFIs will have sufficient leeway to operate on viable lines.
RBI SIGNED MOU WITH FINANCIAL REGULATORS OF 9 COUNTRIES TO PROMOTE SHARING OF INFORMATION
The Reserve Bank of India (RBI) signed three memoranda of understanding – with Jersey Financial Services Commission (JFSC), Financial Services Authority of UK and Financial Supervisory Authority of Norway. The Memorandum of Understanding (MoU) was signed with regulators of other countries to promote greater co-operation and sharing of supervisory information between the regulators. RBI signed nine MoUs thus far with financial regulators of different countries.
The MoU with the Jersey Financial Services authority was signed on 16 July 2012. Jersey Financial Services Commission (JFSC) is an independent statutory body. The main function of
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JFC is the regulation, licensing and supervision of financial services providers for compliance with prudential norms and conduct of business requirements in Jersey.
The MOU with the Financial Services Authority (FSA), UK was signed on 17 July 2012 at FSA, UK Headquarters, London. The FSA is the United Kingdom’s principal national financial services and markets regulator and administers the Financial Services and Markets Act 2000(FSMA) that provides for the supervision of firms, financial services, financial products as well the financial markets.
The MoU with the Financial Supervisory Authority of Norway (Finanstilsynet) was signed on 19 July 2012 at FSA, Norway headquarters. Finanstilsynet as the supervisory authority is entrusted with supervision of banks (insurance companies and investment firms, etc.) in Norway as per the Financial Supervision Act of 1956.
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ECONOMY UPDATES
TELECOM COMMISSION APPROVED HIKE IN FDI CAP FROM 74 TO 100 PERCENT IN TELECOM SECTOR
The Telecom Commission of India on 2 July 2013 approved the enhancement of the Foreign Direct Investment (FDI) limit in the telecom sector from 74 percent to 100 percent. The decision was taken to re-energize the telecom industry.
At present, FDI limit in Telecom sector is at 74 per cent where 49 per cent is through automatic route and the rest with the approval of the Foreign Investment Promotion Board.
Now the detailed note would be sent to the Department of Industrial Policy and Promotion by the Department of Telecom, which will further take it forward for inter-ministerial consultations before moving it to the Cabinet.
FOREIGN INSTITUTIONAL INVESTORS PULLED OUT 5.6 BILLION DOLLARS FROM DEBT MARKET
Foreign institutional investors (FII) in the Month June 2013 jumped out of the debt market, withdrawing 5.6 billion dollars.
The Withdrawal of this huge amount is being considered as the highest ever withdrawal in the market’s history.
Some Important Points to be highlighted
• In the first five months, FIIs had pumped in 3.9 billion dollars. The net inflow in calendar 2012 was 5.9 billion dollars.
• FIIs also pulled out 1.8 billion dollars from the equity market in June. Their net investment in equities, however, remained positive at 13.5 billion dollars.
• As of 1 July 2013, the Sensex was trading at the same level it was at on 1 January 2013. It is not the first time that India’s debt market is seeing FII money going out.
• A similar situation was seen in 2009, when foreign institutional investors pulled out 1.2 billion dollars in which the Sensex rallied 76 per cent, from around 9900 points to 17400.
• As of 28 June 2013 cumulative FII investment in India’s debt market stood at 31.7 billion dollars while the equity exposure was 139.5 billion Dollars.
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• A total of 1753 FIIs are registered with market regulator SEBI for transacting in the country’s market, with the number of registered sub-accounts pegged at 6404.
CCEA APPROVED CONTINUATION OF NMFP
The Cabinet Committee on Economic Affairs on 28 June 2013 approved the continuation of the National Mission on Food Processing (NMFP) for the remainder of 12th Five Year Plan (2013-17) based on detailed proposals submitted by the Ministry of Food Processing Industries (MOFPI).
The NMFP outlay for 2012-17 has been kept at 1600 crore rupees consisting of 1250 crore rupees provided by the Government of India (GOI) and corresponding State share of 350 crore rupees. This includes 320 crore rupees already approved for 2012-13, of which 250 crore rupees was the GOI share and 70 crore rupees was the State share.
The following schemes under the NMFP will be implemented by State Governments for the remainder of 12th Five Year Plan in pursuance of today`s approval:
• Scheme for technology up-gradation / establishment / modernisation of food processing industries
• Scheme for cold chain, value addition and preservation infrastructure for non- horticulture products
• Setting up/ modernization/ expansion of abattoirs
• Scheme for Human Resource Development (HRD)
• Scheme for promotional activities
• Creating primary processing centres / collection centres in rural areas
• Modernization of meat shops
• Reefer vehicles
• Old Food Parks
Continuation of NMFP shall help in the decentralization of the implementation of the Ministry`s schemes, which will lead to substantial participation of State Governments / Union Territories (UTs). Beneficiaries of MOFPI schemes will also find it easier to deal with State Governments.
The continuation of NMFP will also help States/UTs in maintaining requisite synergy between agriculture plans of States and the development of the food processing sector. This in turn would help in the increase in farm productivity, thereby leading to an increase in farmers` incomes. It would also help in ensuring an efficient supply chain by bridging Infrastructural/Institutional Gaps.
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A National Food Processing Development Council (NFPDC) has been provided for under the chairmanship of the Minister for Agriculture and Food Processing Industries. The NFPDC will have representatives of State Governments, industry associations and related GOI departments. The council will provide guidance to MOFPI relating to the food processing sector, including the NMFP.
MSP FOR PADDY FIXED AT 1310 RUPEES PER QUINTAL
The Cabinet Committee on Economic Affairs on 28 June 2013 approved the Minimum Support Prices (MSPs) for kharif crops of 2013-14 seasons. The MSP of Paddy (Common) has been fixed at 1310 rupees per quintal and of Paddy (Grade A) at 1345 rupees per quintal. This is an increase of 60 rupees per quintal and 65 rupees per quintal respectively over their MSPs of 2012.
The MSPs of Jowar (Hybrid), Jowar (Maldandi) and Ragi have been retained at last year`s level of 1500 rupees per quintal, 1520 rupees per quintal and 1500 rupees per quintal respectively. The MSP of Bajra has been raised by 75 rupees per quintal and fixed at 1250 rupees per quintal. The MSP of Maize has been raised by 135 rupees per quintal over 2010`s MSP at 1310 rupees per quintal.
The MSP of Arhar (Tur) was fixed at 4300 rupees per quintal and of Moong at 4500 rupees per quintal marking an increase of 450 rupees per quintal and 100 rupees per quintal respectively over their MSP of 2012. The MSP of Urad has been retained at 2012’s level of 4300 rupees per quintal.
The MSPs of Groundnut-in-shell, Soyabean (Black) and Sesamum have been increased by 300 rupees per quintal each and fixed at 4000 rupees per quintal, 2500 rupees per quintal and 4500 rupees per quintal respectively. MSP of Soyabean (Yellow) has been increased by 320 rupees per quintal over its MSP of last year and fixed at 2560 rupees per quintal. The MSPs of Sunflower Seed and Nigerseed have been retained at last year`s levels of 3700 rupees per quintal and 3500 rupees per quintal respectively.
MSP of Cotton (Medium Staple) and Cotton (Long Staple) have been raised by 100 rupees per quintal each, over their MSP of 2012. They have been fixed at 3700 rupees per quintal and 4000 rupees per quintal respectively.
GOVT TO SET-UP 51 NEW LOW-COST AIRPORTS ACROSS INDIA
The Union Government of India on 28 June 2013 decided to set up 51 new low-cost airports in Tier-II and Tier-III cities of the nation. The decision was taken with an aim to the give a boost to civil aviation sector and increase air connectivity to Tier-II and Tier-III cities.
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Airport Authority of India (AAI) will be responsible for setting-up the airports in 51 different cities across different states like Andhra Pradesh, Bihar, Jharkhand, Punjab, Uttar Pradesh, Arunachal Pradesh, Assam, Madhya Pradesh, Rajasthan and Maharashtra.
The Union Government also made a decision to grant international airport status to the airports of Imphal and Bhubaneswar at a cost of 20000 crore rupees.
The decisions were taken at a meeting that was headed by the Prime Minister to finalise infrastructure projects for 2013-14.
During the same meet, the Union Government also decided to award construction of eight Greenfield Airports in 2013 under public-private-participation (PPP) mode that includes Navi Mumbai, Juhu in Mumbai, Goa, Kannur, Rajguru Nagar Chakan at Pune, Sriperumbudur, Bellary and Raigarh.
To encourage investors, the Union Government declared an investment target of 1.15 lakh crore rupees under the PPP project in different sectors of infrastructure like civil aviation, rail, port and power in the next six months.
EUROPEAN COMMISSION APPROVED TAKEOVER OF NYSE-EURONEXT
The European Commission (EC) on 26 June 2013 approved Inter Continental Exchange’s (ICE) proposed 8.2 billion dollars takeover of NYSE-Euronext. The European Commission stated that ICE and NYSE-Euronext are not direct competitors in most markets and will be facing strong competition from other exchanges.
Inter Continental Exchange is based in Atlanta, Georgia and is popular as a commodities marketplace. It announced its stock-and-cash offer for NYSE—Euronext, valued at 33.12 dollars per share, in December 2012.
The deal is supposed to give ICE control of the New York Stock Exchange and London-based Liffe, Europe’s second-largest derivatives market. The combined ICE—NYSE Euronext will become the third-largest exchange group globally, behind Hong Kong Exchanges and Clearing and CME Group.
It is worth mentioning here that the Commission approval had been widely expected: after a joint bid for NYSE—Euronext by ICE and Nasdaq failedin year 2012. The ICE had proactively asked the Commission to examine the new bid.
The deal was approved by NYSE-Euronext shareholders earlier in June 2013 and is expected to close in the second half of 2013.
INDIA 3RD MOST ATTRACTIVE DESTINATION FOR INVESTMENT: UNCTAD
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A survey conducted by United Nations Conference on Trade and Development (UNCTAD) revealed on 26 June 2013 that India was the third most attractive destination for investment in the world. The survey by UNCTAD included Transnational Corporations (TNCs) as the respondents. India was ranked at the third position after china and the United States.
The survey was based on the responses given by 159 top global companies of the world. The World Investment Report 2013 by the United Nations Conference on Trade and Development (UNCTAD) revealed that the ranking of top five host economies of the world remained unaltered since 2012. China was still leading the list of top most destinations for investment with 46 percent respondents agreeing on it. This was followed by US, which got 45 percent agreeing votes.
Among other top five investment destinations as responded by TNCs, were Indonesia and Brazil. An interesting fact about the survey was that, among top five most attractive destinations for investment in the world, four were the developing countries. Apart from this, six out of top 10 prospective host countries were also from the developing world. Thailand and Mexico appeared in this list for the very first time.
As far as the developed countries were concerned, Japan climbed up three positions because of its reconstruction efforts after 2011 tsunami as well as expansionary monetary policies, which led to increased attractiveness of the country for foreign investment in the medium term. In the meanwhile, Australia, Russia and United Kingdom came down the rankings in comparison to 2012 survey, while Germany gained two positions.
PLAN FOR VISA-ON-ARRIVAL FACILITIES TO CHINESE
The Union Government of India on 22 June 2013 planned to introduce Visa-on-Arrival facilities for the Chinese nationals to give a boost to Indian tourism. China is among 30 countries for which his Ministry wants Visa-on- Arrival facility as Beijing has a huge potential for exchanges in the sector.
The aim behind the plan is to ensure that India has at least one per cent share in the international tourist arrivals which is about 0.64 per cent.
Under Visa-on-Arrival facility, a traveller can go straight to the intended country and get visa at the airport itself. At present, India has extended Visa on Arrival facilities to 11 countries including Singapore, Japan, New Zealand, Vietnam and Philippines.
PRESIDENT INAUGURATED GAS-BASED POWER PLANT AT PALATANA
First gas based Power Plant was commissioned by Pranab Mukherjee, the President of Indian Union on 21 June 2013 at Palatana in Tripura. The Palatana Gas Based Power Project is
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developed by ONGC and is the first such Power Company in India to be awarded with the Clean Development Mechanism by the United Nations Framework Convention on Climate Change.
The electricity generation from the first unit of the 726.6MW Palatana power plant has already started and has a capacity of 363 MW.
The Palatana Gas Based Power Project will help in generation of Pollution Free Electricity due to the Clean Development Mechanism used in it. It is also the biggest gas-based combined cycle power project in the northeast and largest clean energy plants of the world.
The project was registered on 15 May 2013 with the United Nations as the World’s biggest Project that used Clean Development Mechanism (CDM) following the guidelines of Kyoto Protocol.
The electricity generated from the power plant will be distributed among the seven sisters (northeastern States of India).
CRITERIA OF DISTRIBUTION OF THE ELECTRICITY PRODUCED BY POWER PLANT
States/Beneficiaries of Generated Electricity
Share of Electricity generated
Assam 240 MW
Tripura 196 MW
Meghalaya 79 MW
Manipur 42 MW
Nagaland 27 MW
Mizoram 22 MW
Arunachal Pradesh 22 MW
Infrastructure Leasing & Financial Services (IL & FS) and ONGC Tripura Power Company (OTPC)
98 MW
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MECHANISM FOR COAL SUPPLY TO POWER PRODUCERS APPROVED
The Cabinet Committee on Economic Affairs (CCEA) on 21 June 2013 approved the following mechanism for supply of coal to power producers. Approved mechanism:
Coal India Ltd. (CIL) to sign Fuel Supply Agreements (FSA) for a total capacity of 78000 MW including cases of tapering linkage, which are likely to be commissioned by 31 March 2015. Actual coal supplies would however commence when long term Power Purchase Agreements (PPAs) is tied up.
Taking into account the overall domestic availability and actual requirements, FSAs to be signed for domestic coal quantity of 65 percent, 65 percent, 67 percent and 75 percent of Annual Contracted Quantity (ACQ) for the remaining four years of the 12th Five Year Plan.
To meet its balance FSA obligations, CIL may import coal and supply the same to the willing Thermal Power Plants (TPPs) on cost plus basis. TPPs may also import coal themselves. MoC to issue suitable instructions.
Higher cost of imported coal to be considered for passes through as per modalities suggested by CERC. MoC to issue suitable orders supplementing the New Coal Distribution Policy (NCDP). MoP to issue appropriate advisory to CERC/SERCs including modifications if any in the bidding guidelines to enable the appropriate Commissions to decide the pass through of higher cost of imported coal on case to case basis.
Mechanism will be explored to supply coal subject to its availability to the TPPs with 4660 MW capacity and other similar cases which are not having any coal linkage but are likely to be commissioned by 31 March 2015, having long term PPAs and a high Bank exposure and without affecting the above decisions.
Background: A proposal had earlier been moved for approval of CCEA for import of coal by CIL in order to meet the shortfall in the domestic coal requirement of the thermal power plants (TPPs) from time to time.
In the meeting held on 5 February 2013, the CCEA had laid down certain guidelines for import of coal on cost plus basis/pooling of prices and also directed formation of an Inter-Ministerial Committee (IMC) to consider the cases of power plants with aggregate capacity of about 16000 MW which would be commissioned by 31 March 2015 but are not having any linkage for supply of coal. On the basis of the recommendations of IMC, the matter was further considered by CCEA in the meeting held on 22 April 2013. The CCEA inter-alia directed to consider the feasibility of higher cost of imported coal being allowed as a pass through in case of PPAs signed on competitive bid basis.
The revised proposals submitted by Ministry of Coal (MoC) in pursuance of the above directions and in consultation with Ministry of Power and other Ministries were considered by the CCEA.
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3 IPC COMMON SALES CONTRACTS LAUNCHED
Three kinds of International Pepper Community (IPC) Common Sales Contracts were launched by International Pepper Conclave 2013 in order to standardise the contract terms for export of pepper from various origins.
The International Pepper Conclave 2013 was organised with the assistance of Jakarta-based International Pepper Community (IPC), which is an inter-governmental organisation. All these contracts were earlier approved by member countries of International Pepper Community in 2013. IPC explained that the buyers as well as sellers would adopt the terms of these contracts in some time and trading on these terms would also begin.
The prices of pepper, at present are a little more than 6 US dollar per kg or 6000 US dollar per tonne. There has been area expansion because of higher prices since the year 2010. Also, it has led to better yields through better agronomy and new origins. This would eventually lead to an increase in the production.
It is important to note that the Emirate has become the hub for commodity trade because free trade policies exist there.
PIPAVAV PORT REGAINED TOP POSITION IN SEAFOOD EXPORTS
Pipavav port, the first private sector port of India located in Saurashtra, Gujarat, remained at the top most position for second year in a row in FY13 on the basis of quantity. The Pipavav port registered a jump of 6 percent in comparison to 2012-13 financial year. The reason why Pipavav port remained a forerunner in terms of quantity was because it handled lot of pre-processed fish.
The export figures by the Marine Products Export Development Authority revealed that Pipavav port handled 233738 tonnes of marine exports in 2013-14 in comparison to 219801 tonnes in 2012-13 fiscal year. In terms of value, nevertheless, Kochi as well as Vizag ports shared almost equal share of earning, i.e., 3344.97 crore and Rs 3265.64 crore respectively in 2013-14 financial year. Vizag registered 26.12 percent jump in terms of value, while Kochi registered 14.22 percent. Pipavav, on the other hand, registered 3 percent increase from 2710.34 crore to 2808.25 crore Rupees.
South-east Asia was the largest buyer of marine products. This was followed by EU, US, Japan, China and Middle East.
ABOUT THE PIPAVAV PORT
Pipavav port is the first private sector port of India on West Coast.
The lead promoter of this port is APM Terminals, which is among the largest container terminal operators in the world.
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This port is meant for the liquid cargo, bulk cargo as well as containers.
The services offered by this port include logistics support, cargo handling as well as pilotage and towage. The port handles bulk, container as well as liquid cargo.
Pipavav port is situated in Saurashtra, Gujarat, at a distance of 90 km South of Amreli.
In the year 1998, the concession was given to Gujarat Pipavav Port Limited by Gujarat Maritime Board. Then in the year 2000, this port went into the Joint Venture with Indian Railways in order to initiate Pipavav Rail Corporation Limited. The commercial operations of the port kicked off in the year 2002.
The Pipavav port is situated along the major trade routes and is also in proximity with major Indian Port of Nhava Sheva.
The Pipavav port is the captive reefer port.
POWER DISTRIBUTION REFORM PACKAGE EXTENDED TO 12TH PLAN
The Cabinet Committee on Economic Affairs (CCEA) on 21 June 2013 decided to extend the Restructured Accelerated Power Development and Reforms Programme (R-APDR) for the 12th Five-Year Plan period in order to strengthen the distribution sector.
The R-APDR programme was launched by the government in 11th Plan with a purpose of reducing distribution loss. The scheme is going to cost around 10830 crore rupees in the 12th Plan and 11897 crore rupees as spill over cost in the 13th Plan.
The Union government is already planning to facilitate loans of 50000 crore rupees to the states in order to implement the programme. Out of the stated amount 31577 crore rupees is going to be converted into grant.
It is worth mentioning here that, during the 11th Plan, projects worth 5242.64 crore rupees covering 1401 villages in 29 States and Union Territories have already been sanctioned.
ABOUT RESTRUCTURED ACCELERATED POWER DEVELOPMENT AND REFORMS (R-APDR) PROGRAMME
The focus of the R-APDR programme is on actual, demonstrable performance in terms of sustained loss reduction. Establishment of reliable and automated systems for sustained collection of accurate base line data, and the adoption of Information Technology in the areas of energy accounting will be essential before taking up the regular distribution strengthening projects. The R-APDRP programme is divided into two parts. The first part includes projects for
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establishment of baseline data and implementing IT applications, billing and customer care services, among others. The second part includes distribution strengthening projects.
The Programme is proposed to cover urban areas - towns and cities with population of more than 30000 (10,000 in case of special category states). In addition, in certain high-load density rural areas with significant loads, works of separation of agricultural feeders from domestic and industrial ones, and of High Voltage Distribution System (11kV) will also be taken up.
CCEA APPROVED DISINVESTMENT OF 5% PAID UP EQUITY IN NLC
The Cabinet Committee on Economic Affairs on 21 June 2013 approved disinvestment of 5 percent equity of Neyveli Lignite Corporation (NLC). This 5 percent equity was approved out of its holding of 93.56 percent through an Offer for Sale (OFS) in the domestic market according to Securities and Exchange Board of India (SEBI) rules and regulations.
NLC is authorised the capital of 2000 crore Rupees, out of which the subscribed as well as issued equity capital was 1677.71 crore Rupees as on 31 March 2013. This comprised of 167.771 crore equity shares of face value of 10 Rupees each. After this disinvestment, the holding of the Government of India in NLC would drop down to 88.56 percent.
ABOUT NEYVELI LIGNITE CORPORATION (NLC)
Neyveli Lignite Corporation (NLC) is the Central Public Sector Enterprise.
It has Navratna status under the administrative control of the Ministry of Coal.
It was incorporated in the year 1956 under the Companies Act, 1956.
The objective of the company is meeting the electricity demand of the southern states of India by excavating lignite for generation of power.
At present, NLC has the lignite mines and power stations in Tamil Nadu and Rajasthan.
MINERAL PRODUCTION APRIL 2013: PROVISIONAL DATA RELEASED
The index of mineral production of mining and quarrying sector in April 2013 was lower by 16.9 percent compared to March 2013 as per the data released by ministry of mines. The mineral sector has shown a negative growth of 3.1 percent during April 2013 as compared to that of the April 2012. The total value of mineral production (excluding atomic & minor minerals) in India during April 2013 was 17772 crore rupees.
The contribution of coal was the highest at 5673 crore rupees (32 percent). Next in the order of importance were: petroleum (crude) 5671 crore rupees, iron ore 2712 crore rupees, natural gas (utilized) 1883 crore rupees, lignite 490 crore rupees and limestone 382 crore rupees. These six
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minerals together contributed about 95 percent of the total value of mineral production in April 2013.
Production level of important minerals in April 2013 were: coal 435 lakh tonnes, lignite 39 lakh tonnes, natural gas (utilized) 2942 million cu. m., petroleum (crude) 31 lakh tonnes, bauxite 2035 thousand tonnes, chromite 242 thousand tonnes, copper conc. 10 thousand tonnes, gold 120 kg., iron ore 119 lakh tonnes, lead conc. 16 thousand tonnes, manganese ore 194 thousand tonnes, zinc conc. 124 thousand tonnes, apatite & phosphorite 198 thousand tonnes, dolomite 520 thousand tonnes, limestone 242 lakh tonnes, magnesite 16 thousand tonnes and diamond 2928 carat.
In April 2013, the output of apatite & phosphorite increased by 33.6 percent, bauxite 14.7 percent and iron ore 1.3 percent. However the production of petroleum (crude) decreased by 3.7 percent, natural gas (utilized) 5.5 percent, limestone 5.9 percent, lead conc. 8.9 percent, gold 11.1 percent, dolomite 15.0 percent, manganese ore 18.1 percent, copper conc. 18.6 percent, magnesite 20.3 percent, zinc conc. 23.0 percent, lignite 27.9 percent, chromite 30.3 percent, coal 33.0 percent and diamond 33.6 percent.
CTT APPLICABLE ON NON-FARM PRODUCTS FROM 1 JULY 2013
Central Board of Direct Taxes (CBDT) on 19 June 2013 announced that the Commodities Transaction Tax (CTT) shall be levied on the derivative contracts of non-agricultural commodities which are transacted via recognised commodity bourses. This rule shall apply with effect from 1 July 2013.
It is also important to note that 23 specified agricultural commodities are exempted from this tax. All the processed agricultural items such as guar gum, soya oil and sugar are subject to the CTT on future contracts. CTT will not be applicable to the agri-commodities but it will apply to energy complex as well as metals which are traded in the futures exchanges.
Levying CTT at the rate of 0.01 percent on the contract price will have an impact on the commodity bourses. This will happen because the higher cost of transaction would grip the margins of the traders.
In the meanwhile, the commodity markets have factored in CTT already, which means that the turnover would not be affected in a huge way. The agricultural commodities which are exempted from CTT include wheat, turmeric, soya bean, red chilli, mustard seed, potato, pepper, cotton, cotton seed, coriander, copra, channa, castor seed, cardamom, barley and almond. It is worth noticing that CTT was proposed for the first time in the 2008-2009 Union Budget. It was not implemented because of widespread opposition.
G-8 SUMMIT CONCLUDED IN LOUGH ERNE
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39th edition of the G8 Summit concluded at Lough Erne in Northern Ireland on 18 June 2013. The two day summit from 17 June – 18 June 2013 was presided over by the David Cameron, the Prime Minister of United Kingdom. The UK assumed the one-year Presidency of the G8 in January 2013 and thus David Cameron, the Prime Minister of United Kingdom was the presiding leader of the 39th Summit.
The two day summit was attended by the leaders from G8 Nations namely Canada, France, Germany, Italy, Japan, Russia, the USA and UK. Jose Manuel Barroso, the President of the European Commission, and Herman Van Rompuy, the President of the European Council also were a part of the meet.
During the 39th Summit leaders of the G8 Nations reached a conclusion to achieve the change on three issues which are critical for the growth, prosperity and economic development of the world. The basic agenda of this summit was Tax, Trade and Transparency (three T’s).
The EU is a part of the G8 since 1977, but it doesn’t hold a Presidency of the G8 Summit.
Lough Erne Declaration from the G8 Summit 2013
Trade deal making history
In context of the trade discussions, a proposal of setting up of the global and open free trade system was also discussed. As per the proposal, EU-US trade deal would worth up to 100 billion pounds to the economy of EU, £80 billion to the US and £85 billion to the rest of the world.
Seven-point Strategy on Syria
A NEW seven-point strategy to end the bloodshed in Syria was the headline-grabber from the G8 summit in Northern Ireland.
The Seven Point Strategy includes
Increase commitment to humanitarian aid
To bring all sides on the table with immediate effect by maximizing the diplomatic pressure
Back a transitional governing body for Syria
Maintain Syria’s public institutions by learning lessons of Iraq
A new commitment by the G8 – to work together to rid Syria of terrorists and extremists
Condemn the use of chemical weapons by anyone in Syria, and allow for a UN probe
Decision to support a new non-sectarian government in Syria
Apart from these some other declarations and statements were made
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G8 Action Plan Principles to Prevent the Misuse of Companies and Legal Arrangements
Global Economy Working Session
The threat posed by kidnapping for ransom by terrorists and the preventive steps the international community
About 39th G8 Summit: The 39th G8 summit was held from 17 to 18 June 2013 at the Lough Erne Resort, in Lough Erne in Northern Ireland. This was the sixth edition of the G8 summit to be held in the United Kingdom. The earlier G8 summits hosted by the United Kingdom were held at London in 1977, 1984 and 1991, Birmingham in 1998 and Gleneagles in 2005.
GOVERNMENT PROPOSED PLAN TO RAISE FDI LIMIT IN KEY SECTORS
To promote India as an attractive destination for investment, the Union Finance Ministry on 18 June 2013 proposed sweeping changes in Foreign Direct Investment (FDI) regime.
The committee that was headed by the Economic Affairs Secretary Arvind Mayaram recommended raising the Foreign Direct Investment limit to 49 percent from 26 percent at present in almost all sectors like multi-brand retail, defence and telecom through automatic route. The committee also recommended the government to increase the cap of FDI to 74 percent in multi-brand retail trading and 49 percent in single-brand retail.
ABOUT ARVIND MAYARAM COMMITTEE
The Union Government in March 2013 constituted a four-member committee to give clear definitions to Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) with an aim of removing the ambiguity from both types of foreign investments. The Committee was headed by the Economic Affairs Secretary Arvind Mayaram and the high power committee constituted a DIPP Secretary, an RBI Deputy Governor and a SEBI Whole-time Member.
The report pf the committee was submitted to the Union Ministry of Finance on 18 June 2013.
RBI LEFT ITS REPO RATE UNCHANGED AT 7.25 PERCENT
The Reserve Bank of India (RBI), in its June mid-quarter monetary policy on 17 June 2013, left its key policy, repo rate unchanged at 7.25 percent in line. Cash reserve ratio (CRR), remained at 4 percent. Repo is the rate at which banks borrow from the Central bank. CRR is the portion of deposits that banks is mandated to keep with RBI. Consequently, the reverse repo rate will remain unchanged at 6.25 per cent, and the marginal standing facility (MSF), rate and the Bank Rate at 8.25 per cent.
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RBI kept the interest rate stable possibly because despite the fact that the inflation rate has been coming down and manufacturing growth has not been much to speak of, it realised that the interest rate difference between Indian markets and Western market has actually shrunk, which is why the Foreign Institutional Investors, who are playing in our debt market have pulled off about three billion dollars. They would not like to aggravate the situation by reducing interest rate at this point of time and encouraging FII to pull out more from the debt market.
FOREIGN INVESTMENT LIMIT HIKED BY 5 BILLION DOLLAR
The Union Government of India on 12 June 2013 enhanced the limit of Foreign Investments in Government Securities by 5 Billion US Dollar. This decision of the Government is an effort to increase the overseas capital inflows and strengthen the value of rupee.
The enhancement has raised the total limit of investments from foreign entities to 30 billion US dollar from previous 25 billion US dollar. The notification released by the Union Government mentioned that the Foreign Institutional Investors registered to SEBI are only eligible for investment in the enhanced limit of 5 billion US Dollars. The investments can be made in categories named Sovereign Wealth Funds, Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks.
RBI PENALISED AXIS, HDFC AND ICICI BANKS FOR RULE VIOLATIONS
The Reserve Bank on 10 June 2013 imposed a fine of 5 crore Rupees on Axis Bank, 4.5 crore Rupees on HDFC Bank and 1 crore Rupees on ICICI Bank for violation of KYC norms and anti-money laundering guidelines.
The fine was imposed after inquiring into charges pointed by an online portal Cobrapost.
THE VIOLATIONS WERE RELATED TO
Non-observance of certain safeguards in respect of arrangement of “at par” payment of cheques drawn by cooperative banks
Non-adherence to certain aspects of knowing your customer (KYC) norms
Anti -money laundering (AML) guidelines like risk categorization and periodical review of risk profiling of account holders
The penalty accompanies inspection carried out by RBI of books of accounts, internal control, compliance systems and processes of these three banks at their corporate offices and branches during March/April 2013.The scrutiny was carried on to investigate into the allegations of contravention of Know Your Customer (KYC)/anti-money laundering guidelines against them following expose by online portal Cobrapost.
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RBI will be conducting an end-to-end investigation of the transactions by tax and enforcement agencies. A similar scrutiny is also being conducted at corporate offices of 36 other banks.
It is worth mentioning here that, in certain cases, the banks failed to obtain permanent account number (PAN) card details or form 60/61 and verify the source of funds credited to a few non-resident ordinary (NRO) accounts.
GOVERNMENT HIKED THE IMPORT DUTY ON GOLD AND PLATINUM
The Union Government of India on 5 June 2013 hiked the import duty on gold from 6 percent to 8 percent. The hike is aimed towards curbing the import of gold. Import of gold is mainly responsible for the rise in Current Account Deficit (CAD) and impacts the foreign exchange reserves of the country as well as the value of rupee.
The import duty on platinum was also increased from 6 percent to 8 percent, following the Customs notification. Before the hike in import duty, Reserve Bank of India (RBI) took several steps to limit the imports to meet genuine domestic demands for jewellery and export purposes. The excise duty on gold ore was also raised from 5 percent to 7 percent through another notification issued by Central Board of Excise and Customs.
This is the second hike on the duty of gold imports in six months and the decision of government came up after witnessing the alarming 162 tonnes import of gold in May 2013. In April and May 2013, import touched new figures of 15 billion US dollars.
The CAD touched a historic high of 6.7 percent of GDP in the quarter ending December 2012. CAD is a difference between inflow and outflow of foreign currency.
Earlier the import duty on gold was hiked from 4 percent to 6 percent in January 2013.
UNION CABINET APPROVED THE REAL ESTATE BILL 2013
The Union Cabinet of India on 4 June 2013 approved the Real Estate (Regulation and Development) Bill 2013 to set up a regulator for the real estate sector in the country. This was done with the objective of protecting home buyers from dishonest builders. The bill seeks to make it mandatory for developers to launch projects only after acquiring all the statutory clearances from relevant authorities.
It also has provisions under which all relevant clearances for real estate projects would have to be submitted to the regulator and also displayed on a website before starting construction work. A real estate regulator will be set up in every state. It will ensure that private developers get all their projects registered with it before sale and only after obtaining all necessary clearances.
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The commercial real estate is not covered under the purview of the proposed bill. However, it will apply to residential buildings. The bill has a provision for mandatory public disclosure of all project details such as lay out plan, land status and credentials of promoters etc.
An adjudicating officer in the state will be appointed by the authority for fast tracking settlement of disputes. There will be Real Estate Appellate Tribunal as per the bill. It will hear appeals from orders, decisions or directions of regulator and adjudicating officer.
RBI EXTENDED TIME FOR OPENING UP OF NEW BANKS BY SIX MONTHS
The RBI (Reserve Bank of India) on 3 June 2013 released certain clarifications on the guidelines issued for licensing of new banks. Based on the feedback received from the interested entities, the RBI increased the validity period of the in-principle approval of setting up of banks from one year to 18 months. RBI stated that intending applicants have brought out several complex issues pertaining to reorganization of the existing corporate structure, restructuring of businesses and meeting the regulatory requirements.
Once the in-principle approval is given by the RBI for setting up of a bank, the promoter group has to set up a non-operative financial holding company (NOFHC) and the bank within 18 months from the date of in-principle approval. The bank has to start banking business within this period after getting the banking licence.
The RBI had released the Guidelines for Licensing of New Banks in the Private Sector in February 2013. Accordingly, the RBI had stated that corporates and public sector entities with sound credentials, 500 crore rupees capital and a minimum track record of 10 years would be allowed to enter the banking business. The last date to submit applications is the 1 July 2013. The RBI had also invited queries from intending applicants seeking clarifications on guidelines.
INDIA WITNESSED A FIVE-FOLD INCREASE IN POWER GENERATION
India witnessed a five-fold increase in the additional power generation capacity during the last nine years as per the official data released by the union government on 2 June 2013. It has gone up from over 3900 MW in 2004-05 to 20660 MW in 2012-13. Over 9 lakh million units of power were generated in 2012-13 as against 5.8 lakh Million Units in 2004-05.
The total installed capacity of electricity generation was more than two lakh 23 thousand MW as on 31 March 2013 while the demand was one lakh 35 thousand MW. Power sector has grown positively over the 11th Plan Period registering a growth rate of nearly 4 percent in 2012-13.
FIPB APPROVED EIGHT FDI PROPOSALS
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The Foreign Investment Promotion Board (FIPB) on 31 May 2013 approved eight FDI proposals, which include those of McKinsey & Company, ACME Solar Energy and GETIT Infoservices. These eight proposals are worth 696 crore Rupees.
FIPB cleared ACME Solar Energy’s proposal to get 275 crore Rupees foreign investment. The foreign investment worth 216 crore Rupees was roped in by clearance to GETIT Infoservices. Apart from this, the FIPB approved France's GeoPost S.A.'s proposal for acquiring the shares of Indian company that is working on commercial express as well as parcel delivery business. This is worth 179 crore Rupees. McKinsey & Company Inc’s proposal for setting up LLP was also approved. At the meeting conducted on 12 April 2013, the FIPB, headed by Economic Affairs Secretary Arvind Mayaram delayed eight FDI proposals and rejected three of them. Other proposals approved by FIPB included US-based AWS Truepower’s proposal and DPD Continental Ltd, Pilot Ventures Media.
The eight proposals that FIPB delayed included Norway-based Telenor Mobile Communication’s. The three FDI proposals rejected by FIPB were Triton Hotel, Karuturi Global and Sunil Hitch.
QUARTERLY REPORT (JAN-MAR 2013) ON PUBLIC DEBT MANAGEMENT
Quarterly Report on Public Debt Management for the Quarter –January-March 2013 was released by the Union Finance ministry on 28 may 2013. For Fiscal Year 2012-13 (FY13), Gross and Net Market Borrowings were higher than previous year by 9.4 per cent and 7.1 per cent respectively. Auctions during Q4 of Fiscal Year 13 were held in accordance with the pre-announced calendar apart from the cancellation of one auction 12000 crore rupees scheduled in February 2013.
The weighted average maturity of dated securities issued during fourth quarter of Financial Year 2013 at 13.50 years was higher than 13.38 years in the previous quarter while weighted average yield (cut-off) of issuance during the quarter declined to 7.95 per cent from 8.26 per cent in third quarter. Weighted average yield of issuance during Fiscal Year 2013 at 8.36 per cent was lower than 8.52 per cent in the previous fiscal year, while weighted average maturity at 13.50 years was higher than 12.7 years in Financial Year 2012. The cash position of the Government during fourth quarter was comfortable and remained in surplus mode during the quarter.
The total public debt (excluding liabilities under the Public Account) of the Government at end-March 2013 increased on a quarter-on-quarter (QoQ) basis by 0.4 per cent (provisional) compared with an increase of 4.0 per cent in the previous quarter (Q3 of FY13). Internal debt constituted 91.1 per cent of public debt and marketable dated securities accounted for 75.0 per cent of total public debt. About 31 per cent of outstanding dated securities have a residual
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maturity of up to 5 years, which implies that over the next five years, on an average; slightly more than 6.0 per cent of outstanding stock needs to be rolled over every year.
In the secondary market, bond yields eased during the quarter due to policy easing by a total of 50 bps as well as OMO purchases by RBI, decline in inflation rate, slowdown in GDP growth rate and reduced supply of securities. Trading volumes increased significantly during the quarter driven by falling yields. Outright transactions during Fiscal Year 2013 increased by 89.0 per cent over Fiscal Year 2012. The annualised outright turnover ratio for Central Government dated securities for fourth quarter of Fiscal year 2013 went-up to 6.0 from 3.2 during the previous quarter.
RBI IMPOSED RESTRICTIONS ON BANK LOANS AGAINST GOLD
The Reserve Bank of India on 27 May 2013 imposed restrictions on banks and NBFCs for providing loans against gold coins as well as units of gold ETFs and mutual funds to curb demands for gold. Also banks were asked to ensure that the amount of loan to any customer against gold ornaments, gold jewellery and gold coins (weighing up to 50 grams) should be within the board approved limit.
Banks are currently permitted to grant advances against gold ornaments and other jewellery and against specially minted gold coins sold by banks. However, no advances can be granted by banks for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange traded funds and units of gold mutual funds.
Government has taken several steps recently, including raising import duty, to curb the inbound shipments of gold. RBI too had put restrictions on banks on gold imports, which has led to forex outflow and widening of the Current Account Deficit.
While there may not be any objection to grant of advances against specially minted gold coins sold by banks, there is a risk that some of these will weigh much more, thereby circumventing the RBI's guidelines regarding restrictions on grant of advance against gold bullion.
In a separate notification, RBI stated that no advances should be granted by NBFCs for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold ETF and units of gold Mutual Funds.
GOVT. PROPOSED STRONGER POWERS TO SEBI TO TACKLE PONZI SCHEMES
The Union Government in Month of May 2013 has proposed Stronger Powers to (Securities and Exchange Board of India) SEBI enabling it to carry out search and seizure operations and for attachment of assets.
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With this a Special power has also been proposed to SEBI with which it can seek information on telephone call data records, from any persons or entities in respect to any securities transaction being examined by it.
It is worth mentioning here that Proposals to make required amendments in the SEBI Act and other relevant regulations have been finalised after detailed consultations with the market regulator and are being presented before the Union Cabinet for its approval.
A Cabinet note in this regard has also been circulated by the Department of Economic Affairs to other departments in the Finance Ministry, as also to the Corporate Affairs, Home, Law and Telecom ministries, Reserve Bank of India, Planning Commission and Prime Minister’s Office for their comments and feedback on the proposals.
The Government is planning to introduce the Securities Laws (Amendment) Bill, 2013 in Parliament to carry out the proposed changes for grant of stronger powers to SEBI.
The Government has come up with the decision of accepting most of the proposals made by SEBI in this regard and the amendments would be carried out after the Cabinet approves them and the required amendment Bill is passed by Parliament.
WHAT IS PONZI SCHEMES?
A Ponzi scheme is basically a fraudulent investment operation that pays returns to its investors from their own money or the money paid by following investors, rather than from profit earned by the individual or organization running the operation.
The Ponzi scheme generally tempts new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent.
Indian Rupee touched New 6-Month Low at 55.83 against US Dollar
The Indian rupee on 23 May 2013 declined by 37 paise to trade at a fresh six-month low of 55.83 in early trade at the Interbank Foreign Exchange market. Besides dollar’s strengthening against euro and other currencies in the overseas markets, sustained dollar demand from importers and some banks and a lower opening in the stock market put pressure on Indian currency.
On 22 May 2013, the rupee had lost five paise to close at 55.46, its lowest closing since 27 November 2012. Meanwhile, the BSE benchmark Sensex fell by 84.54 points, or 0.42 per cent, to 19977.70 in early trade on 23 May 2013.
CHINESE PREMIER LI KEQIANG’S VISIT TO IND IA
China's new premier Li Keqiang’s visited India on his first foreign trip to India from 19-22, May 2013, after assuming the charge of his office in March 2013. During the visit of Li Keqiang, both
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the countries looked forward to speed up their efforts to settle a decades-old border dispute and strengthen economic ties.
The leaders of both the countries had a thorough exchange of views on bilateral relations and regional and international issues of common interest in a sincere and cordial atmosphere and reached broad consensus.
An Agreement on Work Programmes of the Three Working Groups under Joint Economic Group between Ministry of Commerce & Industry of India and China.
The three working groups under the Joint Economic Group are:
i. Services Trade Promotion Working Group
ii. Economic and Trade Planning Cooperation
iii. Trade Statistical Analysis
A MoU on Buffalo Meat, Fishery Products and Agreement on Feed and Feed Ingredients between Agricultural and Processed Food Products Export Development Authority of India and China
It is directly aimed at strengthening mutual cooperation in trade and safety of buffalo meat, fishery products and feed and feed ingredients, and to meet the regulatory requirements with respect to safety & hygiene & quarantine and is also supposed to deal with the growing trade deficit between the two countries.
Decision on achieving trade target of 100-billion for Financial Year 2014-15
During the same visit of the Chinese premiere, both the nations also decided to scale up its two-way trade to 100 billion US Dollars by 2015 from 67.8 billion US Dollars in 2012-13. The decision was made on 20 May 2013.
It is worth mentioning here that bilateral trade between the two countries scaled up from 2.1 billion US Dollars in 2001-02 to 75.6 billion US Dollars in 2011-12 and suddenly it dropped down to 67.8 billion US Dollars during 2012-13.
Some important points to remember
India’s trade deficit increased from 1.1 billion US Dollars in 2001-02 to 40.8 billion US Dollars in 2012-13.
In 2012-13, China became India’s fourth largest trading partner from third largest in 2011-2012. Our exports fell from 18.1 billion US Dollars in 2011-12 to 13.5 billion US Dollars in 2012-13
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In year 2010, both countries had set a trade turnover target of 60 billion US Dollars which was achieved.
An India-China CEOs’ Forum has been constituted to deliberate on business issues and make recommendations on expansion of trade and investment cooperation which will be head by Anil Ambani and Chen Yuan from India and China Side respectively.
As per the exporters increasing of market access to China is critical for a shoot in India’s exports as the country efforts to change its export profile from raw materials to finished and value-added products.
India and China Signed MoUs to Address Concerns on Trade Deficit
During the visit of the Chinese Premier Li Keqiang to India, the two countries also signed three Memorandum of Understandings (MoUs) on buffalo meat, fisheries and pharmaceuticals and one agreement on feed and feed ingredients on 20 May 2013.
The MoUs are supposed to deal with the growing trade deficit between the two countries. It is worth mentioning here that the trade deficit has increased from 1.08 billion US Dollars in 2001-02 to 40.77 billion US Dollars in 2012-13.
The resumption of exporting buffalo meat from India to China, will bring a big merchandise trade that will not only be helpful in reducing trade imbalance of India but also in China’s food security by providing quality and hygiene meat products. Earlier the export of buffalo meat is not allowed from India to China due to concerns about Foot & Mouth Disease. It was a long pending issue between two countries.
The Other MoU was signed for import and export trade of fishery products which aims to bring cooperation in promoting trade of fishery products and healthy development of trade between India and China.
Another MoU was also signed between Pharmaceuticals Export Promotion Council of India (Pharmexcil) and the China Chamber of Commerce for Import and Export of Medicines and Health Products (CCCMHPIE) which will facilitate access to the China market in pharmaceuticals. The average imports of medicinal and pharmaceutical products from China during last five years were 4332.37 million US dollars vis-à-vis exports from India of 692.44 million US dollars.
An important agreement was signed between Export Inspection Council of India (EIC) and AQSIQ on trade and safety of feed and feed ingredients which is supposed to bring big merchandise trade for feed & feed ingredients after the resumption of trade as China has suspended import of feed and feed ingredients since 1 January 2012.
UNION GOVERNMENT RATIFIED 8.5 PERCENT INTEREST ON PF DEPOSITS FOR 2012-13
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The Finance Ministry on 16 May 2013 approved payment of 8.5 per cent interest rate for 2012-13 from 8.25 per cent in the previous fiscal, which will benefit over 5 crore EPFO subscribers. The approved payment of interest rate will enable the Employees Provident Fund Organisation’s (EPFO) which is the apex decision making body to settle claims at 8.5 per cent and also credit interest into the accounts of subscribers for 2012-13. It is important here to note that the Central Board of Trustee (CBT), decision on interest rate is required to be notified by the Finance Ministry. Only after notification, the interest is credited into the accounts of subscribers. Also, as per the norms, EPFO is anticipated to announce the rate of interest on PF deposits before the commencement of the financial year. But for the past few years, there has been delay in announcement of the rates. This time, the rate of interest is being notified after the end of the financial year.
CCEA APPROVED THE SAME SCALE OF ALLOCATION TO APL FAMILIES
The Cabinet Committee on Economic Affairs (CCEA) on 16 May 2013 approved the continuation of the same scale of allocation to APL families during 2013-14 (at the rate of 15-35 kg monthly per family) under the Targeted Public Distribution System (TPDS).
As on 1 April, 2013, the total stocks of rice and wheat in the Central Pool is 596.75 lakh tonnes comprising 354.68 lakh tonnes of rice and 242.07 lakh tonnes of wheat. The procurement during the year is expected to be 401.3 lakh tonnes for rice and 441.21 lakh tonnes for wheat. Thus it is expected that there will be sufficient stock of foodgrains in the Central Pool. The CCEA has accordingly approved additional allocation of 41.89 lakh tonnes of wheat and 19.84 lakh tonnes of rice at APL issue prices to States/Union Territories (UTs) for ensuring a minimum allocation of 15 kg per APL family per month in 22 States/UTs and 35 kg per family per month in 13 States/UTs. They are Manipur, Assam, Meghalaya, Tripura, Nagaland, Arunachal Pradesh, Mizoram, Sikkim, Uttarakhand, Jammu and Kashmir, Himachal Pradesh, Lakshdweep and Andaman & Nicobar Islands.
The Government of India has been making allocation of foodgrains to the accepted number of APL families at the rate of 15 kg per family per month in 22 States/ UTs and at the rate of 35 kg per family per month in 13 States/UTs under TPDS since June 2011.
RBI DECIDED TO LAUNCH INFLATION INDEXED BONDS (IIBS)
The RBI (Reserve Bank of India) on 15 May 2013 decided to launch Inflation Indexed Bonds (IIBs). The first tranche of the IIBs 2013-2014 for 1000 to 2000 crore rupees will be issued on 4
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June 2013. The maturity period of these bonds will be 10 years. The total issue size will be 12000 to 15000 crore rupees in 2013 to 14.
The RBI will do on monthly basis to attract household savings of up to 15000 crore rupees so as to discourage investments in gold.
After the first tranche, bonds will be issued on the last Tuesday of every month. While the first series of the bonds will be open for all class of investors, the second series issue - beginning October - will be reserved exclusively for retail investors.
UNION GOVERNMENT HIKED BACKWARD REGION GRANT FUND ENTITLEMENT FOR UTTAR PRADESH
The Union Government of India on 15 May 2013 announced increment in the Backward Region Grant Fund (BRGF), entitled to Uttar Pradesh. The fund has gone up to 818.17 crore rupees for 2013-14 from initial 667 crore rupees.
To release the funds for Uttar Pradesh, the Union Ministry of Panchayati Raj has directed the state Government to submit its annual plan by 25 June 2013. 35 districts of Uttar Pradesh are entitled for the BRGF Scheme.
In 2012-13, Uttar Pradesh failed to get its share of BRGF grants as the Government ordered a probe into the alleged irregularities that was committed during the Mayawati regime and it stopped the work which was being carried on in the BRGF beneficiary districts.
IMF APPROVED 1.3 BN DOLLARS LOAN FOR CYPRUS
The International Monetary Fund on 15 May 2013 approved a three-year, 1.3 billion dollars loan for supporting Cyprus’ attempts to stabilize its financial sector and to bring the Government’s deficit under control and restore economic growth.
The IMF loan to Cyprus is basically a part of a rescue package of 10 billion euros (12.9 billion dollars) counterfeit in March 2013 with the eurozone’s bailout fund.
The loan was approved by IMF’s executive board which also includes an immediate disbursement of 110.7 million dollars. Counting the IMF disbursement, Cyprus has received about 2.7 billion dollars in the third week of May 2013 from its international lenders.
The Luxembourg-based European Stability Mechanism, which is a eurozone bailout fund, on 13 May 2013, announced that it had approved its first bailout tranche for Cyprus and transferred an initial 2 billion euros (2.6 billion dollars). The rest of the tranche — up to 1 billion Euros — will be transferred by 30 June 2013.
The loans approved by the European Stability Mechanism help to maintain financial stability in the euro area and buy time for Cyprus. It is important here to note that in the Euro zone’s long-
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running fiscal crisis, Cyprus followed Greece, Ireland and Portugal to become the fourth Euro zone country since 2010 to agree to a full bailout.
RBI DIRECTED BANKS TO FOLLOW CLEAN NOTE POLICY
The Reserve Bank of India (RBI) on 14 May 2013 directed banks to follow the Clean Note Policy strictly and issue clean currency notes to public. RBI issued a notification that also asked the banks to do away the process of stapling the currency notes and to secure the note packets with paper bands.
In its notification to the banks, the RBI also directed to sort notes into re-issuable and non-issuable notes and to withdraw soiled notes from circulation in the market. Banks have also been asked to stop writing of any kind on watermark window of bank notes as it disfigures the watermark impression and recognition becomes difficult
As per RBI, on an average 20 percent of notes is disposed off after getting soiled every year and in the fiscal year 2012-13 that ended on 31 March 2013 the number of such soiled currency bills stood at over 13 billion units.
WPI INFLATION EASED TO 4.89 % IN APRIL 2013 AS PER OFFICIAL DATA
As per official data released on 14 May 2013, WPI Inflation eased to 4.89 percent in April 2013. Declining price of food items, including fruits and vegetables caused a three and a half year low. Inflation based on the Wholesale Price Index (WPI) stood at 5.96 percent in March 2013. In April, 2012, it was 7.50 percent. This is the lowest level of inflation since November, 2009 when it was 4.78 percent.
VALUE OF MINERAL PROD. DURING MAR 2013 WAS 20475 CRORE
As per the data released by Ministry of Mines on 14 May 2013, the index of mineral production of mining and quarrying sector in March 2013 was higher by 16.5 percent compared to that of the preceding month. The mineral sector has shown a negative growth of 2.9 percent during March 2013 as compared to that of March 2012.
The total value of mineral production (excluding atomic & minor minerals) in the country during March 2013 was 20475 crore rupees. The contribution of coal was the highest at 7766 crore rupees (38 percent). Next in the order of importance were: petroleum (crude) 5888 crore rupees, iron ore 2530 crore rupees, natural gas (utilized) 1992 crore rupees, lignite 595 crore rupees and limestone 391 crore rupees. These six minerals together contributed about 94 percent of the total value of mineral production in March 2013.
EXPORTS IN INDIA GREW UP BY 1.6 PERCENT IN APRIL 2013
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Exports in the month of April 2013 recorded a growth of 1.6 percent and stood at 24.16 billion US Dollar as against 23.7 billion US dollar in April 2012. The surge in gold imports pushed the trade deficits to 17.7 billion US dollar. This is the fourth consecutive month that exports have witnessed growth.
Imports of gold and silver in April 2013 doubled by 138 percent to 7.5 billion US dollar from 3.1 billion US dollar in April 2012. The merchandize imports rose by 10.9 percent to 41.95 billion US dollar bringing up the trade deficit by more than 72 percent from March. Widening of trade deficit attributed to the high gold imports.
The targeted exports for the current fiscal 2013-14 set by the Union Government is 325 billion US dollar.
RETAIL INFLATION DECLINED TO 9.39 PERCENT IN APRIL 2013
Retail inflation declined to 9.39 per cent in April because of reduction in prices of vegetables, edible oil and protein-based items as per the data released on 13 May 2013. Retail inflation which is based on the Consumer Price Index (CPI) stood at 10.39 per cent in March 2013.
The prices in the vegetables basket reduced to 5.43 per cent in April 2013 from 12.16 per cent in March 2013. Inflation in egg, meat and fish was registered at 13.60 per cent during April 2013. In oils and fats segment, inflation stood at 7.52 per cent.
The overall food and beverages registered an inflation of 10.61 per cent in April 2013 as against 12.42 per cent in March 2013. Among all the constituents that constitute the CPI, cereals saw the highest inflation of 16.65 per cent in April 2013.
Moreover, inflation in pulses recorded 10.91 per cent and in sugar it was 10.49 per cent on an annual basis. In urban areas, retail inflation fell to 9.73 per cent in April 2013 from 10.38 per cent in March 2013. The CPI for rural population declined to 9.16 per cent during April 2013 from 10.33 per cent in March 2013.
EXPORTS IN INDIA GREW UP BY 1.6 PERCENT IN APRIL 2013
Exports in the month of April 2013 recorded a growth of 1.6 percent and stood at 24.16 billion US Dollar as against 23.7 billion US dollar in April 2012. The surge in gold imports pushed the trade deficits to 17.7 billion US dollar. This is the fourth consecutive month that exports have witnessed growth.
The merchandize imports rose by 10.9 percent to 41.95 billion US dollar bringing up the trade deficit by more than 72 percent from March. Widening of trade deficit attributed to the high gold imports.
The targeted exports for the current fiscal 2013-14 set by the Union Government is 325 billion US dollar.
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RESERVE BANK OF INDIA IMPOSED RESTRICTIONS ON GOLD IMPORT BY BANKS
The RBI on 12 May 2013 imposed restrictions on gold import by banks in order to moderate the demand of gold for domestic use. The RBI decided to restrict the import of gold on consignment basis by banks, only to meet the genuine needs of exporters of gold jewellery.
The RBI stated that the decision is based on the recommendations of the Working Group on Gold that had suggested aligning gold import regulations with the rest of the imports for creating a level playing field between gold imports and other imports. The restrictions have come into effect immediately.
NATIONAL STOCK EXCHANGE LAUNCHED DEBT TRADING PLATFORM
National Stock Exchange, the Leading bourse on 11 May 2013 launched the country’s first dedicated debt trading platform.
The new Platform launched is awaiting the market regulator SEBI’s guidelines for allowing participation of mutual funds, insurance companies and pension funds. NSE had recently received approval from SEBI to launch the debt segment.
Function of the Debt Trading Platform
• The debt trading platform is supposed to provide retail investors an opportunity to invest in corporate bonds on a liquid and transparent exchange platform.
• Banks and primary dealers are the first to enter and they will provide enough liquidity in the debt segment.
• The mutual funds, insurance companies and pension funds are also expected to participate after guidelines for the same are issued.
The Debt Trading exchange platform is an innovation, which has been launched after intensive feedback from market participants. It is similar to RBI’s NDS-OM, where Government securities are traded on a transparent platform.
UNION GOVT SET 325-BILLION DOLLARS EXPORT TARGET FOR 2013-14
The Union Government announced an export target of 325 billion dollars for the current financial year 2013-14 to support the slowdown in the global markets.
It is due to the global slowdown in developed regions like that of US and Europe, the exports of India went down for the first time in three years with a dip of 1.8 per cent to 300.6 billion Dollars in 201-13, making the trade deficit to a record high level of 191 billion dollars.
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It is important here to note that, the Government had set an export target of 360-billion dollars for the financial year 2012-13.
According to the provisional figures, export registered an increase of 0.8 per cent for the month of January 2013 after a permanent fall during May, June, July, August, September, October, November and December 2012.
INDIA IS THE LARGEST PRODUCER AND CONSUMER OF CHICKPEAS
Food & Agriculture Organization (FAO) in its latest report for 2011 claimed that India is the largest consumer and producer of Chickpeas in the world. The second advance estimates for 2012-13 marked a record production of Chickpea is 8567.8 thousand tonnes.
Production details of Chickpeas in India as compared to the World Chickpea producing nation:
FEE FROM TOURISM GREW BY 7 PERCENT IN APRIL 2013
The Foreign Exchange Earnings (FEEs) from tourism in terms of Rupee in April 2013 rose by seven percent from the one recorded in April 2012. The Foreign Tourists Arrival (FTAs) in April 2013 remained the same 4.52 lakh with the one recorded in April 2012.
The FTAs in a quarters’ time from January to April 2013 has risen by 1.9 percent to 24.80 lakh. In January to April 2012 the FTAs were 24.34 lakh.
HIGHLIGHTS OF THE FTAS AND FEES DURING APRIL 2013 FROM TOURISM
Foreign Tourist Arrivals (FTAs)
In April 2013 the number of FTAs was 4.52 lakh, while, the number of FTAs in April 2012, was also 4.52 lakh. There was no growth in FTAs recorded in April 2013, whereas, the FTAs grew by 1.3 percent during April 2012 over April 2011.
Foreign Exchange Earnings (FEEs) from Tourism in Rupee terms and US dollars terms
Country Production (000 tonnes)
India 8221.10
Australia 513.34
Myanmar 466.74
Turkey 487.48
Ethiopia 322.84
Pakistan 496.00
Islamic Republic of Iran 290.24
Canada 90.80
United Republic of Tanzania
71.18
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During the month of April 2013 the FEEs was 7248 crore rupees, which was 6745 crore rupees in April 2012 and 5724 crore rupees in April 2011.
In terms of rupees the FEEs grew by 7.5 percent in April 2013 over April2012 as compared to 17.8 percent of April 2012 over April 2011
The FEEs in terms of rupee from tourism from January to April 2013 is 37323 crore rupee with a growth of 17.7 percent as compared to the FEE of 31713 crore rupees with a growth of 28.5 percent during January-April 2012 over the corresponding period of 2011.
In terms of USDs the FEEs during the month of April 2013 were 1.333 billion US dollar as compared to FEEs of 1.305 billion US dollars during the month of April 2012 and 1.290 billion US dollars in April 2011.
The FEEs grew by 2.1 percent in terms of US dollars in April 2013 over April 2012. It was 1.2 percent in April 2012 over April 2011.
FEE from tourism in terms of US dollars during January-April 2013 were US dollars 6.878 billion with a growth of 9.6 percent, as compared to US dollars 6.275 billion with a growth of 14.7 percent during January-April 2012 over the corresponding period of 2011.
The monthly estimates of FTAs are compiled by the Ministry of Tourism and are made based upon the data received from the major ports and the FEEs from tourism on the basis of data received from Reserve Bank of India.
INDIA'S SERVICES GROWTH HIT 18-MONTH LOW: HSBC
As per the survey undertake by HSBC, in the month of May 2013, India’s services sector grew at its slowest pace in one and half years during the month of April 2013 as costs for raw materials, petrol and labour increased considerably.
It is important here to note that the pace of hiring by private sector companies was also slowest in seven months, as per a monthly HSBC India survey of services sector managers.
HIGHLIGHTS OF THE REPORT
The HSBC India Composite Output Index fell to 50.5 in April from 51.4 in March.
The latest reading indicated that activity increased marginally and at the slowest pace since October 2011.
The seasonally adjusted HSBC Business Activity Index declined to 50.7 in April from 51.4 in the previous month.
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Input prices saw further increase in April 2013— the trend continued for the 49th consecutive month — and cost of raw material, petrol and labour were higher, HSBC noted.
The rates of increase in average selling prices were slower at both manufacturers and service providers.
Despite the fact that new businesses placed at services and manufacturing firms in India increased last month, the rates of expansion eased.
The manufacturers cited power cuts while service providers mentioned extreme weather and challenging market conditions for such a trend.
SEBI APPROVED KERALA'S START-UP VILLAGE ANGEL FUND
Market regulator SEBI in May 2013 had approved an angel fund of 10 million Dollars to address the problem of resource crisis for start-up companies across the country.
The fund could go up to 20 million dollars with an over-allotment option that would focus on telecom and internet firms. The Fund is supposed to start investing once the initial close of 2 million Dollars is achieved.
Consultancy KPMG is the advisor and ILFS is trustee of the fund based at Start-up Village which is the country's first telecom incubator.
ABOUT VILLAGE ANGEL FUND
The angel fund will be investing not only in the most promising start-ups located in Start-up Village but also in similar enterprises across the country.
Infosys co-founder and Start-up Village chief mentor Kris Gopalakrishnan, MobME, the country's first campus telecom start-up, Ravi Pillai, founder of the.16000-crore Rupees Bahrain-based RP Group and other leading angel investors in India will be part of the fund.
The Village angel fund will act like a shot in the arm for Start-up Village, which would become the first incubator in India to have its own in-house fund.
The fund will help the internet-telecom incubator to get the most conducive ecosystem for product start-ups.
INTER-MINISTERIAL GROUP APPROVED 10% EQUITY SALE IN COAL INDIA
An Inter-Ministerial Group (IMG) on 10 May 2013 approved 10 percent equity sale of Coal India Limited. This equity sale is likely to fetch, about 17000 crore rupees to the Union Government. Union Governments holds over 90 percent stake in Coal India at present.
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The Inter-Ministerial Group was headed by Ravi Mathur, the Disinvestment Secretary and it is guiding the process of disinvestment of Governments Equity in CIL. The CIL with a cash balance of 60000 crore rupees is the biggest disinvestment for the Government in the current fiscal year 2013-14 and Union Government is in the plan to generate 40000 crore rupees with sales of PSUs stakes in the current fiscal.
AMENDMENTS IN NATIONAL FOOD SECURITY BILL INTRODUCED IN LS
Ministry for Consumer Affairs, Food & Public Distribution introduced amendments in the National Food Security Bill in the Lok Sabha on 9 May 2013 and placed the amended Bill for consideration and passing by the House. Based on the recommendations of the Standing Committee on Food, Consumer Affairs and Public Distribution, the Government decided to move certain amendments to the Bill. These amendments seek to make the framework of the proposed legislation simpler, provide more flexibility to States/UTs in its implementation and to address some of the concerns raised by them.
Main amendments to the Bill are as under:
Coverage and entitlement under Targeted Public Distribution System (TPDS): Instead of coverage of up to 75 percent of the rural population and up to 50 percent of the urban population under two categories of priority and general households with different entitlements and issue prices provided in the original Bill, there would be only one category of beneficiaries with uniform entitlement of 5 kg per person per month.
Protection of entitlements under Targeted Public Distribution System: The entitlement of Antyodaya Anna Yojana (AAY) households, which constitute poorest of the poor will, however, be protected at 35 kg per household per month. It is also proposed to accept the recommendation of the Committee to protect the existing allocation of food grains to the States/UTs, subject to it being restricted to average annual off take during last three years (2009-10 to 2011-12).
State-wise coverage and identification of beneficiaries: Corresponding to coverage of 75 percent/50 percent of the rural/urban population at the all India level, State-wise coverage will be determined by the Planning Commission. The work of identification of eligible households is proposed to be left to the States/UTs, which may frame their own criteria or use the Social Economic and Caste Census (SECC) data.
Subsidized Prices under TDPS and their Revision: Uniform prices of 3/2/1 rupees per kg for rice/wheat/coarse grains will be applicable to all eligible beneficiaries. It is proposed to fix these prices for the first three years of implementation of the Act, and thereafter link the same suitably to MSP.
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Cost of intra-State transportation & handling of food grains and FPS Dealers’ Margin: In order to address the concerns of States/UTs regarding additional financial burden, it is proposed that Central Government may provide assistance to States towards cost of intra-State transportation, handling of food grains and FPS Dealers’ margin, for which norms will be devised.
Maternity Benefit: It is proposed to allow States/UTs to use the existing machinery of District Grievance Redressal Officer (DGRO), State Food Commission, if they so desire, to save expenditure on establishment of new set up.
The National Food Security Bill was introduced in the Lok Sabha on 22 December 2011 to addresses the issue of food security in a comprehensive manner, by adopting a life cycle approach. The Bill was introduced after a wide-ranging consultation with various stakeholders.
After introduction, the Bill was referred to Standing Committee on Food, Consumer Affairs and Public Distribution, who interacted with other Central Ministries, various other organizations and individuals and visited States before submitting its report to the Speaker, Lok Sabha on 17 January 2013. The recommendations of the Standing Committee were examined in consultation with concerned Central Ministries and also with the Food Ministers and Food Secretaries of States/UT.
At the coverage and entitlement now proposed, total estimated annual food grains requirement is 612.3 lakh tons and the corresponding estimated food subsidy for implementation of NFSB, at 2013-14 costs, is about 124747 crore rupees. When compared to the estimated food subsidy requirement under existing TDPS and Other Welfare Schemes, the additional food subsidy implication is about 23800 crore rupees per annum. Requirement for assistance to States for meeting the expenditure on Transportation, Handling and FPS Dealers’ margin, etc., would be additional.
CCEA APPROVED PROPOSAL TO SET-UP 2 MAJOR PORTS IN BENGAL AND ANDHRA PRADESH
The Cabinet Committee on Economic Affairs (CCEA) on 9 May 2013 approved the proposal of the Ministry of Shipping for setting up of two major ports in the country. The two ports will be set up through a Public Private Partnership Mode in West Bengal and Andhra Pradesh each. As per the proposal approved the port will be developed at Sagar Island in West Bengal after obtaining environmental clearances and following exact procedures for development of the project. The cabinet also agreed for appointment of the transaction advisers and legal consultants and finalization of the project structure in consultation with the State Government of West Bengal and the Planning Commission.
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In case of Andhra Pradesh, the Cabinet identified Dugarajapatnam location for development of the port and looked forward to find out the techno-economic feasibility report for commissioning of the port.
Benefits of setting-up the two Ports
Sagar Port in West Bengal: At present Kolkata has facilities of two ports namely Kolkata Docks at Kolkata and Haldia Dock Complex at Haldia. Both these ports being reverine face limitations of draught due to the morphological changes (change in river platform) in Hooghly because of siltation. Development of Sagar Port will provide a deep draught port for handling the large size vessels by doing away the heavy maintenance dredging activity.
Port of Andhra Pradesh: It will facilitate the economic development of Andhra Pradesh as the rapid industrialization across Visakhapatnam Port has created a necessity of a new port in the state.
UNION CABINET APPROVED CHANGES TO AAJEEVIKA
The Union Cabinet on 6 May 2013 had cleared important changes to the National Rural Livelihoods Mission (Aajeevika) in a major boost to the roll out of the women’s self help group model across the country.
The changes is supposed to provide additional resources and additional elasticity to implement the NRLM (Aajeevika) in a more effective and accelerated manner across the country thereby creating new livelihoods and empowering women across rural India.
Highlights of the Changes Approved are
Improved targeting, by doing away with BPL criteria and instead identifying target groups through the Participatory Identification of Poor (PIP) process:
The Participatory Identification of Poor process has been expansively demonstrated to be very effective in states where women’s self-help-groups have been succeeded. The list finalized through the P.I.P process will be inspected by the Gram Sabha and approved by the Gram Panchayat.
The P.I.P process will also have a set of exclusion criteria, automatic inclusion criteria and a set of deprivation indicators for enabling poverty ranking in a participatory manner. This delinks N.R.L.M target group from the BPL list. Interest subvention and additional interest subvention in 150 districts
Union Cabinet has approved the provision of interest subvention to Women SHGs, enabling them to avail loans up to 3 lakh Rupees at an interest rate of 7 per cent per annum.
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Women SHGs that repay loans in time will get additional 3 per cent subvention, reducing the effective rate to 4 per cent. The initiative, in the first phase, would focus on 150 districts, including the 82 IAP districts, affected by Left Wing Extremism.
Change in the pattern of financial assistance - replacing Capital subsidy with a Community Investment Support fund
The Cabinet has approved to withdraw capital subsidy to S.H.Gs and instead provide financial support S.H.G federations and livelihoods organizations of the S.H.G members in the ‘intensive’ blocks through a grant called Community Investment Support fund.
Setting up of National Level Society under N.R.L.M for more effective implementation
The Cabinet also approved the setting up an autonomous, adequately staffed, professionally managed and empowered agency at the national level to implement the N.R.L.M, called the National Rural Livelihoods Promotion Society (N.R.L.P.S) under the Societies Registration Act.
The NRLPS will act as the technical support unit of N.R.L.M. The setting up of such a Society is essential to implement the programme in a mission mode, as livelihoods programmes require a wide range of specialization and experience.
The Society structure would enable access to high quality professional support, provide flexibility to create partnerships and facilitate innovations and would serve as a knowledge center for rural livelihoods for the state missions.
Further it will provide an opportunity for formally involving State Governments in decision-making, by nominating them to the Executive Committee of the Society.
ADB TO PROVIDE 6 BILLION DOLLARS TO INDIA OVER NEXT 3 YEARS
Asian Development Bank (ADB) on 5 May 2013 announced that it is going to provide about 6 billion dollars loan to India over the next three years which was decided at the concluding day of the 46th annual meeting of the funding agency.
Although, the ADB is facing the challenge of raising resources, the basic idea behind providing loan is to maintain its lending level to India. The bank is working on partnership strategy and is planning to maintain the level of lending to India.
It is important here to note that India is the biggest borrower of ADB and ADB had extended a 2.4 billion dollars loan to India in 2012 across sectors like transport, energy, commerce, industry, trade and finance.
The bank will also continue to lend10 billion dollars a year across the member-nations despite generating lower return from investments.
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ADB’s capital was tripled in 2009. The fund enhancement came after a gap of 15 years.
RBI REDUCED THE REPO RATE BY 25 BASIS POINTS TO 7.25 PERCENT
The Reserve Bank of India (RBI) on 3 May 2013 reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points, from 7.5 per cent to 7.25 per cent with immediate effect as part of its annual monetary policy statement 2013-14. The reverse repo rate under the LAF also stands adjusted to 6.25 per cent. The RBI took this step to boost flagging economic growth.
The Marginal Standing Facility (MSF) rate and the Bank Rate, both stand adjusted to 8.25 per cent with immediate effect. The Cash Reserve Ratio (CRR) of scheduled banks has however been retained at 4 per cent of their net demand and time liabilities.
In its Monetary Policy Statement the RBI has stated that the balance of risks stemming from the Reserve Bank's assessment of the growth-inflation dynamic yields little space for further monetary easing. Interest rates on home and car loans will ease following RBI’s decision to cut key policy rates. The next mid-quarter review of Monetary Policy for 2013-14 will be announced on17 June 2013.
FOODGRAINS OUTPUT FOR 2013 EXCEEDED ITS TARGET
The Union Government of India on 3 May 2013 revised the production estimates of the foodgrains upwards by 5.22 million tonnes for 2012-13, over earlier expectation of 254.24 million tonnes due to the higher output of wheat, rice and coarse cereals.
With this revision the total cereal output estimation has gone up to 255.36 million tonnes. The wheat and rice production pegged at 93.62 million tonnes and 104.22 million tonnes respectively. The earlier estimate set for the foodgrains for the year was 254.24 million tonnes. The third advance estimate that was officially released on 3 May 2013 estimated that the total foodgrain production for the year will be lower by 3.96 million tonnes from the previous year 2011-12 ecord production of 259.24 million tonnes. As the total output for wheat and rice in 2011-12 were 94.98 million tonnes and 105.31 million tonnes respectively. While for 2012-13 it is estimated to be 93.62 million tonnes and 104.22 million tonnes respectively.
STATES THAT LACKED IN PRODUCTION DUE TO ENVIRONMENTAL ISSUES
Delayed monsoon and drought in different parts of states like Maharashtra, Gujarat, Karnataka, Andhra Pradesh, Tamil Nadu and Rajasthan had an impact on the production of pulses and coarse cereal during Kharif season.
CCEA APPROVED EXCHANGE TRADE FUND FOR PSU STOCKS
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The Cabinet Committee on Economic Affairs (CCEA) on 2 May 2013 cleared the government proposal to set up an exchange traded fund backed by a basket of PSU stocks, commonly referred as CPSEETF.
The basic idea behind setting up of fund is that among other benefits, PSU divestments could be carried out in a much less disturbing manner for the market and can also incentivize retail investors. An empowered group of ministers would take this forward.
The government plans to float such a fund so that, The CPSEETF will comprise a basket of shares of different PSUs which would track an index, but will trade like a stock on the exchange. ICICI Securities is the adviser to the ETF and Goldman Sachs is learnt to be the fund manager.
The release on CPSEETF noted that each stock would have a fixed weightage in the basket and the ETF will give discount to investors. It is important here to note that the Selling a mutual fund at a discount to its NAV is a new concept in the Indian market, and would require some rule change by the market regulator SEBI.
GOVERNMENT SET 325-BILLION DOLLARS EXPORT TARGET FOR 2013-14
The Union Government announced an export target of 325 billion dollars for the current financial year 2013-14 to support the slowdown in the global markets.
It is due to the global slowdown in developed regions like that of US and Europe, the exports of India went down for the first time in three years with a dip of 1.8 per cent to 300.6 billion Dollars in 2012-13, making the trade deficit to a record high level of 191 billion dollars.
It is important here to note that, the Government had set an export target of 360-billion dollars for the financial year 2012-13. According to the provisional figures, export registered an increase of 0.8 per cent for the month of January 2013 after a permanent fall during May, June, July, August, September, October, November and December 2012.
UNION CABINET APPROVED THE LAUNCH OF NUHM
The Union Cabinet of India on 1 May 2013 approved the launch of the National Urban Health Mission (NUHM) to reduce rates of infant mortality, maternal mortality and for universal access to reproductive health care. The cost of the National Urban Health Mission for 5 years is 22507 crore rupees and the Central government will share 16955 crore rupees. The mission will be implemented in 779 cities and towns each with the population of more than 50,000 has expected to cover about 7.75 crore people.
The Cabinet also gave its nod to a bill which provides for confiscating property illegally acquired by corrupt public servants. The major changes to the Prevention of Corruption Act, 1988 were approved by the Cabinet. A timeframe has also been set for getting sanction of the competent
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authority to prosecute serving and retired bureaucrats and reasons will have to be specified for giving the nod or refusing it.
The Union Cabinet also approved the Empowered Group of Minister's (EGoM)’s decision to conduct auction of 839 channels of FM radio stations in 294 cities through e-auction. The decision is part of the amendments in the Policy Guidelines for Phase III expansion of FM Radio broadcasting services through private agencies.
The government also approved amendments to a bill that seeks to eradicate manual scavenging. The Prohibition of Employment as Manual Scavengers and their Rehabilitation Bill, 2012 includes provisions for mandatory inclusion of women in vigilance committees at the district, state and national level and a survey to identify manual scavengers.
SC UPHELD 51 PERCENT FDI IN MULTI-BRAND RETAIL
The Supreme Court of India on 1 May 2013 upheld the constitutional validity of Government’s decision allowing 51 percent foreign direct Investment in the multi-brand retail sector. A bench of Justices R M Lodha, Madan B Lokur and Kurian Joseph gave the ruling.
The bench observed that there was no harm in giving the policy a chance. It saw merit in the policy that it would eliminate middlemen and help provide farmers a better price for their produce. It dismissed the petition filed against the 51 percent FDI in multi-brand retail. As per the court, the policy will affect the lives of only 13.3% of the country's population living in 53 cities.
BSE LAUNCHED BROAD-BASED ISLAMIC EQUITY INDEX
The Bombay Stock Exchange (BSE) on 30 April 2013 launched an Islamic equity index based on the wide-measure S&P BSE 500 index. It will provide a new benchmark for Islamic investors in one of the world's largest stock exchanges. The new index includes the largest 500 companies in the BSE, out of more than 5000 listed. These companies fulfill Islamic finance principles such as bans on investing in alcohol, tobacco and gambling-related businesses. The BSE had launched the country’s first Islamic index in 2010 after tracking the 50 largest and most liquid stocks.
India's Islamic banking industry has made slow progress because banking rules need lenders to declare the rates of interest they charge customers. This condition it at odds with Islamic banks which base their products on profit rates instead. In this regard to satisfy the needs of Muslims in India, the industry is trying to develop investment products.
UNION GOVERNMENT LAUNCHED 21 NEW TEXTILE PARKS
The Union Minister for Commerce, Industry and Textiles, Anand Sharma on 23 April 2013, launched 21 New Textile Parks approved under Scheme for Integrated Textile Parks (SITP). With
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the launch of these new textile parks, the total number of parks reaches 61 because 40 parks were already sanctioned.
SCHEME FOR INTEGRATED TEXTILES PARKS (SITP)
• The Scheme for Integrated Textiles Parks (SITP) plays a vital and instrumental role in the development of wide range of models for green field clusters from a 1000 acre FDI driven integrated cluster, to a 100 acre powerloom cluster and a 20 acre handloom cluster.
• Under this scheme, a total number of 61 parks have been sanctioned. 40 projects out of these began in 11th Five Year Plan and another 21 projects are scheduled to be implemented in 12th Five Year Plan.
• Out of these 21 parks, six are in Maharashtra, four in Rajasthan, two each in Andhra Pradesh and Tamil Nadu and one each in Uttar Pradesh, West Bengal, Tripura, Karnataka, Gujarat, Himachal Pradesh and Jammu & Kashmir.
• Out of 40 parks which were sanctioned earlier under this scheme, 25 Textile Parks are operational already.
• Most of the parks under this will be completed during 2013-14 financial year. • The estimated employment generation is more than 10 lakh people with total estimated
investment of 27562 crore Rupees. • It is important to note that in 2013-14 Union Budget, the Union Finance Minister had
announced an additional amount of up to 10 crore Rupees per park for establishment of the apparel manufacturing units for the projects under the SITP scheme.
On the occasion of launch, Anand Sharma also released a coffee table book on SITPs. This coffee table book encapsulates the broad features of various ITPs set up all over India. The book gives an insight into the physical and pictorial status of each ongoing Park approved under SITP.
UNION GOVERNMENT APPROVED 13 POWER PROJECTS
The Cabinet Committee on Investment on 22 April 2013 cleared 13 power projects that involves investment of 33000 crore rupees. The projects on which the investments will be made include one hydro and two thermal project as well as ten transmission projects.
25 oil and gas blocks with investment commitment of about seven billion US dollars also got approval during the same meet. Of these 16 blocks were given conditional clearances, while nine blocks were approved without any condition. Approval of these projects was pending due to the objections raised by the Ministry of Defence over national security.
During the meet of Cabinet Committee on Investment in New Delhi twenty different power projects that await clearances from the Union Environment and Forest Ministry were also reviewed. The meet was headed by the Prime Minister of India, Dr. Manmohan Singh.
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GOVERNMENT APPROVED 1083 CRORE RUPEES REVIVAL PLAN FOR HMT
The Cabinet Committee on Economic Affairs (CCEA) under Union Government on 18 April 2013 approved a 1083-crore Rupees renewal package for watch and tractor maker company HMT.
The approval of the revival Plan Directly aims to modernise the company and help it turn around in five years. The package approved basically includes a cash infusion of 450 crore rupees and a non-cash assistance of 630 crore Rupees.
SIGNIFICANCE OF THE PACKAGE APPROVED
• The package is aimed at turning the loss making company to profit-making one over five years by increasing production.
• The cash component of the package will be used for modernization, working capital needs and wage revision.
The company also aims to hike production to 30000 units from the current 4500 units over five years.
TO REVIVE INTEREST IN SEZS OF INVESTORS FTP CHANGED
The Annual Supplement 2013-14 to Foreign Trade Policy (FTP) 2009-14 was announced on 18 April 2013 by the Union Minister for Commerce, Industry and Textiles, Anand Sharma at Vigyan Bhawan, New Delhi.
In the latest Annual Supplement 2013-14 the Union Government has tried to implement measures to revive the interest of the investors in Social Economic Zones (SEZs) as well as to boost exports.
IMPORTANT FEATURES OF THE PACKAGE ARE
• The Government has reduced the size of total land area required for development of SEZs to its half from its initial requirement of minimum Land Area of 100 hectares for allowing the development of SEZs. Now an investor needs to have 50 hectares of land to develop a SEZ. This has been done in response to end the difficulties being faced by the investors in gaining collective large area of uncultivable land for setting up of the SEZ.
• Graded Scale for Minimum Land Criteria has been introduced to permit the SEZ an additional sector for each contiguous 50 hectare parcel of land. This has been done to ensure flexibility in utilization of the land tracts that falls between the 50 to 450 hectares.
• Flexibility is granted for setting-up additional units in a sector specific SEZ. This will be done by introducing sectoral broad-banding to encompass similar/related areas under the same sector.
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• In context of Vacancy of Land: the government has revised the policy in existence that allowed a parcel of land with pre-existing structures but not in commercial use to be considered as a vacant land and this was used with the purpose of notifying it for a SEZ. The new policy being introduced is that pre-existing structures and activities being undertaken after notification would be eligible for duty benefits similar to any other activity in the SEZ.
IT Exports constitute a very significant part of India’s exports and IT SEZs have a major contribution in it. Exports from IT SEZs during financial year 2012-13 have exceeded 1.40 lakh crore rupees and it registered a growth of over 70 percent, over the previous year’s exports. The Government has brought in new changes to boost growth in the IT SEZ sector and to encourage the employment opportunities in Tier-II and Tier-III cities.
CHANGES IMPLEMENTED IN IT EXPORTS
• For development of IT SEZs, the Government has done away the criterion on minimum land area of 10 hectares, making it to no minimum land requirement for setting up an IT/ITES SEZ. The SEZ developers will have to meet up with the minimum built in area requirement.
• The criteria of requiring a minimum build-up land area has also been relaxed to a greater extent. The requirement of one lakh square meters is applicable in 7 major cities namely Mumbai, Delhi (NCR), Chennai, Hyderabad, Bangalore, Pune and Kolkata. For the other Category B cities 50000 square meters and for remaining cities only 25000 square meters built up area norm will be applicable.
The SEZ policy Framework in existence at present doesn’t include a policy of exit but now the Government permits, the transfer of ownership of SEZ units, including sale. The Government has also introduced several schemes and modified different policies as per the requirements.
CHANGES IN FTP 2009-14 TO ENHANCE TRADE AND SEZS IMPLEMENTED
Union Minister for Commerce, Industry and Textiles, Anand Sharma released the Annual Supplement 2013-14 to Foreign Trade Policy (FTP) 2009-14 on 18 April 2013 at Vigyan Bhawan, New Delhi. During the fiscal year 2012-13, the export of India grew to 300.60 US Billion Dollar from 300 US Billion Dollar, but it fell by 1.76 percent previous year. The trade deficit which was 183.4 US Billion Dollar last year has increased to 190.91 US Billion Dollar.
On this occasion of releasing the Annual Supplement 2013-14 to Foreign Trade Policy 2009-14 the government introduced many strategic Changes to policies to revive the interest of the investors in Social Economic Zones (SEZs) as well as to boost exports.
CHANGES IN SEZS
• Size of total area of land required for development of SEZs have been reduced
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• Graded Scale for Minimum Land Criteria has been introduced • Flexibilities are introduced to set up additional units sector specific SEZs • Policy to provide duty benefits to pre-existing structures and activities being undertaken after
notification have been introduced • In IT SEZs, the criterion of minimum land area of 10 hectares has been done away
ZERO DUTY EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME
Foreign Trade Policy has two variants under this scheme, Zero Duty EPCG for few sectors and 3% Duty EPCG for all sectors. On 5 June 2012, a new Post Export EPCG Scheme was also announced which was notified on 18 February 2013 by the CBEC. Now the Union Government has decided to merge the Zero Duty EPCG and 3% EPCG Scheme into one scheme and make it a Zero Duty EPCG Scheme covering all sectors.
SALIENT FEATURES OF THE ZERO DUTY EPCG INCLUDES
• Authorization holders will have export obligation of 6 times the duty saved amount. The export obligation has to be completed in a period of 6 years
• The period for import under the Scheme would be 18 months • The discharge of Export Obligation by export of alternate products and the accounting of group
companies has been barred • The benefits of the Zero Duty EPCG Scheme can be availed by the exporters who have availed
benefits under Technology Upgradation Fund Scheme (TUFS) administered by Ministry of Textiles
• Under the new Zero Duty EPCG Scheme, import of motor cars, SUVs, all purpose vehicles for hotels, travel agents, or tour transport operators and companies owning/operating golf resorts will not allowed
REDUCED EXPORT OBLIGATION FOR DOMESTIC SOURCING OF CAPITAL GOODS
• The quantum of specific Export Obligation (EO) in the case of domestic sourcing of capital goods under EPCG authorizations has been reduced by 10%. This would promote domestic manufacturing of capital goods.
REDUCED EO FOR UNITS IN THE STATE OF JAMMU & KASHMIR
• To encourage manufacturing activity in the State of Jammu & Kashmir the specific export obligation (EO) is reduced to 25% of the normal export obligation. Earlier, this benefit was announced on 5 June 2012 in respect of units located in North Eastern Region and Sikkim and the same provision is now being extended to J&K.
WIDENING OF INTEREST SUBVENTION SCHEME
• Presently there exists availability of 2% interest subvention scheme to certain specific sectors like Handicrafts, Handlooms, Carpets, Readymade Garments, Processed Agricultural Products, Sports Goods and Toys. The scheme had been further widened to include 134 sub-sectors of
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engineering sector. Government had also announced that the benefit of this scheme of 2% interest subvention could be available up to 31 March 2014
• Items covered under the Chapter 63 of ITC (HS) (other made up textile articles, sets, rags) and additional specified tariff lines of engineering sector items under the scheme have also been included in the scheme by widening its provisions
WIDENING THE SCOPE OF UTILIZATION OF DUTY CREDIT SCRIP
• Duty Credit Scrips issued under Focus Market Schemes, Focus Product Scheme and Vishesh Krishi Gramin Udyog Yojana (VKGUY) can be used for payment of service tax on procurement of services within the legal framework of service tax exemption notifications under the Finance Act, 1994. Holder of the scrip shall be entitled to avail drawback or CENVAT credit of the service tax debited in the scrips as per Department of Revenue rules.
• All duty credit scrips issued under Chapter 3 can be utilized for payment of application fee to DGFT for obtaining any authorization under Foreign Trade Policy. This benefit shall be available only to the original duty credit scrip holders. Duty credit scrip can also be paid for payment of composition fee and for payment of value shortfalls in EO under para 4.28 (b) of Hand Book of Procedure Vol. 1.
• Market and Product Diversification • Norway has been added under Focus Market Scheme and Venezuela has been added under
Special Focus Market Scheme. The total number of countries under Focus Market Scheme and Special Focus Market Scheme becomes 125 and 50 respectively.
• Approximately, 126 new products have been added under Focus Product Scheme. These products include items from engineering and electronics, chemicals, pharmaceuticals and textiles sector.
• About 47 new products have been added under Market Linked Focus Product Scheme (MLFPS). These products are from engineering, auto components and textiles sector. 2 new countries i.e., Brunei and Yemen have been added as new markets under MLFPS.
• MLFPS is being extended from 01.04.2013 to 31.03.2014 for exports to USA and EU in respect of items falling in Chapter 61 and Chapter 62 of ITC (HS).
• Exports of High Tech products would be incentived and it would be separately notified by 30th June, 2013.
• The towns of Morbi (Gujarat) and Gurgaon (Haryana) have been added to the existing list of towns of export excellence for ceramic tiles and apparel exports respectively. These towns shall be eligible to get benefit under ASIDE Scheme.
INCREMENTAL EXPORTS INCENTIVISATION SCHEME
• Government has announced Incremental Export Incentivisation Scheme on 26 December 2012 for the exports made during January 2013 to March 2013. This scheme is available for exports made to USA, EU and Asia. It has been agreed to extend this scheme for the year 2013-14. The calculation of the benefit shall be on annual basis under the extended scheme.
• The Government has also agreed to include additional countries under Incremental Exports Incentivisation Scheme. 53 countries of Latin America and Africa have been added with the objective to increase India’s share in these markets. The present exports to each of these markets are less than US $ 100 million.
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CHANGES HAVE BEEN INTRODUCED IN MANY OTHER SCHEMES ARE
• Facility to close cases of default in Export Obligation • Served from India Scheme (SFIS) • VKGUY Scheme • Status Holder Incentive Scheme (SHIS) • Re-credit of 4% SAD • Duty Free Import Authorization Scheme (DFIA) • Import of Cars • Improvement in quality and timeliness of Foreign Trade Data • Second Task Force on Transaction Cost in International Trade
• Electronic Data Interchange Initiatives
INDIA’S EXPORTS IN MARCH 2013 VALUED AT $30849.65 MILLION
India’s Exports during March 2013 were valued at 30849.65 million US dollars (167836.31 crore rupees) which was 6.97 per cent higher in Dollar terms (15.65 per cent higher in Rupee terms) than the level of 28839.36 million US dollars (145123.41 crore rupees) during March, 2012. Cumulative value of exports for the period April-March 2012 -13 was 300570.58 million US dollars (Rs 1635261.02 crore) as against 305963.92 million US dollars (1465959.40 crore rupees) registering a negative growth of 1.76 per cent in Dollar terms and growth of 11.55 per cent in Rupee terms over the same period 2011-12.
Imports during March, 2013 were valued at 41164.71 million US dollars (223954.98 crore rupees) representing a negative growth of 2.87 per cent in Dollar terms and a growth of 5.01 per cent in Rupee terms over the level of imports valued at 42380.68 million US dollars ( R. 213265.08 crore rupees) in March, 2012. Cumulative value of imports for the period April-March, 2012-13 was 491487.22 million US Dollars (2673113.08 crore rupees) as against 489319.50 million US dollars ( 2345463.25 crore rupees) registering a growth of 0.44 per cent in Dollar terms and growth of 13.97 per cent in Rupee terms over the same period last year.
CRUDE OIL AND NON-OIL IMPORTS
Oil imports during March, 2013 were valued at 13327.1 million US dollars which was 16.56 per cent lower than oil imports valued at 15972.4 million US dollars in the corresponding period last year. Oil imports during April-March, 2012-13 were valued at 169253.0 million US dollars which was 9.22 per cent higher than the oil imports of 154967.5 million US dollars in the corresponding period last year.
Non-oil imports during March, 2013 were estimated at 27837.6 million US dollars which was 5.41 per cent higher than non-oil imports of 26408.3 million US dollars in March, 2012. Non-oil imports during April - March, 2012-13 were valued at 322234.2 million US dollars which was 3.62 per cent lower than the level of such imports valued at 334352.0 million US dollars in April - March, 2011-12
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TRADE BALANCE
The trade deficit for April - March, 2012-13 was estimated at 190916.64 million US dollars which was higher than the deficit of 183355.58 million US dollars during April -March, 2011-12.
IMF SLASHED ECONOMIC GROWTH RATE OF INDIA TO 5.7% 2013
International Monetary Fund in its latest release on 16 April 2013 of the World Economic Outlook (WEO) slashed the growth projection of India from its earlier prediction of 5.9 percent to 5.7 percent for the calendar year 2013.
The IMF slashed its projection for India based on the significant structural challenges faced by India, which would lower down the potential output keeping inflation elevated by regional reasons. It also predicted that the bottomed out India economy could recover following the policy reforms introduced by the Union Government and the improvement in external demands. All these depend upon a better monsoon season, solid consumption, external demand and improvement in policy making.
IMF also slashed the global outlook to 3.3 percent from 3.5 percent predicted in January 2013 and for 17-nation Euro Zone, the forecast was 0.3 percent. It has advocated to the policymakers of European nations to come up with aggressive monetary policies to pull out Eurozone from the crisis situation.
GROWTH PROJECTION BY UNION GOVERNMENT OF INDIA
The Union Government projected its growth for the fiscal year 2013-14 to be 6.2-6.7 percent. Indian Government uses the factor of cost method for making growth projections related to economy. Whereas IMF calculates the growth rate based on the estimates of Growth Domestic Product using market prices.
The Current Account Deficit would be elevated at 4.9 percent against 5.1 percent in 2013, and the Consumer Price Inflation can move up to 10.8 percent from 9.3 percent. The latest data released in context of India’s retail inflation showed moderated impact of retail inflation in March 2013.
IMF projected that India would grow at the rate of 6.2% in 2014. It projects the global economy to expand 4.1% in the 2014.
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RBI TO START PLASTIC MONEY PROJECT ON TRIAL BASIS
The Reserve Bank of India on 16 April 2013 announced that it would start the introduction of Plastic Notes in the market on trial basis. The announcement was made by the Deputy Governor of RBI, K.C. Chakrabarty in Magalore.
The Deputy Governor in his announcement informed that the Central Bank would launch the plastic notes the denomination of 10 rupees and will continue with other small denominations depending upon the success of these notes. The introduction of the scheme would start on a trial basis following the mandate of the Union Government to introduce plastic/polymer currency notes of 10 rupees on a field trial in five cities of India. The date for launch of the Plastic Notes was not cleared by the Bank.
RETAIL INFLATION DECLINED TO 10.39 PERCENT IN MARCH 2013
According to a data released on 12 April 2013 Retail Inflation declined to 10.39 percent in March 2013. The decline snapped five months trends of rising with the easing of the vegetables and the protein based items. The inflation recorded in February 2013 based on the Consumer Price Index was 10.91 percent.
The prices of the vegetable basket eased from 21.29 percent in February 2013 to 12.16 percent in March 2013. Whereas; the inflation in context of protein based items like meat, egg and fish remained stagnant at 14.36 percent in March 2013.
The inflation in oil and fat segment remained at 11.72 percent and the inflation in cereal segment was recorded to be the highest of 17.55 percent in March 2013. Inflation in Pulses stood at 11.38 percent and in sugar it was 11.65 percent on annual basis.
The retail inflation in urban areas declined from 10.84 percent recorded in February to 10.38 percent in March 2013. Whereas the consumer price index (CPI) of rural population went down to 10.33 percent in March 2013 from 11.01 percent recorded in February 2013.
NEEPCO GRANTED MINIRATNA–CATEGORY–1 STATUS
North Eastern Electric Power Corporation (NEEPCO) was conferred with the Miniratna – Category – 1 status by the President of India, Pranab Mukherjee on 8 April 2013. NEEPCO was earlier the schedule ‘A’ Corporation.
STATUS OF CATEGORY-I MINIRATNA FIRMS
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Category-I Miniratna firms can incur the capital expenditure on modernization, new projects as well as equipment purchase without the approval of the Government, up to 500 crore Rupees. The Category-II Miniratna firms, on the other hand, have the financial freedom of spending up to 300 crore Rupees or 50 percent of total net worth, whichever out of these is lower.
NEEPCO’S STATUS AFTER BEING CONFERRED WITH MINIRATNA – CATEGORY – 1
NEEPCO was initially the schedule ‘A’ Corporation. After being elevated to Miniratna – Category – 1 status, NEEPCO will have autonomy to take the investment decisions freely without the consent of Ministry of Power.
ABOUT NEEPCO
NEEPCO plays a crucial role in the power sector of North East region. it serves around 50 percent power requirement of this region.
By 2018, NEEPCO has plans to add 2300 MW of power through the thermal and hydro projects.
At present, NEEPCO executes 5 projects in North East region with total installed capacity of 917 MW.
NATIONAL WORKSHOP ON GRID INTEGRATION INAUGURATED
The Minister for New & Renewable Energy, Farooq Abdullah inaugurated the National Workshop on Grid Integration of Renewable Energy Sources and Energy Efficiency on 8 April 2013. The workshop discussed the important areas of clean energy development which are grid integration of renewable energy and energy efficiency.
The National Workshop on Grid Integration of Renewable Energy Sources and Energy Efficiency was organised in collaboration with United State Department of Energy under the United States 21st Century Power Partnership initiative.
Grid planning in the high-renewable energy penetration scenario is of strategic importance. Also, development of smart grids for enabling more efficient, resilient, and safe distribution of power is another area of action.
HIGHLIGHTS OF THE 21ST CENTURY POWER PARTNERSHIP INITIATIVE
Developing & sharing knowledge on topic relating to expansion of electricity sector
Strengthening and disseminating these tools to accelerate this transformation
Improving the capacity of experts and building expertise
Leveraging all three-knowledge tools and expertise to improve our policies
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CCEA APPROVED DE-CONTROL OF SUGAR
The Cabinet Committee on Economic Affairs (CCEA) on 4 April 2013 decided to de-control sugar and did away the levy on sugar mills and regulated release mechanism. This de-control will raise the subsidy burden to 5300 crore rupees from previous 2700 crore rupees.
De-control on sugar will not have an impact on the sugar made available in the Public Distribution System. The de-control of sugar will abolish the rule for sugar mills that makes it mandatory for sugar millers to sell sugar to the Government at a discounted price as well as the limitation on the amount they choose to sell in the open market .
FOREIGN TOURIST ARRIVALS IN INDIA INCREASED BY THREE PERCENT
Foreign Tourist Arrivals (FTAs) showed a growth of 2.8 percent in March 2013 over March 2012. The growth rate in Foreign Exchange Earnings (FEEs) from tourism in Rupee terms in March 2013 over March 2012 was 21percent.
The following are the important highlights regarding FTAs and FEEs from tourism during the month of March, 2013.
FOREIGN TOURIST ARRIVALS (FTAS)
• FTAs during the Month of March 2013 were 6.40 lakh as compared to FTAs of 6.23 lakh during the month of March 2012 and 5.36 lakh in March 2011.
• There has been a growth of 2.8 percent in March 2013 over March 2012 as compared to a growth of 16.3 percent registered in March 2012 over March 2011.
• FTAs during the period January-March 2013 were 20.27 lakh with a growth of 2.3 percent, as compared to the FTAs of 19.81 lakh with a growth of 10.9percent during January-March 2012 over the corresponding period of 2011.
FOREIGN EXCHANGE EARNINGS (FEES) FROM TOURISM IN RUPEE TERMS AND US DOLLAR TERM
• FEEs during the month of March 2013 were Rs. 9,491 crore as compared to 7843 crore rupees in March 2012 and 5522 crore rupees in March 2011.
• The growth rate in FEEs in rupee terms in March 2013 over March 2012 was 21.0 percent as compared to 42.0 percent in March 2012 over March 2011.
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• FEEs from tourism in rupee terms during January-March 2013 were 30075 crore rupees with a growth of 20.5 percent, as compared to the FEE of 24968 crore rupees with a growth of 31.7 percent during January-March 2012 over the corresponding period of 2011.
• FEEs in US dollar terms during the month of March 2013 were 1.75 billion US dollars as compared to FEEs of 1.56 billion US dollars during the month of March 2012 and 1.23 billion US dollars in March 2011.
• The growth rate in FEEs in US dollar terms in March 2013 over March 2012 was 11.9 percent as compared to the growth of 27.1 percent in March 2012 over March 2011.
• FEE from tourism in terms of US dollar during January-March 2013 were 5.55 billion US dollar with a growth of 11.6 percent, as compared to 4.97 billion US dollar with a growth of 18.9 percent during January-March 2012 over the corresponding period of 2011.
Ministry of Tourism compiles monthly estimates of Foreign Tourist Arrivals (FTAs) on the basis of data received from major ports and Foreign Exchange Earnings (FEEs) from tourism on the basis of data received from Reserve Bank of India.
SPECIAL INFRA. SCHEME IN LWE AFFECTED STATES APPROVED
The Cabinet Committee on Economic Affairs (CCEA) on 2 April 2013 approved the proposal of the Ministry of Home Affairs for continuation of the Scheme for Special Infrastructure (SIS) in Left Wing Extremism (LWE) affected states during the 12th Plan period. The proposal includes an added objective of upgradation and critical gap filling of training infrastructure, residential infrastructure, weaponry, vehicles and any other related items pertaining to Special Forces of LWE affected states. The total cost would be 373 crore rupees comprising 280 crore rupees as central government share and 93 crore rupees as state government share on a 75 (central): 25 (state) funding pattern. The scheme will enhance the security in the region which would provide an enabling environment for development.
The scheme was being implemented from the year 2008-09 with the broad objective to adequately provide for critical infrastructure requirements that are critical to the policing and security needs in the field, but are not adequately or otherwise provided for in any other scheme. During the 11th Plan period 100 percent funding was provided by the Central Government to the 9 LWE affected states for implementing various projects under the scheme. The total funds were released under the scheme by the central government to the 9 LWE affected states during the 11th Plan period is 445.82 crore rupees.
CORE SECTOR GROWTH SLUMPED BY 2.5% IN FEBRUARY 2013
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The production of eight core sector industries decreased by 2.5 percent in the month of February 2013, for the first time in 2012-13 financial year. This happened because of a decrease in the output of natural gas.
The biggest decline happened in the natural gas sector with more than 20 percent in February. This was followed by coal (-8 percent), electricity generation (-4.1 percent) and crude oil (-4 percent). The overall output growth of the core sector industries was witnessed at 7.7 percent in February 2012.
Negative performance in February 2013 diminished cumulative growth in 11 months of 2012-13 FY ending February to 2.6 percent in comparison to 5.2 percent during same period in 2011-12 FY. Eight core industries include electricity, cement, crude oil, finished steel, petroleum refinery products, fertiliser, coal and electricity. These industries have weight of 37.9 percent in Index of Industrial Production (IIP).
During February 2013, fertilizer output decreased by 4 percent in comparison to 4.1 percent increase in February 2012. Cement output increased by 3.9 percent in comparison to 9.8 percent in February 2012. Petroleum refinery output increased by 4.3 percent in comparison to 6 percent in February 2012. Steel production increased by 0.5 percent in comparison to 8.7 percent in February 2012. In January 2013, these core industries increased by 3.1 percent.
CCI APPROVED FIVE OIL, GAS BLOCKS FOR OPERATIONS
The Cabinet Committee on Investment (CCI) on 21 March 2013 cleared Reliance Industries' (RIL) KG-D6 and NEC-25 blocks for oil and gas exploration along with three other areas.
The work on these blocks, which has an investment close to 10.7 billion has dollars, was having difficulties because of inter-ministerial differences, particularly relating to Defence issues.
Eight blocks, including RIL's Krishna Godavari basin KG-D6 block and gas discovery area of NEC-25 in the North East Coast (NEC) region, were declared No-Go zones for reasons relating to defence issues raised by the Indian Navy, and the Indian Air Force.
An approval for eight blocks, was Sought by the Petroleum and Natural Gas Ministry of which one was already renounced by the contractor, Reliance Industries Ltd. Out of the remaining seven, conditional clearance for four blocks – two of Reliance Industries, one each of ONGC consortium and Cairn India – were sought.
The Ministry had also sought CCI approval to declare three blocks as ‘no go’ areas. Two blocks belonged to the ONGC-led consortium and one to the Oil India Ltd-led consortium. The CCI, headed by Prime Minister Manmohan Singh, was set up to fast-track clearances to infrastructure projects involving investments of over 1000 crore rupees.
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CCIC AND MINISTRY OF TEXTILES SIGNED MOU OF UNDERSTANDING
A Memorandum of Understanding (MoU) was signed between Central Cottage Industries Corporation of India Ltd (CCIC) and Ministry of Textiles, Government of India in March 2013. The MoU envisaged a turnover target of 9700 lakh Rupees for 2013-14 financial years.
About Central Cottage Industries Corporation of India Ltd (CCIC)
Central Cottage Industries Corporation of India Ltd (CCIC) established Central Cottage Industries Emporium for handicraft and handloom products. The body functions towards promotion of creativity of Indian craftsmen. Central Cottage Industries Emporium was conceived in 1952 by art lovers, which in turn has been working towards restoration of craftsmen as well as giving them recognition and honour.
FCI RAISED 5000 CRORE RUPEES BY ISSUING TAXABLE BONDS
The Food Corporation of India (FCI) raised 5000 crore Rupees by issuing taxable bonds backed by Government of India Guarantee in order to meet the additional working capital requirement.
The issue of bonds was opened on 21 March 2013 and closed on 22 March 2013. These bonds are of two tenures- 10 years (300 crore Rupees) and 15 years (4700 crore Rupees). The coupon rate for 10 years was 8.62 percent per annum and 8.80 percent per annum for 15 years.
Food Corporation of India (FCI) has the Cash Credit Limit with Consortium of 62 banks. At present, the Cash Credit Limit is 54495 crore Rupees which is secured by mortgaging entire stock of FCI and guaranteed by Government of India. At present, the interest rate on Cash Credit Limit is 10.79 percent monthly which eventually translates into 11.34 on annual basis. Annual interest saving through issue of this bond will be 127.54 crore Rupees.
RBI SLASHED REPO RATE BY 25 BASE POINTS; KEPT CRR UNCHANGED
The Reserve Bank of India (RBI) on 19 March 2013 cut the repo rate by 25 basis points to 7.5 per cent from 7.75 percent in its mid-quarter review of the monetary policy. The change of the Repo rate is aimed to prompt growth and revive investment.
Consequently, the reverse repo rate under the LAF stands adjusted to 6.5per cent from the earlier 6.75 per cent and the Marginal Standing Facility (MSF) rate and the Bank Rate to 8.5 per cent with immediate effect. The Cash Reserve Ratio (CRR) has been retained at 4 per cent.
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It is for the second time since the start of the year RBI has cut down the repo rate in a bid to help revive flagging growth in Asia's third-largest economy. RBI has also warned that its scope for further policy easing is limited.
The RBI will continue to actively manage liquidity through various instruments, including open market operations, so as to ensure adequate flow of credit to productive sectors of the economy.
With the change in Repo rate, the Reserve Bank of India also announced infusion of 10000 crore rupees into the financial system by purchasing government securities as part of its liquidity injection measure.
The Indian economy expanded at a 25-quarter low of 4.5% in October-December 2012 quarter, and the 2.4% rise in industrial production in January 2013 after two months of contraction suggests the recovery is still weak. The current account deficit hit a record-high 5.4 per cent in the September quarter and is expected to end the 2012/13 fiscal year at its highest level ever.
HPCL AND RAJASTHAN GOVT SIGNED A MOU FOR SETTING UP REFINERY
Hindustan Petroleum Corporation Limited (HPCL) and the Government of Rajasthan on 14 March 2013 signed a Memorandum of Understanding (MOU) at Jaipur for setting up a refinery-cum-petrochemical complex in Barmer, Rajasthan. The project will be a joint venture between HPCL and Rajasthan State Refinery Limited, apart from other equity partners.
The MoU was signed by Subhash Pant, Secretary Mines and Petroleum, Government of Rajasthan and K.Murli, Director (Refineries) of HPCL.
ABOUT THE REFINERY-CUM-PETROCHEMICAL COMPLEX PROJECT
• The refinery-cum-petrochemical complex in Barmer will be set up at an estimated capital investment of 37230 crore Rupees.
• The project will be completed in 4 years time duration. • 9 MMTPA refinery-cum—petrochemicals will be a state-of-the-art complex and will
bring benefit to the state of Rajasthan and its people. • The purpose of the refinery will be to process the locally available crude apart from
other crudes. • The refinery-cum-petrochemical complex is designed for production of motor fuels with
latest environmental specifications as well as wide range of petrochemicals.
The proposed complex will be the first of its kind to be specifically designed to produce petrochemicals from the indigenous crude oil.
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GOVERNMENT GRANTED AID TO PROTECT PASHMINA GOATS
The Union Government on 12 March 2013 decided to provide a financial assistance of 41.21 crore rupees to protect Pashmina Goat, which produces world-famous fine luxury fibre.
The idea of providing assistance came in light of concern over the recent deaths of thousands of Pashmina goats in the Ladakh region. As per the assistance, there is plan which ideates a new Pashmina Wool Development Scheme with a special package and a financial allocation of 41.21 crore rupees.
MAIN COMPONENTS OF THE SCHEME
• It includes assistance for foundation stock in new areas for Pashmina rearing activities. • Inclusion of Health coverage and feed supplement. • Strengthening of existing fodder bank and pashmina goat breeding farm. • It will also include establishment of multipurpose extension centre and pasture farm on
migratory routes. • Development of Breeder orientation training camp for research and development.
UNION GOVERNMENT TO LAUNCH 10 RUPEES PLASTIC NOTES
The Union Government and RBI on 12 March 2013 decided to introduce one billion pieces of 10 Rupees bank notes made of plastic on a field trial basis in five cities. A 10 Rupees note in polymer/plastic on a field trial basis will be introduced first; Minister of State for Finance Namo Narain Meena said it in a written reply to the Rajya Sabha.
The field trail is supposed to be conducted in five cities of Kochi, Mysore, Jaipur, Bhubhaneswar and Shimla with varied geographical locations and climatic conditions. As per the RBI, the primary objective of introduction of polymer notes is to increase its life; it could also help in combating counterfeiting.
Various agencies such as the RBI, Ministry of Finance, Ministry of Home Affairs, Security and Intelligence Agencies of the Centre and States, Central Bureau of Investigation are already working in tandem to thwart the illegal activities related to Fake Indian Currency Notes (FICN). The work of these agencies is periodically reviewed by a nodal group set up for this purpose.
FINANCIAL REGULATORS SIGNED PACT TO MONITOR CONGLOMERATES
The country's top four financial regulators on 8 March 2013 signed an agreement among each other for co-operation on consolidated supervision and monitoring of financial groups identified as financial conglomerates- large banks and other key players.
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The decision was taken at a sub-committee meeting of the Financial Stability and Development Council (FSDC) held in the Reserve Bank. The regulators who signed the pact were the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority and Pension Fund Regulatory and Development Authority.
The FSDC (Financial Stability and Development Council) meeting, chaired by RBI Governor D Subbarao also approved formulating a national strategy for financial education by incorporating the feedback received from public consultations and from a global peer review, RBI said without providing details. RBI had on 22 February 2013 released rules on allowing companies to start banks in India and such coordination among regulators is needed for effective supervision.
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UNION BUDGET AND ECONOMIC SURVEY HIGHLIGHTS
UNION BUDGET 2013-14: HIGHLIGHTS
Union Finance Minister P Chidambaram on 28 February 2013 tabled the Union budget in the Parliament for the financial year 2013-14.
P. Chidambaram was presenting his 8th Union Budget. The union Budget of 2013-14 emphasized fast track economic growth with due importance on infrastructure development, skill development, employment generation and funding for social schemes.
Three factors of Economic Concern discussed in the Union Budget 2013-14 were high fiscal deficit, slow growth and high inflation.
Expressing his confidence on India returning back to the higher growth path Chidambaram advocated for support from all quarters to navigate through economic crisis. The Union Budget of year 2013-14 stressed on achieving a growth of 8 per cent on an immediate effect.
The finance minister expressed his worry on Current Account deficit (CAD). CAD which required 75 billion Dollars to finance was high because of high import in Oil, coal and gold imports.
The Highlights of the Union Budget 2013-14 are as Follows:
• Total budget expenditure was Estimated at 16.65 trillion rupees in 2013-14
• India's 2013-14 plan expenditure seen at 5.55 trillion rupees
• To allocate 801.94 billion rupees to rural development in 2013-14
• Plan to allocate 270.49 billion rupees for agriculture in 2013-14
• RBI expected GDP growth of 5.5% for Financial Year 2013-14
• 80194 crore rupees allocation have been made for rural development schemes including MGNAREGA, PMGSY, INDIRA AWAS YOYANA. The Jawaharlal Nehru National Urban Renewal Mission will to continue during the 12th plan period.
• 3511 crore allocation to minorities which is 12 per cent hike over budget estimates, 110 crore rupees allotted for welfare of disabled.
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• 65867 crore rupees have been allocated to the Ministry of Human resources development which is 17 per cent hike over the revised estimates.
• 500 Crore rupees have been earmarked for high tech crop diversification program.
• Allocations also include 13215 crore rupees for mid day meal programme, 27,049 crore rupees for agricultural ministry and additional 200 crore to women and child Welfare Ministry.
• 14000 crore Rupees will be provided for PSB recapitalization. He will constitute a panel on transaction costs, and financial policies.
• Education gets 65867 crore rupees, an increase of 17 percent over RE for 2012-13.
• ICDS gets 17700 crore rupees. This is 11.7 percent more than the current year.
• Drinking water and sanitation will receive 15260 crore rupees. 1,400 crore was provided for setting up water purification plants to cover arsenic and fluoride affected rural areas.
• Health and Family Welfare Ministry had been allotted 37330 crore rupees.
• Small Industries Development Bank of India (SIDBI) Refinance Fund doubled to an amount of 10000 crore rupees.
• Plans of Government are to encourage PPP projects along with Coal India.
• P Chidambaram announced setting up of a new all-women's bank.
• 1000 crore Rupees initial capital for a new women's bank which will be another public sector bank. The Bank will be set up by October 2013.
• An amount of additional 10000 crore rupees allotted for Food Security Bill in FY14.
• 3000 km of road projects will be awarded in first six months of FY14.
• Finance ministry approved 50000 crore Rupees tax-free bonds in FY14. The government expects to raise 25000 crore rupees via tax-free bonds in FY13.
• Refinancing capacity of SIDBI rose to Rs. 10,000 crore.
• Technology Up gradation Fund Scheme (TUFS) for textile to continue in 12th Plan with an investment target of 151000 crore Rupees.
• 14000 crore Rupees will be provided to public sector banks for capital infusion in 2013-14.
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• A grant of 100 crore each has been made to 4 institutions of excellence including Aligarh Muslim University, Banaras Hindu University, Tata Institute of Social Sciences, Guwahati and Indian National Trust for Art and Cultural Heritage (INTACH).
• New taxes to yield 18000 crore Rupees.
• A surcharge of 10 percent on persons (other than companies) whose taxable income exceeds Rs.1 crore has been levied.
• Tobacco products, SUVs and Mobile Phones to cost more.
• Relief of Rs. 2000 for the tax payers in the first bracket of 2 to 5 lakhs.
• Voluntary Compliance Encouragement Scheme launched for recovering service tax dues.
• 9000 crore Rupees earmarked as the first installment of balance of CST compensations to different States/UTs.
LIST OF COMMODITIES WHERE TAXES CHANGED
Union Finance Minister P Chidambaram on 28 February 2013 tabled the Union budget in the Lok Sabha of Parliament for the financial year 2013-14.
P. Chidambaram presented his 8th Union Budget. The union Budget of 2013-14 emphasized fast track economic growth with due importance on infrastructure development, skill development, employment generation and funding for social schemes. In the Union Budget 2013-14, the prices of various commodities and products dwindled. While some of the products witnessed a rise in the price because of an increase in the customs duty, others saw a decline. Prices of some other products, on the other hand remained unaltered because of no change in the customs duty.
An increase in the Customs Duty was announced on following products:
Set-Top Boxes: In order to encourage domestic production of Set Top Boxes, as well as for value addition, the Finance Minister announced the doubling of customs duty on them. Now the duty will be increased from 5% to 10%.
High-End Luxury Cars, Motorcycles, and Yachts: The customs duty on imported luxury goods such as high-end motor vehicles, motorcycles, yachts and similar vehicles was increased. In the case of such motor vehicles, the duty was increased from 75% to 100%; on motorcycles with engine capacity of 800 cc or more the duty now will be 75% instead of 60%. Similarly, the duty on yachts and similar vessels was increased from 10% to 25%.
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SUVs: The Finance Minister also proposed a 3% increase in the excise duty on SUVs so that the duty on them will go up from 27% to 30%. However, such an increase will not apply to SUVs registered as taxis.
Tobacco-Products: The Finance Minister has proposed to increase the specific excise duty on cigarettes by about 18%. Similar increases are also proposed on cigars, cheroots and cigarillos. Raw Silk: The duty on raw silk has also been increased from 5% to 15%so as to give a measure of protection to domestic sericulture.
Mobile phones: Expensive mobile phones i.e. mobile phones which are priced at more than Rs. 2000 will also have to bear higher excise duty of 6%. However, mobile phones which are not more than Rs. 2000 will continue to be levied a concessional excise duty of only 1%. Air-Conditioned Restaurants: All air conditioned restaurants will be brought under the service tax net. At present service tax does not apply to those air conditioned restaurants which do not serve liquor. But now the Finance Minister proposed the uniformity of service tax for the two. Concessions in customs duty announced:
Duty on certain machinery for manufacture of leather and leather goods reduced: The Union Finance Minister proposed to reduce the duty on specified machinery for manufacture of leather and leather goods, including footwear, by 2.5%. Now the duty on such machinery will be 5% instead of 7.5%.
Duty on pre-forms of precious and semi-precious stones drastically cut: To encourage exports, P. Chidambaram also announced in the Budget 2013-14, a drastic reduction in the duty on pre-forms of precious and semi-precious stones from 10% to a mere 2%.
De-oiled rice bran oil cake: He also announced a total withdrawal of export duty on de-oiled rice bran oil cake.
Handmade carpets and textile floor coverings of coir or jute: The Finance Minister proposed to totally withdraw excise duty from handmade carpets and textile floor coverings of coir or jute. Other products and services made cheaper are: Handmade carpets, electric and hybrid vehicles, leather and leather goods including footwear, precious and semi-precious stones, rice bran oil cake, readymade garments, textile floor coverings of coir or jute, duty free gold limit increased to 50000 in case of male passenger and 100000 in case of a female passenger, imported cheaper hazel nuts and dehulled oat grain, sabudana (tapioca sago) and truck chassis.
TAX PROPOSALS
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Relief for taxpayers in the bracket of 2 lakh Rupees to 5 lakh Rupees tax credit of 2000 Rupees to every person with total income up to 5 lakh Rupees
The Union Budget 2013-14 proposed a relief of 2000 Rupees to every person with a total income up to 5 lakh Rupees in the financial year. He announced that the income slabs which were introduced in 2012-13 financial year were same and that there was no provision of revising the slabs or the rates, apart from some relief to the taxpayers in the first bracket of 2 lakh Rupees to 5 lakh Rupees.
INCOME In RUPEES WORKING MEN WORKING WOMEN SENIOR CITIZENS
Old Tax New Tax Old Tax New Tax Old Tax New Tax
2 Lakh 0 0 0 0 0 0
5 Lakh 30900 28840 30900 28840 25750 23690
8 Lakh 92700 92700 92700 92700 87550 87550
10 Lakh 133900 133900 133900 133900 128750 128750
25 Lakh 597400 597400 597400 597400 592250 592250
50 Lakh 1369900 1369900 1369900 1369900 1364750 1364750
100 Lakh 2914900 2914900 2914900 2914900 2909750 2909750
110 Lakh 3223900 3546290 3223900 3546290 3218750 3540625
Surcharge of 10 percent on persons with taxable income exceeding 1 crore rupees
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The Union Budget 2013-14 proposed a surcharge of 10 percent on persons whose taxable income exceeded 1 crore Rupees every year. This tax proposal would be applicable to individuals, HUFs (Hindu Undivided Families), firms and entities with the same tax status. The Finance Minister also proposed to increase the surcharge from 5 percent to 10 percent on the domestic companies whose taxable income exceeded 10 crore Rupees every year. In case of the foreign companies, there would be an increase of surcharge from 2 percent to 5 percent. In other cases like tax on distributed income or dividend distribution tax, the present surcharge of 5 percent was increased to 10 percent. This additional surcharge would be imposed only for 2013-14 fiscal year.
Additional deduction of interest up to 1 lakh rupees on home loan for first home buyer In the Union Budget 2013-14, it was proposed that the additional tax benefit would be facilitated to first- home buyers who would take the loan for an amount that does not exceed 25 lakh Rupees. There would be an additional deduction interest of 1 lakh Rupees. TDS at the rate of 1 percent applied on the value of transfer of immovable property exceeding 50 lakh Rupees .The Union Budget 2013-14 proposed levying TDS at the rate of 1 percent on the value of the transfer of immovable property where the consideration exceeded 50 lakh Rupees. Agricultural land was exempted.
Securities Transaction Tax (STT) reduced
The Union Budget 2013-14 proposed reducing rates of Securities Transaction Tax (STT) in respect of certain transactions. P. Chidambaram proposed the following reductions in the rates of STT:
• Equity futures: From 0.017 to 0.01 per cent
• MF/ETF redemptions at fund counters: From 0.25 to 0.001 percent
• MF/ETF purchase/sale on exchanges: From 0.1 to 0.001 percent, only on the seller Commodities Transaction Tax (CTT) introduced in a limited way; agricultural commodities will be exempted
In the Union Budget 2013-14, Commodities Transaction Tax (CTT) was introduced in a limited way. The Finance Minister announced levying CTT on non-agricultural commodities future contracts at the same rate as on equity futures that is at 0.01 percent of the price of the trade. Agricultural commodities were exempted.
TAX ADMINISTRATION REFORMS COMMISSION TO BE SET UP
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In the Union Finance 2013-14, setting up Tax Administration Reforms Commission (TARC) was proposed. The proposed commission shall be responsible for reviewing the application of tax policies and tax laws. Periodic reports will be submitted by TARC and the suggestions will be implemented for strengthening the capacity of the tax system. Clarity in tax laws, stable tax regime, non-adversarial tax administration, dispute resolution and independent judiciary – the theme of tax proposals
The major theme of the tax proposals was based on following parameters:
• Clarity in tax laws
• Stable tax regime
• Non-Adversarial tax administration
• Fair mechanism for dispute resolution
• An independent judiciary
Securitisation trust to be exempted from income tax
The Union Budget 2013-14 proposed to exempt the Securitisation Trust from Income Tax. This will help the financial institutions to securitise their assets through a special purpose vehicle. The tax will be levied at the time of distribution of income by the Securitisation Trust at the rate of 30 percent in case of companies and 25 percent in the case of an individual or HUF. No tax shall be levied on the income received by the investors from the Securitisation Trust.
DEFENCE ALLOCATIONS
In the Union Budget 2013-14, which was tabled in the Lok Sabha on 28 February 2013 by the Union Finance Minister P. Chidambaram, there is a hike of 14% on Defence Budget over the last year 2012-13, thus promising more funds required for national security.
Some of the prominent features of the defence budget 2013-14 are as under:
• The Revenue expenditure budget increase for defence is relatively less than the overall Non-Plan Revenue expenditure budget growth between RE 2012-13 and BE 2013-14;
• Gross Revenue budget for Navy declined from 12748 crore rupees in BE 2012-13 to 12394 crore rupees in BE 2013-14 (there are reductions under salaries, transportation and miscellaneous heads while there are negligible increases for repairs & re-fitment works and in respect of Coast Guard);
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• Capital budget support for the Indian Coast Guard will be less in 2013-14 –740 crore rupees in BE 2013-14 vis-à-vis. 899 crore rupees in BE 2012-13;
• The value of supplies of stores (not classified as Capital assets) from Ordnance factories to the Services will only marginally increase from 11213 crore rupees as per BE 2012-13 to 12141crore rupees provided in BE 2013-14;
• Ex-Servicemen Contributory Health Scheme (ECHS) – a welfare oriented organisation for ex-Servicemen and their dependants in the defence set-up – has been allocated less budget (Capital and Revenue taken together) for the next year as compared to the actual expenditure of 2011-12 and RE of 2012-13; and
• Virtually no funds have been earmarked for development of prototype stores in association with indigenous trade sources (a token provision of Rs. one crore has been made for the next year as against 29 crore rupees actually spent in 2011-12 and a BE 2012-13 of 89 crore rupees)
Consider the below given table for a Comparative study of last year and present year Budget
Source: IDSA
2012-13 2013-14
Defence Budget (Rs. in Crore) 193407.29 203672.12
Growth of Defence Budget (%) 17.63 5.31
Revenue Expenditure (Rs. in Crore) 113828.66 116931.41
Growth of Revenue Expenditure (%) 19.55 2.73
Share of Revenue Expenditure in Defence Budget (%) 58.85 57.41
Capital Expenditure (Rs. in Crore) 79578.63 86740.71
Growth of Capital Expenditure (%) 15.00 9.00
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SOCIAL SECTOR ALLOCATIONS
The Union Budget 2013-14 proposed relaxation in the eligibility conditions of Life Insurance Policies for persons suffering from disability or certain ailment. The Finance Minister proposed an increase in the permissible premium rate from 10 percent to 15 percent. The relaxation will be made available on or after 1 April 2013.
Government planned to evolve new criteria for determining backwardness The Union Government declared that human development indicators should be considered for determining backwardness. The Finance Minister proposed to evolve new criteria such as per capita income and other HDIs and reflect them in future planning and devolution of funds. The Finance Minister termed the Backward Regions Grant Fund as a vital source of gap funding and therefore proposed to allocate 11500 crores Rupees in 2013-14 along with another sum of 1000 crore Rupees for Wing Extremism (LWE) affected districts.
Youth to be targeted and motivated
The Union Finance Minister announced that the Union Government will release funds through National Rural Livelihood Mission and the National Urban Livelihood Mission to achieve the target of skilling 50 million people in the Twelfth Plan period including 9 million in 2013-14. P. Chidambaram announced that 5 percent of the Border Area Development Programme Fund, 10 percent of the Special Central Assistance to the Scheduled Castes sub-plan and the Tribal sub-plan and some other funds will also be used for skill development. Empowerment, safety and security of women; Nirbhaya Fund of 1000 crore Rupees announced The Finance Minister proposed setting-up of Nirbhaya Fund of 1000 crore Rupees. The minister announced that Ministry of Women and Child Development along with other concerned ministries will work upon the structure, scope and the application of the Fund. Direct benefit transfer scheme to be rolled out throughout the country
Share of Capital Expenditure in Defence Budget (%) 41.15 42.59
Share of Defence Budget in GDP (%) 1.90 1.79
Share of Defence Budget in Central Government Expenditure (%) 12.97 12.23
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The Union Government announced rolling out Direct Benefit Transfer Scheme throughout the country. The Finance Minister announced that around 11 lakh beneficiaries received the benefits directly into their bank accounts. The Finance Minister also announced that the Government would make sure that digitized beneficiaries lists are available and that bank account is opened for each beneficiary.
Scholarships announced for students belonging to SC/ST/OBC/ minorities and girl children The Union Finance Minister allocated 37330 crore Rupees to the Ministry of Health and Family Welfare in the Union Budget 2013-14. Out of this allocation, new National Health Mission which is a combination of the rural mission and the proposed urban mission, will be allocated 21239 crore Rupees, an increase of 24.3 percent over the Revised Estimate.
For the purpose of medical education, training and research, the Union Finance Minister proposed to allocate 4727 crore Rupees. The National Programme for the Health Care of Elderly was implemented in 100 selected districts of 21 States. Eight regional geriatric centers were funded for development of dedicated geriatric departments with a fund of 150 crore Rupees.
The Union Finance Minister also proposed to allocate 5284 crore Rupees to the scholarships planned for students belonging to Scheduled Castes, Scheduled Tribes, Other Backward Classes and Minorities, and girl children, in 2013-14. The Mid-day Meal Scheme will be allocated 13215 crore Rupees.
MALNUTRITION TO BE TACKLED IN MISSION MODE
The Finance Minister also announced 17700 crore Rupees in 2013-14 for the Integrated Child Development Scheme (ICDS). P. Chidambaram underlined that the main focus would remain on early childhood care and education. For the purpose of maternal and child malnutrition, the Finance Minister announced that the multi-sectoral proramme that was announced in 2012-13 would be implemented in 100 districts during 2013-14 with an allocation of 300 crore Rupees. New measures for welfare of SC/ST, women and minorities
The Finance Minister allocated 41561 crore Rupees to the scheduled castes sub plan and 24598 crore Rupees to tribal sub plan. The gender budget had 97134 crore Rupees and the child budget was given 77236 crore Rupees in 2013-14.
Apart from this, the Ministry of Women and Child Development was asked to prepare schemes for addressing concerns of women, especially single women and widows and for this an amount of 200 crore Rupees was allocated. 3511 crore Rupees were allocated to the Ministry of Minority Affairs.
ENERGY AND INFRASTRUCTURE SECTOR ALLOCATIONS
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The Union Finance Minister announced different proposals for Infrastructure and Energy Sector in India while tabling the Union Budget 2013-14 in the Lok Sabha on 28 February 2013. The proposals as announced by the Union Finance Minister are as follows:
Power
• Investment allowance of 15% for investment in plant & machinery
• 30% increase in plan expense
• CCI to take up decisions on more Power projects
• Power transmission system from Srinagar to Leh at an expense of INR 228 Crore in 2013-14
Oil and Gas
• Natural gas pricing policy to be reviewed
• Move to revenue-sharing from profit-sharing policy in oil and gas sector
• The oil and gas exploration policy will be reviewed to move from profit sharing to revenue sharing contracts
• NELP blocks that were awarded but are stalled will be cleared
Coal
• Proposal for Public-private partnership (PPP) policy framework, with CIL as one of the partners, in order to increase the production of coal for supply to power producers and other consumers.
• More focus on coal import, coal blending and price pooling of coal in short to medium term.
Infrastructure
• Road Regulator to be introduced
• Over 3000 km road projects across Maharashtra, Gujarat, and MP to be awarded in 6 months time in 2013-2014
• 2 new major ports announced in AP and WB.
• Infrastructure Debt funding - 4 of these to be in place to extend funding at lesser rate
• Tax-free infrastructure bonds of Rs 50,000 crore to be issued
Renewable Energy
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• GBI re-introduced in Wind Sector with allocation of 800 cr.
• Low interest bearing funds from the National Clean Energy Fund (NCEF) to IREDA to on-lend to viable renewable energy projects. The scheme will have a life span of 5 years.
INDUSTRIAL SECTOR ALLOCATIONS
In the Union Budget 2013-14, the Union Finance minister P. Chidambaram assigned new proposals and plans. The plans and proposals as announced by the Finance Minister are as follows:
Plans for seven new cities
Plans for seven new cities were finalized for industrial corridors and work on two new smart industrial cities at Dholera (Gujarat) and Shendra Bidkin (Maharashtra) will begin during 2013-14 financial year. Also, an all-inclusive plan was under preparation for Chennai Bengaluru industrial corridor. Preparatory work for next corridor - Bengaluru Mumbai industrial corridor was started.
Two new ports to be established in West Bengal and Andhra Pradesh
The plan for establishing two new ports in Sagar (West Bengal) and in Andhra Pradesh was under way. Apart from this, a new outer harbour will be developed in the VOC port at Thoothukkudi (Tamil Nadu) through PPP at an estimated cost of 7500 crore Rupees. Power transmission system
A power transmission system was also planned to be constructed from Srinagar to Leh. An amount of 226 crore Rupees was provided in 2013-14 financial year for this. The oil and gas exploration policy
It was decided in the Union Budget 2013-14 that the oil and gas exploration policy shall be reviewed to move from profit sharing to revenue sharing contracts. The Finance Minister announced that the policy for encouraging the exploration as well as production of shale gas will be announced. The natural gas pricing policy will be reviewed and uncertainties regarding pricing will be removed.
Support to Micro, Small and Medium Enterprises (MSMEs)
In order to facilitate assistance to the Micro, Small and Medium Enterprises (MSMEs), the refinancing capability of SIDBI was proposed to be enhanced from 5000 crore Rupees to 10000 crore Rupees. Additionally, it was proposed that SIDBI would be provided an amount of 500 crore Rupees for setting up the Credit Guarantee Fund for factoring.
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Apparel Parks to be set up
It was also proposed that apparel parks shall be set up within the Integrated Textile Parks. These apparel parks will house the apparel manufacturing units. A scheme called Integrated Processing Developing Scheme was initiated to address to environmental concerns of the textile industry. Term loans as well as the working capital to handloom sector will be made available at the concessional interest of 6 percent. This in turn will forward the benefit to 1.5 lakh weavers as well as 1800 primary co-operative societies.
RURAL DEVELOPMENT, AGRICULTURE AND FOOD SECURITY
A total of 80194 crore Rupees was allocated for Rural Development Ministry, an increase by 46 percent in 2013-14 fiscal year.
Pradhan Mantri Gram Sadak Yojana
Pradhan Mantri Gram Sadak Yojana (PMGSY)-II was proposed for the benefit of those states which have substantially fulfilled the objectives of PMGSY. The beneficiary states will be Rajasthan, Punjab, Maharashtra, Karnataka, Haryana and Andhra Pradesh.
Allocation of funds to Ministry of Agriculture
The Ministry of Agriculture got an increase of 22 percent over revised estimates for 2012-2013. The budget allocation to the Ministry of Agriculture was 27049 crore Rupees. 500 crore Rupees was allocated for initiating the programme on crop diversification.
Pilot Programme on Nutri-Farms
Apart from this, the pilot programme on Nutri-Farms will be started for the purpose of introduction of new crop varieties which are rich in micro-nutrients like iron-rich bajra. A total of 200 crore Rupees would be facilitated for starting this pilot programme. Support to Farmer Producer Organizations
The Budget will also support the Farmer Producer Organizations (FPO), which also includes Farmer Producer Companies (FPC) that has emerged as the aggregators of farm produce. This will link the farmers directly to the markets.
Agricultural Credit
Agricultural credit for 2012-13, which was 575000 crore Rupees was increased. A target of 700000 crore farm credit was fixed for 2013-14 fiscal year.
Interest Subvention Scheme
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The Interest Subvention Scheme for short-term crop loans would be continued for loans by the Cooperative Banks, RRBs, and public sector banks and will also be expanded to private scheduled commercial banks. Under this scheme, any farmer who pays back the loan on time would get credit at 4 percent annually.
National Livestock Mission
Apart from this, 307 crore Rupees was set aside for National Livestock Mission in order to attract investment and enhance livestock productivity. A sub-mission of this National Livestock Mission was also started for increasing the availability of feed and fodder.
The Union Finance Minister announced the possibility of National Food Security Bill to be passed by the Parliament and 10000 crore Rupees was set aside for incremental cost which would occur under the Act.
New Plans and Schemes rolled out in the Union Budget 2013-14:
• Nirbhaya Fund: The Finance Minister announced the setting up of a fund called the Nirbhaya Fund - with the Government contributing 1000 crore Rupees for safety and security of the women in India. The Finance Minister announced that various initiatives were underway as well as a lot more were undertaken by Government and NGOs for empowering women and providing them safety and security.
• 1000 crore Rupees scheme for training youth: A 1000 crore Rupees scheme for training youth for boosting up their employability and productivity was rolled out in the budget. The National Skill Development Corporation would be required to set up curriculum and standards for training different skills. The trained youth who will pass the test by the end of the training would get monetary reward of 10000 Rupees on an average. This initiative would motivate 10 lakh youth.
• Proposal to set up India’s first Women’s Bank as a public sector bank with 1000 crore Rupees as initial capital.
• Direct Benefit Transfer (DBT) Scheme to be rolled out throughout the country during the term of UPA Government. This scheme will help the poor. Under the scheme, a bank account will be opened for each beneficiary; and the bank account will be seeded with Aadhaar in due course.
• 10000 crore Rupees earmarked for National Food Security towards the incremental cost.
• Drinking water and sanitation will receive 15260 crore Rupees. 1400 crore Rupees are being provided for setting up water purification plants to cover arsenic and fluoride affected rural areas.
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• Proposal to launch Inflation Indexed Bonds or Inflation Indexed National Security Certificates to protect savings from inflation.
• Voluntary Compliance Encouragement Scheme launched for recovering service tax dues.
• 9000 crore Rupees earmarked as the first installment of balance of CST compensations to different States/UTs.
• The Interest Subvention Scheme: This scheme for short-term crop loans is proposed to be continued for loans by public sector banks, RRBs and Cooperative banks, and expanded to private scheduled commercial banks. Under the scheme, a farmer who repays the loan on time is able to get credit at 4 cent per year.
• National Livestock Mission: 307 crore Rupees have been provided for setting up of the National Livestock Mission. This will attract investment and enhance livestock productivity. A sub-mission of this Mission seeks to increase the availability of feed and fodder.
• Assistance of the World Bank and Asian Development Bank will be sought to build roads in the North Eastern States and connect them to Myanmar.
• The body of Rural Infrastructure Development Funds (RIDF) is proposed to be raised to 20000 crore Rupees.
• Plans for seven new cities were finalized for industrial corridors and work on two new smart industrial cities at Dholera (Gujarat) and Shendra Bidkin (Maharashtra) will start during 2013-14.
• Two new ports will be established in Sagar (West Bengal) and in Andhra Pradesh.
• A power transmission system will be constructed from Srinagar to Leh and for this 226 crore Rupees were provided in 2013-14.
• Apparel Parks are proposed to be set up within the Integrated Textile Parks, to house apparel manufacturing units.
• Standing Council of Experts: Standing Council of Experts is proposed to be constituted in the Ministry of Finance to analyse the international competitiveness of the Indian financial sector.
• A number of proposals relating to capital market have been finalized in consultation with SEBI. These include simplification of procedure and uniforms norms for foreign portfolio investors, clarity relating to FDI investment, allowing FIIs to participate in new areas, etc.
ECONOMIC SURVEY 2012-13: HIGHLIGHTS
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Union Finance Minister P. Chidambaram on 27 February presented the Economic Survey 2012-13 in the Lok Sabha of the Parliament.
India's Economic Survey for 2012-13 pegs the country's growth at 6.1-6.7% and inflation at 6.2-6.6% for the next fiscal 2013-14 and made a strong call for cutting subsidies.
Economic Survey is presented every year, just before the Union Budget. It is a flagship annual document of the Ministry of Finance, Government of India. Economic Survey reviews the developments in the Indian economy over the previous 12 months. It summarizes the performance on major development programmes, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term.
The economic survey 2012-13 was prepared by a team of economists led by Chief Economic Advisor Raghuram Rajan, and pitches for speeding up economic reforms to activate a sluggish economy. It serves as an indicator of what is likely to be contained in the General Budget proposals.
Following are the major Highlights of the Economic Survey 2012-13
• GDP growth seen at 6.1-6.7 percent in 2013/14
• Government target for fiscal deficit is 4.8 pct of GDP in 2013/14
• Government target for fiscal deficit is 3 pct of GDP in 2016/17
• Headline WPI inflation may decline to 6.2-6.6 pct by March2013
• Focus on curbing imports, making oil prices more market determined to reign in current account deficit
• Foreign Institutional Investors (FIIs) flows need to be targeted towards long-term rupee instruments
• Prioritisation of expenditure seen as key ingredient of credible medium-term fiscal consolidation plan
• Raising tax to GDP ratio to more than 11 percent seen as critical for sustaining fiscal consolidation
• Room for accommodative monetary policy with expected fiscal consolidation
• India likely to meet fiscal deficit target of 5.3 pct of GDP in 2012/13, despite significant shortfall in revenues
• Recommends curbing gold imports to reign in current account deficit
• Room to increase exports in the short run limited
• Industrial output seen growing around 3 pct in 2012/13
• Govt priority to fight inflation by reducing fiscal impetus to demand as well as by focusing on incentivizing food production.
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• More jobs in low productivity construction sector
• Balance of Payments under pressure with net exports decline
• Service sector has shown more resilience despite global slowdown
• Pitches for hike in price of diesel and LPG to cut subsidy burden
• Railway freight grows by 5.1 per cent in 2012-13
• Foreign Exchange reserves remains steady at USD 295.6 Billion at December 2012 end.
SECTOR –WISE ANALYSIS
Industrial Sector
After recovering to a growth of 9.2 percent in 2009-10 and 2010-11, growth of value added in industrial sector, comprising manufacturing, mining, electricity and construction sectors, slowed to 3.5 percent in 2011-12 and to 3.1 percent in 2012-13.
The manufacturing sector, the most dominant sector within industry, also witnessed a decline in growth to 2.7 percent in 2011-12 and 1.9 percent in 2012-13 compared to 11.3 percent and 9.7 percent in 2009-10 and 2010-11, respectively.
The growth in electricity sector in 2012-13 has also moderated. The growth of the mining sector in 2012-13 is estimated at 0.4 percent, though it showed an improvement over a negative growth of 0.63 percent recorded in 2011-12.
India is one of the top ten manufacturing countries though its share in total manufacturing value added (MVA) is only about 1.8 percent. The growth rate of world MVA had declined from 5.4 percent in First quarter of 2011-12 to 2.2 percent in second quarter of 2012-13. The latest competitive industrial performance index (CIP) compiled by the United Nations Industrial Development Organization (UNIDO), ranks India 42nd out of 118 countries the same as in 2005.
The initiatives taken for boosting the manufacturing sector included National Manufacturing Policy (NMP), DMIC Project, FDI Policy initiatives and setting up of the e-Biz Project to promote ease of doing business. Services Sector
The Centre for Monitoring Indian Economy’s (CMIE) analysis of the sector-wise performance of services activities based on firm-level data show that the performance of sectors such as transport logistics, aviation and construction in the year 2012-13 is subdued in comparison to with the previous year. High negative PAT (profit after tax) in hotel sector continued. The health services and telecom sectors were projected to have rebounded in the year 2012-13. Overall the year 2013-14 is projected to be better for most of the sectors, except retail trading, which is projected to have negative growth in
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profitability. FDI in multibrand retail trading has been permitted subject to specified conditions.
The IT and ITeS sector has started facing competition from many developing countries. While the EU has the highest share in computer and information services exports, followed by India and the USA, many new competitors like China, Israel and the Philippines have emerged in recent years. Between 2005 and 2011, the annual average growth of computer services was 69 percent in the Philippines, 28 percent in Sri Lanka, 59 percent in Ukraine, 27 percent in the Russian Federation, 37 percent in Argentina and 35 percent in Costa Rica.
One major issue in services is the domestic barriers and regulations. Domestic regulations in strict WTO terms include licensing requirements, licensing procedures, qualification requirements, qualification procedures, and technical standards but here other restrictions and barriers are also considered. An indicative list of some important domestic regulations in India which need to be examined for suitable policy reforms in the services sector include Trade and Transport services, Construction, Accountancy services, Legal services and Education Services.
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RAILWAY BUDGET
Union Railway Minister Pawan Kumar Bansal presented the Union Railway Budget for 2013-14 in Lok Sabha on 26 February 2013.
The major highlights of the budget are the introduction 106 new trains with no fare hikes. The present year railway budget laid emphasis on host of proposals for travel safety and comfort, such as escalators at key stations, a new e-ticketing system and a high-class coach in select trains.
RAILWAY BUDGET 2013-14 AT A GLANCE:
The Thrust of this year Railway Budget was on Safety, Consolidation, Passenger Amenities and Fiscal Discipline.
• Deployment of new generation energy efficient electric locomotives and EMUs.
• Five Percent Increase in freight to push Inflation.
• Elimination of 10797 level crossings during the 12th Plan and no addition of new LCs to the IR system henceforth.
• Introduction of Train Protection Warning System on Automatic Signaling Systems.
• Rigorous trials of the indigenously developed Train Collision Avoidance System.
• Four companies of women RPF personnel set up and another 8 to be set up to strengthen the security of rail passengers, especially women passengers
• Recruitment to RPF with 10% vacancies reserved for women.
• No increase in passenger fares
• 500-km new lines to be completed in 2013-14
• Diesel price hike added 3300 crore rupees to fuel bill of Railways
• Railways hopes to end 2013-14 with a balance of 12506 crore rupees
• Concessional fare for sportspersons
• Five fellowships to be announced to motivate students
• Seek to fill 1.52 lakh vacancies in railways this year. 47000 vacancies for weaker sections and physically challenged to be filled up soon
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• Target of 4000 crore rupees for railway production units in 2014
• Induction of e-ticketing through mobile phones, SMS alerts to passengers
• Free Wi-Fi facilities in select trains. 60 more 'adarsh' stations
• The number of passenger trains has increased from 8000 in 2001 to over 12000 in 2012 - yet losses continue to mount. It is estimated to be Rs. 24000 crore in 2012-13
• Proposal for setting up of Railway Tariff Regulatory Authority formulated and at inter-ministerial consultation stage.
• Supplementary charges for super fast trains, reservation fee, clerkage charge, cancellation charge and tatkal charge marginally increased.
• Complimentary card passes to Olympic medalist and Dronacharya Awardees for Rajdhani Shatabdi Trains.
• Announcement Facility and Electronic display boards in train.
NEW INITIATIVES
Some of the major Initiative proposed in Railway Budget 2013-14 are as under:
Anubhuti
• Indian Railways will introduce one coach in select trains which will provide an excellent ambience and latest modern facilities and services responding to the Increased Popularity of Shatabdi and Rajdhani Trains. Such coaches will be named Anubhuti with commensurate fare structures. Amenities for Differently-abled Passengers
• To facilitate the boarding of trains and exit from the stations for the differently-abled and the elderly, there is a proposed provision of 179 escalators and 400 lifts at A- 1 and other major stations, affixing Braille stickers indicating the layout of coaches including toilets, provision of wheel chairs and battery operated vehicles at more stations and making coaches wheel-chair friendly.
• In order to provide an employment avenue to the disabled people, there is proposal to reserve a specified number of Jan Sadharan Ticket Booking Sewak (JTBS) for them, keeping in view the fact that the PCOs at stations have become largely redundant after the mobile revolution in India. IT Initiatives for passenger benefits
• There will be now Use of Aadhar scheme by Indian Railways. The database generated, can be extensively and efficiently used by railways not only to render more user friendly services such as booking of tickets, validation of genuine passengers with GPS enabled handheld gadgets in trains, but also to provide a better interface with its employees in regard to their salaries, pension, allowances etc.
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Some of the other measures proposed under IT Initiative of Railways are:
• Extending availability of the facility of internet ticketing from 0030 hours to 2330 hours
• Making e-ticketing possible through mobile phones as a follow up to overwhelming response to IR website and Integrated Train Enquiry Service under 139, a project of SMS Alerts to passengers providing updates on reservation status is being rolled out shortly.
• Covering larger number of trains under Real Time Information System (RTIS), whereby rail-users will be able to access information through nominated websites and mobile phones.
Some measures taken to curb malpractices in reserved tickets including Tatkal are:
• Mandatory carrying of ID cards by passengers with reserved tickets
• Rigorous drive leading to prosecution of more than 1800 touts in the current year
• In case of tatkal, reduction of advance reservation period to one day, issue of tickets only on production of ID proof at PRS counters, issue of only one tatkal ticket per train per day to web service agents;
• Denial of access to agents to internet booking between 0800 to 1000 hrs. Other Major Initiatives
• A Centralised Catering Services Monitoring Cell with a Toll free number – 1800 111 321 has started functioning w.e.f. 18th January, 2013 to facilitate redressal of complaints/suggestions on real-time basis.
• For effective quality control, arrangements are being tied up with food testing laboratories in addition to third party audit. State-of the- art base kitchens are proposed to be set up in railway premises for better monitoring of quality of meals.
• ISO certification will now be insisted upon for all base-kitchens.
Green Energy Initiatives
Some of the new steps that have been taken or are proposed to be taken include:- • Setting up of Railway Energy Management Company (REMC) to harness potential of solar and wind energy
• Setting up of 75 MW windmill plants and energizing 1000 level crossings with solar power
• Deployment of new generation energy efficient electric locomotives and electrical multiple units (EMUs) saving about 60 crore units in 2011-12. Railways have also won the National Energy Conservation Award
• Encourage more usage of agro-based and recycled paper and ban use of plastic in catering.
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NEW PLANS AND SCHEMES
Some of the New Plans and Schemes proposed in Railway Budget 2013-14 are as under: • Proposal for setting up of Railway Tariff Regulatory Authority formulated and at inter-ministerial consultation stage.
• To provide a memorable experience to the visitors especially the children, a revamp plan will be rolled out for National Railway Museum in 2013-14.
• To create a corpus for meeting IR’s committed liabilities for debt servicing of JICA and World Bank loans taken for the DFC Project, it is proposed to set up a new Debt Service Fund.
• In order to meet the growing demand, 72 additional services in Mumbai and 18 in Kolkata are being introduced. Besides, rake length is being increased from 9 cars to 12 cars for 80 services in Kolkata and 30 services in Chennai.
• A target to complete 500 km of new lines has been set for 2013-14.
• There is target to convert 450 km of MG/NG lines to broad gauge during 2013-14.
• Announcement of resumption of work on new line projects of Chickmagalur - Sakleshpur and Bengaluru - Satyamangalam, which were pending for want of resources and other mandatory clearances, after State Government of Karnataka agreed to give land free of cost and bear 50% of the cost.
NEW TRAINS
Highlights of the new Trains announced
• 67 new Express trains to be introduced.
• 26 new passenger services, 8 DEMU (Diesel Electric Multiple Unit) services and 5 MEMU services to be introduced.
• Run of 57 trains to be extended.
• Frequency of 24 trains to be increased.
Metropolitan Projects/Sub-urban Services
• Introduction of first AC EMU rake on Mumbai suburban network in2013-14.
• Introduction of 72 additional services in Mumbai and 18 in Kolkata.
• Rake length increased from 9 cars to 12 cars for 80 services in Kolkata and 30 services in Chennai. State wise break up of new Trains announced
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• Karnataka gets 3 new lines, 8 express trains
• Goa gets 3 New Express trains
• Andhra Pradesh got 8 New Trains
• 13 New Trains for UP, 7 out of which went to Lucknow Only
Region Wise Break up of New Train Announced
• Eight new express trains, 11 originating trains and eight pass-through trains, six extension trains apart from 20 new lines and doubling projects fell in South Central Rail-way’s kitty in the Railway Budget announced.
• As per the budget, Central Railway (CR) and Western Railway (WR) will get a total of 17 new mail/express trains, of which 14 trains will serve either the city or state passengers.
• Further, 72 additional services of local trains, augmentation of AC local trains at WR, have also been announced.
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STATE BUDGETS
UTTAR PRADESH
The Chief Minister of Uttar Pradesh on 19 February 2013 presented a budget of 221201.19 crore rupees for the fiscal year 2013-2014 in the Vidhan Sabha. The budget presented for the upcoming fiscal year is 10.5 percent more than the budget presented in the 2012-13 fiscal year. The budget has not presented any new tax.
The state finance ministry of Uttar Pradesh is led by the Chief Minister of the State Akhilesh Yadav himself. The new budget had levied no new taxes but estimated a deficit of 2.94 percent in the new financial year.
Important points of the state budget 2013-14
• People with annual income less than 36000 rupees will be provided free houses in the state • Free education for girls in degree colleges, both in government and government aided colleges • 750 crore rupees was allocated for a loan waiver for farmers.
Budgetary Allocation of Money
• 32886 crore rupees for Education
• 20292 crore rupees for Social Welfare Schemes
• 10,654 crore rupees for Health
• 26,641 crore rupees for developing Infrastructure and Value-Addition on Bridges, Roads, Flyovers, Expressways, this is 25 percent more than the allocation made in 2012-13 budget
• 17,774 crore rupees for Agriculture
• 1,200 crore rupees for unemployment allowance
• 100 crore rupees for the development of Poorvanchal
• The state Government have allotted a sum of 350 crore rupees for its scheme Hamari Beti Ushka Kal
• 20292.92 crore rupees have been allocated for uplifting of SCs, STs, OBCs, physically handicapped, Minority groups as well as BPL families of general category
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The budget has displayed a revenue loss of 3 percent (24000 crore rupees) in the GDP. The budget has assured construction of 313 junior schools and 1200 primary schools in the 2013-14 fiscal years.
UTTARAKHAND
Finance Minister of Uttrakhand Indira Hridayesh on 20 March 2013 presented the State Budget 2013-14 a total plan outlay of 25329.84 crore rupees in the State Assembly. The Finance Minister of the state introduced no new taxes in the new State Budget. • An estimation of receipts of about 24940 crore rupees in 2013-14 was made against 21043 crore rupees in 2012-13, which showcased an increase of 18.52 percent. • The expenditure estimation for 2013-14 was proposed to be 25329 crore rupees against 21931 crore rupees in 2012-13, showing an increase of 15.49 per cent. Highlights of Budget 2013-14
Receipts
• Revenue receipts of 8955.72 crore rupees is estimated in 2013-14 against the budgetary estimates of 16158.95 crore rupees in 2012-13 and with an increase of 17.31 percent.
• Total tax revenue receipts in 2013-14 is estimated to be 11007.81 crore rupees against budgetary estimates of 9368.71 crore rupees in 2012-13, showcased an increase of 17.50 percent.
• Capital receipts of 5984.59 crore rupees is estimated in 2013-14 against budgetary estimates of 4884.10 crore rupees in 2012-13 and showcased an increase of 22.53 percent Against capital receipts, 5300 crore rupees 4766 crore rupees in 2012-13.
• Total receipts in 2013-14 are estimated to be 24940.32 crore rupees against 21043.05 crore rupees in 2012-13, showing an increase of 18.52 percent.
Expenditure
• Total expenditure in 2013-14 is estimated to be 25329.84 crore rupees against 21931.77 crore rupees in 2012-13, showing an increase of 15.49 percent.
• Non-Plan expenditure in 2013-14 is estimated to be 16619.46 crore rupees, which is 65.61 percent of total expenditure. This shows an increase of 11.67 percent against budgetary estimates of 14882.81 crore rupees in 2012-13.
• Plan expenditure is estimated to be 8710.38 crore rupees in 2013-14 as against budgetary estimates of 7048.97 crore rupees in 2012-13, showing an increase of 23.57 percent.
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• Capital expenditure is estimated to be 7275.64 crore rupees in 2013-14 as against budgetary estimates of 6214.66 crore rupees in 2012-13, showing an increase of 17.07 percent.
• Interest payment during 2013-14 is estimated to be 2540.85 crore rupees as against 2025 crore rupees in 2012-13, showing an increase of 25.47 percent.
• Pension expenditure is estimated to be 1989.55 crore rupees in 2013-14 as against 1439.80 crore rupees in 2012-13, showing an increase of 38.18 percent.
• Loan repayment has been estimated at 2152.79 crore rupees in 2013-14 as against 2297.13 crore rupees in 2012-13 showing a decrease of 6.28 percent.
• Salary expenditure in 2013-14 has been estimated at 7846.95 crore rupees as against 6913.50 crore rupees in 2012-13. This shows an increase of 13.50 percent.
Fiscal Indicators
• Revenue surplus budget of 901.52 crore rupees has been estimated, which is in conformity of FRBM Act targets. This means total revenue expenditure of the State Government is estimated to be less than the estimated revenue receipts.
• Fiscal deficit has been estimated to the turn of 3536.74 crore rupees, which is 2.92 percent of GSDP. This is well within the FRBM target of 3 percent.
Tax concessions
• Colours of Holi and Pichkaries will be exempted from VAT.
• To empower women in property matters, stamp duty exemption of 25 percent will be given up to 30 lakhs rupees (an increase from the earlier amount of 20 lakhs rupees).
• Stamp duty is proposed to be reduced from present 2 percent to 1 percent in cases of gift deeds in favour of family members.
• Stamp duty exemption of 25percent in case of property transfers to disabled persons will be enhanced from 5 lakhs rupees to 10 lakhs rupees.
• VAT rate of wire crates used for disaster prevention and flood protection works is proposed to be reduced from 13.5 percent to 5 percent.
• To encourage I.T related industries tax concession against form C will be extended till 31st March 2015 or implementation of GST.
• To encourage tourism in the State, Luxury tax will not be imposed on Spa activities.
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• To give facility to hotel industry, assessment related to luxury tax will be done annually instead of half-yearly.
• To give facility to trade and industry it is proposed that form C and H will be downloaded from the departmental web site, for which no fees is to be paid.
• For the facility of industry, the monetary limit of 5 lakh rupees on form XI under VAT rules is proposed to be abolished.
• To encourage fruit producers, VAT on fruit wine will be reduced from 32.5 percent to 5 percent.
Other Highlights
• Gender Budgeting is being done in Uttrakhand to ensure sufficient focus on women centric scheme, with the ultimate objective of women's empowerment. Gender Budget for 2013-14 has a provision of 3262 crores rupees, which is 46 percent higher than financial year 2012-13.
• To ensure security of women and speedy police action, State Women's Security Cell is being set up at state level and Women's Security Cells in every district
• For development of infrastructure facilities in SC majority areas a provision of 50 crore rupees has been included which is in addition to the other specific departmental schemes. A total provision of 946.69 crore rupees has been included under SC sub plan in 2013-14 as against the budgetary estimates of 794.50 crore rupees in 2012-13, showing an increase of 19.69 percent.
• For the welfare of minorities, 75 crore rupees has been provided in the budget 2013-14, an increase of 127 percent against financial year 2012-13.
• Provision of 40 crore rupees has been made under National Fruits Processing Mission to increase fruits processing schemes in the State.
• Despite fiscal stress, the State government has increased provision in major departments for public good
a) Education- From 4321 crore rupees in 2012-13 to 4875 crore rupees b) Health- From 996 crore rupees in 2012-13 to 1209 crore rupees c) Roads- From 1167 crore rupees in 2012-13 to 1314 crore rupees d) Drinking Water- From 429 crore rupees in 2012-13 to 588 crore rupees e) Welfare Schemes- From 1000 crore rupees in 2012-13 to 1237 crore rupees f) Agriculture and Allied- About 3400 crore rupees.
MADHYA PRADESH
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Raghavji, the Finance Minister of Madhya Pradesh on 22 March 2013 presented the State Budget of 2013-14 in State Assembly.
• Total plan outlay of 91946.86 crore rupees for the year 2013-14. The presented budget for the financial year 2013-14 is a 5214.83 crore rupees revenue surplus budget. The proposed fiscal deficit for the financial year 2013-14 was estimated to be 12218.53 crore rupees and revenue receipts was estimated to be of 79603.47 crore rupees.
• The budget aims at meeting the targets set under the Madhya Pradesh Fiscal Responsibility and Budget Management Act, 2005.
Highlights of the Madhya Pradesh Budget: 2013-14
• Total expenditure estimated for the year 2013-14 is of 91946.86 crore rupees
• Revenue surplus estimated for the year 2013-14 is 5214.83 crore rupees
• Fiscal Deficit estimated for the year 2013-14 is 12218.53 crore rupees
• Total Revenue Receipts for the year 2013-14 are estimated to be 79603.47 crore rupees and the components for the Revenue Receipts are
a) 33381.68 crore rupees that includes State’s Own Tax Revenue
b) 23693.61 crore rupees as share in Central Taxes
c) 7583.39 crore rupees as State’s Own Non-Tax Revenue
d) 14944.79 crore rupees of Central Grants
• State’s own Tax Revenue estimates are 17.91 percent higher in 2013-14 balance estimates as compared to 2012-13 (balance estimates)
• Revenue Expenditure of 74388.64 crore rupees estimated for the year 2013-14, which is 10845.14 crore rupees more than 63543.50 crore rupees for the year 2012-13 (balance estimates)
• Opening balance of (-) 195.33 crore rupees is estimated for the year 2013-14. Net transaction during the year is estimated to be 72.24 crore rupees. Hence, closing balance at the end of the year is estimated to be (-) 123.09 crore rupees
• Plan expenditure for the year 2013-14 is estimated to be 37608.17 crore rupees as against 31473.48 crore rupees for the year 2012-13, which is an increase of 18 percent
• Budget estimates in Tribal Sub-plan have increased from 6109.88 crore rupees for the year 2012-13 to 6907.15 crore rupees for the year 2013-14, which is a n increase of 13.05 percent
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• Budget estimates in Scheduled Caste sub-plan have increased from 4241.82 crore rupees for the year 2012-13 to 4889.99 crore rupees for the year 2013-14, which is an increase of 15.28 percent increase
Fiscal Indicators
• Fiscal Deficit estimated at 2.98 percent of GSDP
• Revenue Surplus estimated at 1.27 percent of GSDP
• Interest payments estimated at 8.19 percent of Revenue Receipts
• Total net debt of the state has come down to 14.30 percent of GSDP
Agriculture and Allied Sectors
• Separate Agriculture Budget for Agriculture and Allied Sectors
• Total provision of 4765 crore rupees for the development of irrigation facilities
• Work on 2 large and 10 medium irrigation schemes will be started in the year 2013-14
• Provision of subsidy of 1700 crore rupees for electricity supply to farmers
• Investment of 3000 crore rupees in the year 2013-14 for Feeder separation scheme to ensure 8 hours continuous electricity supply to farmers
• Provision of 400 crore rupees for free electricity for 5HP agricultural pumps (land up to 1 hectare) and up to 25 units per month domestic electricity consumption to SC and ST farmers/consumers
• Provision of 500 crore rupees to provide loan at 0 percent interest rate to farmers
• Provision for bonus of 150 per quintal on wheat procurement. Provision of 1050 crore rupees for this incentive
• New scheme for incentivising organic agriculture along with scheme to reward agricultural farmers at block level too. Provision of 12 crore rupees made
• Seed cum organic fertilizer drill grant to induce linear sowing
• Target of cent percent seed treatment
MUKHYA MANTRI KISAN VIDESH ADHAYAYAN YOJANA
• Provision of 9 crore and fivefold increase in the goals of State Micro Irrigation scheme
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• Provision of 32 crore rupees to establish 250 custom hiring centers for young entrepreneurs and agricultural graduates
• Provision of 4 crore rupees for semen transplantation lab to rear superior breed
• Provision of veterinary doctors at door-step extended to 89 tribal blocks
• Initiation of core banking facility in Central Cooperative Banks
• Provision of assistance in RBC 6(4) for damage of crops by black buck and blue bull.
• Provision of 12 crore rupees for proper storage of Wheat/Rice.
• Provision of 18 crore rupees for establishment of 50 new and upgradation of 123 Veterinary Hospitals.
• Provision of 55 crore rupees for integrated cooperative development projects.
• Provision of 350 crore rupees for the year 2013-14 under Annapurna Scheme.
• Provision of 27 crore rupees for fish farming for Plan expenditure which is 50 percent more than the last year.
• Short term working capital loan to fishermen at 0 percent interest rate.
Infrastructure Development
• Provision of 8856 crore rupees in the energy sector for the year 2013-14, which is 1146 crore rupees more than 2012-13.
• Provision of 2681 crore rupees for upgradation and strengthening of electricity distribution and sub-distribution
• Provision of 405 crore rupees to enhance power generation capacity
• Provision of 29 crore rupees to promote non-conventional energy
• Provision of 4970 crore rupees for road construction and maintenance
• Provision of 501 crore rupees for Mukya Mantri Gramin Sadak Yojana
• Provision of 4765 crore rupees for irrigation schemes
• 2 large and 10 medium irrigation schemes to be started in 2013-14
Panchayat and Rural Development
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• Provision of 7444 crore rupees for panchayat and rural development.
• Provision of 100 crore rupees under Mukhya Mantri Grameen Awas Mission
• Provision of 35 crore rupees under Mukhya Mantri Antyodaya Awas Yojana
• 4527 crore rupees to be transferred as grant in aid to Urban/Rural local bodies which is 21.6 percent more than the last year
Drinking Water
• Provision of 1743 crore rupees for drinking water schemes
• Provision of drinking water through handpump/water supply schemes in 13200 rural habitats
• Provision of 432 crore rupees to initiate Kshipra-Narmada link project
• Provision for drinking water facilities in 5794 Aanganwadis
• Investment of 15 crore rupees in Jal Nigam
Education
• Provision of 13763 crore rupees in education sector which is 1644 crore rupees more than last year
• Provision of 71 crore rupees for reimbursement of fees for 2.65 lack students belonging to weaker sections
• Extension of Gaon Ki Beti and Pratibha Kiran Yojana
• Establishment of new engineering colleges at Nowgaon, Chhatarpur
• Increase of 500 for stationery and 1500 for books to students of SCs and STs
• Two fold increase in scholarship for research work to students of SCs and STs
• Establishment of ITIs at Deosar in Singrauli District, Kasravad in Ujjain, Patan in Jabalpur and Majhgawan in Satna district.
• Stipend of ITI apprentice of SCs and STs Students rose from 140 per month to 235 per month Health
• Provision of 4147 crore rupees for health sector which is 551 crore rupees higher than 2012-13
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• 100 additional vehicles for 108 ambulance services (renamed as Sanjeevani-108)
• Establishment of G.N.M. schools at Dewas, Mandsaur, Vidisha, Raisen, Jhabua, Sidhi, Rajgarh, Narsinghpur, Satna and Seoni
• Sanction for operation of 150 additional ambulances
• Provision of stipend of 2500 to A.N.M., 3000 to G.N.M. and 3500 to B.Sc. Nursing trainees
• Decision to enhance the daily diet allowance from 30 to 40 for patients
Women and Child Development
• Provision of 5106 crore rupees for women and child development which is 26 percent higher than last year
• Provision of 850 crore rupees for Ladli Laxmi Yojana, which is 30 percent higher than the last year
• Provision of 111 crore rupees for construction of anganwadi buildings and 5 crore rupees for maintenance
• Introduction of new scheme to give prizes to persons protecting the dignity of women Social Justice
• Provision of 1397 crore rupees for the year 2013-14 which is 31 percent higher than last year
• Provision of 17 crore rupees for Antoyadaya Melas extended upto block levels
• Provision of 100 crore rupees under Mukhya Mantri Kanya Daan Yojana and Mukhya Mantri Nikah Yojana which is 67 percent higher than last year
• State of M.P. awarded with National Award for excellent work as employer of disabled persons on reserved seats
• Constitution of State Senior Citizen commission
Urban Administration
• Provision of 5168 crore rupees for urban administration and development which is 22 percent higher than last year
• Provision of 258 crore rupees for Mukhya Mantri Shahri Peyjal Yojana, Mukhya Mantri Shahri Swachhata Mission and Mukhya Mantri Urban Infrastructure Development Scheme • Initiation of schemes for conservation and development of ponds and lakes. Provision of 1 crore rupees made
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• New Urban Reform Scheme for reforms in urban bodies for financial, administrative, e-governance, wealth tax and consumer tariff
• Initiation of Valmiki Yojana to inspire cleanliness drive
•Provision of 150 crore rupees for Simhastha-2016
Sports
• Provision of 126 crore rupees for 2013-14 which is 21 percent higher than last year
• Players of the state have achieved glory for the state by winning 1586 medals at national and international level in 2012-13
• New scheme Olympic - 2020 from 2013-14
• Provision of 3 crore rupees to lay down Hockey AstroTurf in 15 cities
Tourism and Culture
• Provision of 158 crore rupees for tourism activities for 2013-14 which is 31 percent higher than last year
• Provision of 11 crore rupees to develop tourist centers in each district
• Provision of 141 crore rupees for culture which is 22 percent higher than last year
• Allocation of 10 crore for establishment of Sanchi Baudh Bharatiya Gyan Adhyayan Vishwavidyalaya
• Decision to establish Atal Bihari Bajpai Centre for Art and Culture at Morena
• Provision of 1 crore for celebration of 150th Birth Anniversary of Swami Vivekanand
Industry and Mining
• Provision of 907 crore rupees for industrial sector which is 40 percent higher than last year
• Provision of 340 crore rupees for Industrial Investment Promotion Assistance
• Decision to award Dattopant Thengdi Prize of 5 lacs, 3 lacs and 2 lacs respectively to first three units creating opportunities for maximum employment as against capital investment in MSME sectors
• Provision of 54 crore to benefit 50,000 youths under a new scheme Mukhya Mantri Swarojgar Yojana SC and ST Development
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• Provision of 2013-14 is 1447 crore rupees higher than the last year
• More than two fold increase under the provision of SC and ST Atrocities Act
• Relief amount enhanced from 2 lacs to 5 lacs
• Decision to provide laptop to first year students of engineering and medical colleges belonging to SCs and STs. Provision of 14 crore rupees in 2013-14
• Upgradation of 40 High Schools to Higher Secondary Schools, 20 Middle schools to High schools and 20 primary English medium schools to middle schools in tribal areas in 2013-14
• Proposal to open 20 new girl education centres (parisar)
• Proposal of additional faculty in 20 Higher Secondary schools
• Proposal of new 20 post matric hostels, 10 pre-matric hostels and 10 ashram schools
• Proposal to begin two new sports centres(parisar) for students of STs
• Decision to enhance per day diet allowance from 25 to 100 and sports kit allowance from 850 to Rs. 3000 for players residing in sports centres (parisar)
• Establishment of 119 new hostels for SC students and proposal of increase of 3000 seats in the existing hostels
• Provision of 24 crore rupees for Vimukt, Ghumakkad and Ardh Ghumakkad communities Backward Classes and Minorities Development
• Provision of 749 crore rupees for different welfare schemes for the backward classes and minority sections which is 37 percent higher than last year.
• Necessary resources have been made available to all districts for monitoring and implementation of different schemes for the welfare of minorities and backward classes Law and Order
• Provision of 3962 crore rupees for police force which is 37 percent higher than last year
•5000 new posts to be filled in the year 2013-14
• Constitution of new women crime cell. 500 new posts and provision of 23 crore rupees in 2013-14
• Necessary provisions for the new schemes like Police health infrastructure, community police, social empowerment and tourism police, state highway security and conservation, Centralized Police Call Centre and Control Room System, Automatic Finger Identification System etc
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• Sanction of 1208 posts including 52 new district and session judge and 86 Class II Civil judges
• Provision of 29 crore for this in 2013-14
• Decision to constitute Adhivakta Kalyan Nidhi for the welfare of lawyers
• Decision to enhance the fee of penal lawyers in Madhyamastha Adhikaran from ` 5,000 per case to ` 20,000 Administrative Reforms
• No ban imposed on purchases in the year 2013-14 which is the living testimony of the efficient financial management
• Decision to enhance the relief amount by 50 percent in road accident cases to the victim’s family by raising assistance from 10000 to 15000 in death case and 5000 to 7500 for serious injuries
• Decision to enhance the monthly honorarium of elected representatives and office bearers of 50 zila panchayats, 313 Janpad Panchayat and 23006 Gram Panchayat Employees Welfare
• Payment of 72 percent D.A. to state government employees and pensioners as Central Government employees as per promises made by the state government
• Decision of 725 kit allowance per year for constables and head constables of police forces
• Decision to enhance the allowances of part time sweepers, part time peons and part time clerks in schools by 300, 400 and 500 respectively. Their allowances will respectively now are 1000, 2000 and 2500.
RAJASTHAN
Chief Minister of Rajasthan Ashok Gehlot presented the Rajasthan Budget 2013-14 on 6 March 2013 in the Assembly of Rajasthan.
Ashok Gehlot had presented his 4th consecutive financial budget of Rajasthan in row.
Highlights of the Rajasthan Budget 2013-14
Total expenditure for 2013-14 expected to total 94572 crore rupees, which is a 9%
increase over 2012-13.
In 2012-13, total expenditure was 86513 rupees crore,overshooting the budget estimate
of Rs 76675 crore rupees.
In 2013-14, receipts are to increase by 8% to 81552 crore rupees mainly because of
increased tax receipts (15%).
Total tax revenue is expected to increase by 15% to 54414 crore rupees in 2013-14.
Sales tax is projected to increase by 13% and drivetax receipts growth.
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Receipts for 2012-13 are projected at 75310 crore, rupees leaving behind the 2012-13
budget estimate (68025 crore Rupees)
The government had allotted a sum of 650 crore rupees for construction of new roads
and renovation in rural areas and 9500 crore rupees for 6000 km roads.
No hike is proposed in electricity tariff for BPL and farmers.
100 crore rupees was allotted to roof top power generation Scheme in Jodhpur.
For Fiscal year 2013-14 no tax revenue is projected to increase by 11 percent.
Within taxes, sales tax is the major driver – accounting for nearly 39% of tax revenues. In
2013-14, salestax revenue is expected to increase by 13% to 21050 crore rupees.
The biggest proportion of spending by the Rajasthan government is on social services
(38% of total expenditure). This includes spending on education, health and family
welfare. Spending on these sectors is expected to increase by 16% in 2013-14.
The other major expenditure item is economic services. This includes spending on areas
like road, transport and industries and is expected to increase by 13% to Rs 27,100 crore
in 2013-14.
Spending on centrally sponsored schemes is expectedto total Rs 3,005 crore in 2013-14,
a 7.1% increase over 2012-13.
All State departments are directed to fill vacant post as per retirements in FY2012-13
There was not any hike in electricity bills for BPL and Farmers.
There will be a 125 days work MGNREGA/NREGA in budget 2013-14.
1 Rupees / Kg wheat in for BPL families instead of 2 rupees and, 5 Rupees/Kg. for APL
families instead of 8 rupees.
Senior Citizen Tirth Yatra scheme launched for 25000, with 100% expenditure paid by
Govt. of Rajasthan.
50000+ Employees will get benefits of new promotion policies of Rajasthan Govt.
Tax hiked to 65 percent from 50 percent on tobacco products.
There will be an e-payment facility in tax.
Benefits of the 6th pay commission for Rajasthan state govt. employees from 1st July
2013.
BIHAR
Finance and Deputy chief minister of Bihar Sushil Kumar Modi on 22 February 2013 Bihar presented a revenue surplus Budget for financial year2013-14 while proposing an extensive increase in tax rates, especially for tobacco products, to clean the additional revenue in the wake of a general slowdown in the economy.
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Sushil kumar Modi had presented his ninth consecutive budget since 2005-06, fixing the state's total expenditure for 2013-14 at 92088 crore Rupees. Bihar became the first state in the country to announce its road maintenance policy.
Highlights of the Budget:
The revenue surplus was estimated at 6809 crore rupees and was the salient feature of
the Budget as the fund could be used for undertaking new development projects.
The total non-plan estimated is 53081 crore rupees.
The fiscal deficit is estimated to be at 8769 crore Rupees or 2.79 per cent of the gross
state domestic product (GSDP).
The state government has proposed to make borrowings of 1819 crore Rupees from
various financial institutions to meet the expenditure requirement.
A growth of 9.5 percent, is expected in fiscal year 2013-14 which is almost double of the
national average.
The state’s outstanding public debt has been estimated at 65838 crore Rupees in 2013-
14, which is 20.96 per cent of GSDP which is an indicator of Bihar's healthy financial
condition as several states have been deeply burdened with growing public debt over
the years.
The education, road and health sectors got large share of the funds under the proposed
expenditure for the next year at 18281 crore rupees, 3357 crore rupees and 7208 crore
rupees respectively, higher by 10-20 per cent in comparison to 2012-13.
A hike in tax rates for commercial vehicles was Proposed by the Government as per
which Tractors, trailers, two-wheelers, cars, autos and buses will now cost more in the
state.
Tax on cigarettes is also increased from the present 20 per cent to 30 per cent to deter
the consumers in view of health hazards. Taxes on tobacco used for making bidi would
be 13.5 per cent.
Taxes on products like transmission tower, transformer and UPS has been raised from
five to 13.5 per cent, while entry tax has been levied on other products like furniture,
lift, elevator and battery.
In a slight relief to the consumers, the state government has exempted tax on goods like
non-incense agarbattis, coconut (in view of its religious value), kurthi (a pulse variety),
peanut and rajma.
As per announced budget women-owned and driven commercial vehicles will be tax-
free.
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The state government also announced taxes ranging from 14 per cent to 27 per cent on
various categories of vehicles like tractors, trailors, three-wheelers, taxies/cabs, buses of
different seating capacity as such revision has not taken place for 19 years.
A number of development schemes, mostly related to agriculture, irrigation and
education sectors was announced by the government with an aim to provide farming
technique and related information to the farmers,
A 100 percent hike was also announced by the government in the honorarium to the
farm advisers (krishi salahkars) from 2500 to 5000 Rupees and decided to continue with
one per cent subsidy on farm loan upto 3 lakh rupees.
The budget also brings good news for 318 legislators (from both houses) as the
government will start constructing houses for them at an estimated cost of Rs 303 crore.
DELHI
Chief Minister of Delhi Sheila Dikshit on 20 March 2013 presented 15th consecutive budget of 37450 crore rupees with launch of new schemes in different arena and launch of infrastructural development and with no fresh taxes.
Budget of Delhi 2013-14 at a Glance
• Budget of Government of NCT of Delhi in 2013-14 proposed at 37450 crore Rupees
• Plan Budget – 16000 crore Rupees
• Non-Plan Budget - 21000 crore Rupees
• Centrally Sponsored Scheme – 450 crore Rupees
• The Social Services Sectors receive the highest priority in terms of budgetary allocation under Plan and proposing an outlay of 10359 crore with a share of about 65% of total Plan Budget.
• The target of tax collection in 2013-14 is estimated at 30454 crore Rupees. Tax-GSDP ratio which was 6.43% in 2011-12 is expected to increase to 6.88% in 2012-13.
• The fiscal deficit has been projected to be reduced from 2921 crore Rupees in 2012-13 to 1268 crore Rupees in 2013-14.
• The Dilli Swablamban Yojana (DSY), a co-contributory pension scheme for unorganized sector, is proposed to be launched by Government of Delhi with an annual contribution of 1000 Rupees per person along with the equal contribution of Government of India and intend to make it Aadhaar enabled.
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• Financial support of 1000 per month is proposed to be given to the transgender who are living in Delhi for at least three years. They will also be eligible to get benefit under Dilli Annshree Yojana with effect from 1 April, 2013.
• A residential school for SC/ST/OBC/Minorities students of Delhi will be set up in 2013-14.
• The grant-in-aid to Delhi Haj Committee is proposed to be enhanced to 2 crore rupees in 2013-14 from the existing grant of 1 crore.
• A fund of 5 crore is proposed for the welfare of journalists of Delhi
• 8000 new Auto Rickshaws will be allotted to Corporate Houses on the line of theRadio Taxi. Maximum 500 permits will be given to a single corporate entity. Two Corporate entities, which will employ only women Auto Rickshaw drivers, will be allotted for 1000 permits.
• Delhi Government has identified certain specific priority areas so that the city becomes more productive and caring. These include: -To cover every poor and vulnerable resident of Delhi, not covered by other schemes, under Annshree,
• Direct benefit transfer to beneficiaries of all State Government and Central Government schemes
• Nurture and enhance the green cover so that Delhi becomes the greenest capital of the world,
• Ensure construction of upstream reservoirs for augmentation of water supply, better management of water, increased and equitable distribution of water and also cover un sewered areas within the network of sewerage system,
• Substantial improvement in the availability of housing through a series of measures,
• Boost facilities for formation and upgradation of skills to enhance employability by setting up high class Institutes.
• Ensure substantial improvement in health infrastructure and delivery toensure global tandards
• Ensure availability of 11000 buses on Delhi roads which along with additional network of Metro will make travel within Delhi safe, convenient and pleasurable
• Qualitative and quantitative improvement in the road infrastructure,
• Strengthen Bhagidari to institutionalise regular dialogue with RWAs and community groups and making them active partners in the development process from planning to execution and post-execution, and
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• Further strengthen service delivery and bring most government services within ambit of time bound delivery system.
The tax proposals as announced by the Chief Minister are as follows:
• As a major relief to small traders, the threshold limit for Registration under VAT has been proposed to be raised from 10 lakh Rupees to 20 lakh Rupees.
• A new composition scheme is to come into effect from April 1, 2013, under which dealers would be allowed to pay a tax based on their overall turnover. This scheme will enable the Works Contract dealers to discharge their tax liability in a simplified and hassle-free manner.
• The item Organic manure produced by processing of Municipal Solid Waste (MSW) is not taxable under the Delhi VAT Act. The Refuse Derived Fuel, which can be an input for energy production, presently taxed at 12.5% is proposed to be exempted.
• In order to encourage the use of malba in the manufacturing of tiles and kerbstones, it is proposed to exempt levy of VAT on tiles and kerbstones made from construction malba.
• LED lights save power and help to improve the environment. It is proposed to reduce the rate of tax on LED lights from 12.5% to 5%.
• Desi Ghee attracts VAT @ 12.5%. Butter, being a substitute of Desi Ghee, is being charged VAT @ 5%. VAT on Desi Ghee is proposed to be reduced from 12.5% to 5%.
• To encourage dealers to voluntarily admit their tax liability, it is proposed that, subject to depositing the tax due, penalties upto 80% of admitted tax would be automatically mitigated, even in cases where field inspections are carried out.
• For better tax administration, it is proposed to keep a uniform tax period for all the dealers irrespective of their turnover, i.e. quarterly. The dealers will now have to file only four returns yearly instead of twelve returns.
• To simplify setting up of business in Delhi and improving transparency, it is proposed to introduce a new facility of online registration under the Delhi Value Added Tax Act and the Central Sales Tax Act under which, entire chain of events including registration, filing of returns, payment of tax, downloading of Central Statutory Forms and Self-Assessment will henceforth be effected online.
• For improving efficiency and transparency in the tax regime, a new facility of online registration under the Delhi Value Added Tax Act and the Central Sales Tax Act has been introduced with the objective to reduce the physical interface between the Taxman and the Tax-payer.
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HIMACHAL PRADESH
Chief Minister of Himachal Pradesh Virbhadra Singh Presented the State Budget of Himachal Pardesh on 14 March 2013 in the Vidhan Sabha for a record 16th time.
The Major highlights of the Budget was the announcement of an unemployment allowance of 1000 rupees and increased salaries of PTA teachers in the Budget 2013-14 presented in the Assembly. The Chief Minister announced a skill development allowance of 1000 per month to be given to 10+2 and above educated unemployed youth.
The Chief Minister proposed hike in PTA grants to lecturer school cadre from 7250 to Rupees 10875; for the TGT from 6950 to 10425 Rupees ; and for C&V teachers from 6750 to 10125 Rupees. Budget of Himachal Pradesh 2013-14 at a Glance
• The total budget estimate for 2013-14 was of 21767 crore Rupees
• An outlay of 175 crore proposed for the state food subsidy scheme.
• Annual plan outlay of 4100 crore proposed for 2013-14.
• Under Rajiv Gandhi Digital Student Yojna 5000 meritorious students would be provided netbooks/tablet computers.
• Milk procurement price has also been increased from the 17.80 rupees a litre to 18.80 Rupees per litre from 1 April 2013.
• Each MLA would be given a budget of 2 lakh rupees as discretionary grant fund.
• Except for doubling VAT on cigarettes and bidis to 36 per cent and 22 per cent respectively and rationalisation of VAT on footwears, no other tax has been proposed in the 21767.26-crore rupees budget for next financial year.
• 618 and 837Government senior secndary schools and Government high schools would be benefitted with Smart classroom solution.
• The budget proposals, however, leave a deficit of 2324 crore rupees which would be met through borrowings.
• The budget had an announcement of 270 crore rupees to subsidise domestic power consumers and an outlay of 175 crore rupees for the state food subsidy scheme.
• The expenditure on committed liabilities has been pegged at 16003 crore rupees (73.54 per cent). Salaries, pensions and interest and loan repayments alone account for 13947 crore rupees (64.09 per cent).
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• The budget deficit was expected to be 2.85 per cent of Gross State Domestic Product (GSDP).
• The total revenue receipts are estimated at 17700 crore Rupees while the total revenue expenditure is estimated at 17646 crore Rupees leaving a revenue surplus of 54 crore Rupees.
• The expected receipts in capital account of the government are 3540 crore Rupees and 650 crore Rupees in Public Account including Provident Fund while the Capital expenditure, including loan repayments is estimated at 4120 crore Rupees
• Himachal Pradesh Government will appoint state commissioner for disposal of public grievances.
• Production of Mushroom to be treated as agricultural activity in Himachal Pradesh
• Maize, Paddy and Fodder seeds would be provided at 50% subsidy to the farmers for the Kharif season 2013.
• Patients suffering from Cancer, Spinal injuries and Dialysis medical problem would be provided free travel facility in HRTC buses along with an attendant.
• Announcement of Food and power subsidies of around 450 Crore rupees
• Financial assistance to the NGOs/Trusts for setting up and running of Gaushalas for provision of cowsheds, fodder etc.
• Procurement price of apple, mango kinnow, malta and galgal to be increased by 50 paisa per KG.
• Anti hail nets to horticulturists on 80% subsidy.
• Housing Grant under Rajiv Awas Yojna and state housing schemes to be increased from 48500 to 75000.
• Bi-monthly reimbursement of 350 to be given to BDOs, Tehsildars, Naib Tehsildars and officers in charge of police stations, chowkis and fire stations for use of mobile phone.
• Water supply at 70 LPCD to additional 2500 habitations, 2000 hand pumps to be installed during the next financial year.
• High Powered Committee for speedy clearances of Hydro projects.
• 270 crore to subsidise domestic consumers of electricity.
• 10 crore to be provided for construction and up gradation of the Bus Stands at subdivisions and blocks.
• 9% VAT on all types of footwear.
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• Cash prize given to the outstanding players of the state to be doubled. Award money of 50 Parshuram awardees to be enhanced from existing 50000 Rupees to 1 lakh.
• Monthly incentive to be increased from 15000 to 25000 Rupees and from 25000 to 40000 to encourage PG doctors to opt for interior locations.
• At least 20% women to be recruited at constable and Sub Inspector level.
• Assistance given for remarriage of widows and inter caste marriage to be enhanced from 25000 to 50,000.
• Mahila Kalyan Board will be set up in the state.
MAHARASHTRA
State Budget of Maharashtra for the year 2013-14 was presented by theDeputy Chief Minister and Finance Minister of the state, Ajit Pawar on 20 March 2013 in the State Assembly. • Ajit pawar presented the state budget for the third time and proposed it to be of 46,938 crore rupees that is 1938 crore rupees more than the 4500 crore rupees budget of the fiscal year 2012-13.
The presented budget was 184.4 crore rupees revenue surplus budget and the government also proposed to mobilize 1150 crore rupees through various tax proposals. The budget was presented with an expectation that the State’s Gross Domestic Product shall grow at a rate of 7.1 percent. Highlights of the Maharashtra budget
• To provide agricultural loan at subsidized rate allocation made: 346.75 crore rupees
• Allocation made for Agricultural Development Program: 51.04 crore rupees
• Projects for improvement in water sector were allotted: 400 crore rupees
• Water Supply Management was allotted: 850 crore rupees
• Fund allocation for responding to the National Calamities: 1050 crore rupees
• Subsidy for Industrial promotion: 2500 crore rupees
• Subsidy for supply of electricity in the power looms: 939 crore rupees
• For health institute construction budget allocation made: 477.98 crore rupees
• Allocation proposed for National Rural Health MissionL 500 crore rupees
• Proposal for allocation in Sarva Sikhsa Abhiyan: 711.50 crore rupees
• Allocation for Road Development 2716.67 crore rupees
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• Proposed allocation in the sector of women and child development: 1264.76 crore rupees
• For rural development and tourism, allocation proposed: 650 crore rupees
• States Debt: 270000 crore rupees
Tax Proposal: Highlights
• Tax on Gold, Silver and jewelries was increased by 0.10 percent to 1.10 percent from previous year’s tax of 1 percent
• To raise funds for the drought hit districts of the state, the tax on sugarcane purchase went up to 5 percent from 3 percent
• Tax on cigarette was increased from 20 percent to 25 percent and on bidi it was raised from 5 percent to 12.5 percent
• The excise duty on liquor was increased. The duty on different types of liquor was also changed and they are
a) Country liquor per liter shall go up from 95 rupees to 110 rupees
b) Indian made foreign liquor (IMFL) per liter was increased from 240 rupees to 300 rupees and the export fee of the IMFL with maximum retail price less than 500 rupees would be will also be increased and the fee will be increased to 3 rupees per bulk liter from previous 1 rupees per bulk liter. The export fee was also raised to 10 rupees from 5 rupees
c) For fragmented strong beer, the duty imposed will be 60 rupees per bulk litre from 42 rupees or 200 per cent of the manufacturing cost from 175 percent, whichever will be higher
• The flat owners of Maharashtra, who have paid the stamp duty of the apartments but the registration of the apartment are yet pending then they will be liable to pay the stamp duty as per the market rate
TAMIL NADU
The Finance Minister of Tamil Nadu O. Panneerselvam on 21 March 2013 presented the Budget 2013-14 in the legislative Assembly.
The budget of the year 2013-14 was focused on agriculture with not any imposition of taxes or not any hike proposed from the existing rates in the surroundings of the slow economic growth The Budget was focused on rural and urban infrastructure with investments going into storage and marketing infrastructure, industrial development backed by speedy implementation of infrastructure projects including in power and roads.
Budget 2013-14 of Tamil Nadu at a Glance
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• Compensation of15000 rupees was announced as part of the special relief package in the Cauvery Delta Area per acre as crop loss compensation and special compensation including advance against insurance payments to those farmers who had suffered more than 50% crop loss.
• There is also announcement of works worth 1517 crores rupees under various schemes which will be taken up in the Cauvery Delta Area, including the creation of 15000 farm ponds under MGNREGS at a cost of181 crores Rupees.
• The State will exceed the Annual Plan target of 28000 crores Rupees during 2012-2013 and the allocation has been increased to.37000 crores Rupees for 2013-2014. The plan allocation for the primary sector has been increased by 20.12%.
• During 2012-2013, the Tamil Nadu Uniformed Services Recruitment Board (TNUSRB) has recruited 12152 Police Constables, 377 Jail Warders and 791 Firemen. The TNUSRB will further recruit 17138 Police Constables, 1091 Sub-Inspectors, 1005 Firemen and 292 Jail Warders during 2013-2014.
Budget Allocation for Agriculture
• The allocation to agriculture is 5189 crore Rupees (4829 crore rupees) of the total Rs 17,220 crore to the primary sector.
• Following the 1517-crore Rupees relief package to the Cauvery Delta farmers, the Government is readying a relief package for the other districts.
• Horticulture will be expanded with 8.2 lakh acres brought under vegetable cultivation against the present 7.25 lakh acres.
• Infrastructure in agricultural markets will be upgraded and markets integrated with commodity exchanges. The objective is to increase processing, farmers’ revenue and stabilise incomes.
• Crop loan target from the cooperative sector is pegged at 4500 crore rupees for 2013-14 against 4000 crore rupees in the current year.
• To improve water use efficiency, the State Government decided to do away with the one-acre limit on small and marginal farmers to make use of subsidy for micro irrigation.
• Farmers can choose their suppliers and the subsidy will be released to the farmers’ account. Over 520 crore Rupees will be available as subsidy to cover over 1.30 lakh acres.
Budget Allocation for Infrastructure
• Government allocated 2000 crore Rupees for an infrastructure development fund and 200 crore Rupees for project preparation fund for the year.
• Key infrastructure projects have been cleared at the first meeting of the Tamil Nadu Infrastructure Development Board.
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• A new body, the Tamil Nadu State Highways Authority will be created along the lines of the National Highways Authority of India to maintain and manage State Highways.
• The biggest externally aided project will be implemented in the road sector at a cost of 8580 crore rupees covering over 1678 km.
Budget Allocation for Education
• The Government has earmarked maximum funds to school education at 16965 crore Rupees.
• Tamil Nadu was among the earliest to notify the Right of Children to Free and Compulsory Education Rules, 2011.
• Over 24.76 lakh students will receive cash benefit of 381 crore Rupees including cash incentives.
• Enrolment in higher education has gone up to 6.51 lakh students in 2012-13 (6.09 lakh).
HARYANA
Finance Minister of Haryana on 1 March 2013 presented his second budget as the Finance Minister of the State.
Highlights of the Budget are as follows:
• An outlay plan of 27071.32 crore rupees was proposed for Annual Plan 2013-14 with a growth of 18% from RE 2012-13. A growth of 17.26 % was expected in VAT to yield 19288.61 crore rupees.
• Haryana has outperformed the major States in the country in mobilizing financial resources during the 11th Five Year Plan.
• The State will achieve the target of its revenue collections of 19962 crore rupees under VAT Act, CST Act, Entertainment Duty Act, Passenger and Goods Taxation Act and Excise Act for the current year.
• Expected revenue receipts for 2013-14 is at 43780.33 crore constituting growth of 15.75% over RE 2012-13
• Excise Policy already announced by the government will yield 4000 crore rupees in Financial Year 2013-14
• Revenue deficit as a percentage to GSDP will further reduce to 0.59 during BE 2013-14 as against 0.90 in RE 2012-13.
• The ratio of salary and pension to total revenue receipts is also proposed to reduce from 38.68% during RE 2012-13 to 37.94% in BE 2013-14.
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• The debt-GSDP ratio also declines favourably from 16.50% in RE 2012-13 to 16.47% during BE 2013-14, much within the target of 22.8% prescribed by the 13th Finance Commission.
• The capital expenditure net of expenditure on food procurement is proposed to increase to 6936.99 crore in Financial Year 2013-14 as against 5509.24 crore during RE 2012-13.
Allocation to different sectors at a Glance:
Agricultural and Allied Sector
• The target for 2013-14 is to set up 600 hi-tech and mini units, produce 71.15 lakh tonnes of milk, 43000 lakh eggs and 13.80 lakh kg of wool with plan outlay of 125 crore rupees.
• 142 crore rupees is provided to the Haryana State Cooperative Agriculture and Rural Development Bank (HSCARDB) to enable the sustenance of the long term cooperative structure. During the year 2013-14, it was intend to provide a sum of 107 crore for the same purpose.
Allocation for Education sector
• For encouraging brilliant students, stipend of 750 rupees under Rajiv Gandhi Scholarship for Excellence in Education Scheme is being given benefiting 12,000 students. Likewise monthly stipends to 7.47 lakh BPL/BCA students and 8.45 lakh SC students are being provided.
• During the financial year 2012-13, 45 crore of rupees is being spent to purchase dual desks and 100 crore are provided for 2013-14 to enable the department to replace and provide new furniture for students.
• Innovative 4 year integrated B.Sc./B.Com./ B.A.–cum-B.Ed. course is being started from the year 2013-14. A number of higher professional courses and research activities would be added on the completion of infrastructure.
• State Government is implementing two flagship national programmes, viz., Sarv Shiksha Abhiyan and Rashtriya Madhyamik Shiksha Abhiyan on a sharing pattern between the Centre and the State. Both these programmes, interalia, provide for various inputs for ensuring education of reasonable quality.
• 2491.83 crore rupees was allocated on Plan side for School Education during 2013-14 which is 50% higher than the allocation for the current financial year.
• 400 crore rupees was allocated for Higher Education sector for the next financial year which is 72% higher than the allocation of current financial year on plan side.
• National Institute of Design (NID), a premier institute of the Government of India, is being established in Umri (on NH-1) in District Kurukshetra. Land measuring 20.5 acre has been provided by the Gram Panchayat Umri for this institute of national importance.
• Extension Campus of IIT Delhi is being established at Rajiv Gandhi Education City, Kundli, and District Sonepat for which HUDA has allotted a site measuring 50 acres.
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Sports and Youth Affairs
• The Government is constructing 227 Sports Stadia called Rajiv Gandhi Gramin Khel Parisar in different blocks of the State. Out of these, 158 such stadia have already been completed.
• The Government has implemented Fair Play Scholarship Scheme to provide equal opportunity in sports to those belonging to the weaker section of the society.
• The new Excise Policy, the amount assigned for promotion of sports has been increased from 0.50 rupeeto 1 rupee per bottle on the sale of country liquor, IMFL and Beer. This will mobilize an additional amount of 20 crore for the sector.
Women and Child Development
• The State has spent128 crore for the construction of 3147 Anganwadi buildings. The State has also augmented the resources for the construction of Anganwadi buildings by taking the NABARD assisted projects RIDF XVI and XVIIworth 164 crore for the construction of 1930 Anganwadi buildings.
• 891.99 crore rupees was allocated for this sector during 2013-14 which is 214.30 crore (32%) higher than the allocation for the current year. This includes 780.96 crore on Plan side and 111.03 crore on Non Plan side.
Social Justice and Empowerment
• Government has taken a series of effective steps to provide social security to the Aged, Widows, Destitute Women, Handicapped Persons, Eunuchs, Dwarfs, Persons belonging to Minority Communities and Families having only Girl Child.
• Under the existing scheme “Scholarship to Physically Handicapped Students”, scholarship is given to physically handicapped students of 400 rupees to 1000 rupees per month.
• Training and Research for Mentally Retarded Persons (SIRTAR) has been set up at Rohtak with an investment of 2.18 crore rupees.
Urban Local Bodies
• Various initiatives are being taken by the Department to improve the civic amenities in urban areas in the State
• The State Government had launched the Rajiv Gandhi Urban Development Mission (RGUDMH) for urban infrastructure development programme on a mission mode approach, in all the urban local bodies of the State.
• A total sum of 16.86 crore has been approved by Government of India for the State to make the 9 cities slum free (Gurgaon, Faridabad, Karnal, Panchkula, Rohtak, Panipat, Ambala, Yamunanagar and Hisar) under Rajiv Awas Yojana.
Roads
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• During the year 2012-13, 1853 Kms. roads with an expenditure 1165.00 crore under various schemes have been repaired inspite of poor availability of aggregates due to ban on quarrying in Haryana.
• The Govt. of Haryana has approved following five roads stretches to be improved under PPP mode:—
o Meerut-Sonepat upto Bahalagarh Chowk (Length 11.58 km).
o Panipat-Sanoli road SH-16 (Length 18.31 km)
o Kond-Munak-Salwan-Assandh road MDR 114 (Length 37.85km).
o Palwal-Aligarh upto border (Length 15.41 km).
o Karnal-Meerut Road (Length 15.40 km).
Power
• The establishment of 2800 MW (4x700 MW) Nuclear Power Plantat village Gorakhpur in district Fatehabad has been approved.
• For up-gradation of the transmission network in the State, about ` 1800 crore is planned to be spent in the years 2012-13 and 2013-14.
• To assist the beleaguered Power Distribution Companies, the government has given its in-principle concurrence for joining the Government of India in its new Scheme titled as Scheme for Financial Restructuring of Distribution Power Utilities.
• A total of 5232.97 crore rupees was allocated for this sector during 2013-14. Which includes 965.09 crore on Plan side and ` 4267.88 crore on Non Plan side.
New Initiatives
Some of the new initiatives undertaken by the Government of Haryana as under the Budget are as follows:
• The State Government proposes to launch an ambitious housing scheme name Priyadarshini Awaas Yojna (PAY) in the budget for the year 2013-14 to facilitate the housing delivery in rural areas.
• Each of the beneficiaries, under the scheme (PAY), will be given financial assistance of 81000 rupees by the State as grant for the construction of a new house.
• In order to cater to the requirement of affordable housing for the weaker sections residing in the Urban Areas, the Government proposes to construct 1.50 lakh houses during the next financial years 2013-14 and 2014-15 through Housing Board Haryana, Urban Local Bodies and Town & Country Planning Department.
• Aam Aadmi Bima Yojana (AABY) is being started during 2013-14 for which 37 crore are being provided.
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• In order to cater to the requirement of affordable housing for the weaker sections residing in the Urban Areas, the Government proposes to construct 1.50 lakh houses during the next financial years 2013-14 and 2014-15 through Housing Board Haryana, Urban Local Bodies and Town & Country Planning Department.
• For effective and efficient implementation of the District Plan Scheme, the Government has constituted the District Development and Monitoring Committee in each district under the chairmanship of the Minister in- charge of the District Grievances Redressal Committee.
• State Government has set up four permanent Commissions in this financial year in public interest.
• State Government has also approved the constitution of 21 Fast Track Courts, one in each district, to expedite the trial in crime against women.
• Rajiv Gandhi Panchayat Sashaktikaran Abhiyan (RGPSA) is a new umbrella scheme which is being started during 2013-14 and will strengthen the Panchayati Raj System across the State and address critical gaps that constrain it. 85 crore of rupees have been allotted to this scheme.
• For investment in Sports Infrastructure and promotion of sports through a multi-pronged approach, an outlay of 100 crore rupees was allocated under Plan side giving an increase of 100% from last year.
• Under the National River Conservation Programme, two projects for augmentation of sewerage facilities and construction of Sewage Treatment Plants for Sonepat and Panipat towns have been approved at a cost of 88.36 crore and 129.51 crore rupees respectively to be completed by 2015-16.
• The State Government has approved NABARD assisted project of 68 crore for construction of 6095 separate toilets for girls along with 2910 hand pumps for water in 2910 Government High/Higher Secondary Schools in rural areas of the State.
• State Livestock Mission is being set up with a provision of 1 crore during 2013-14 to provide support for conservation of genetic resource, improvement of valuable native breeds, their health and nutrition etc. To set up Gau-Sewa Ayog, 1 crore has been provided in 2013-14.
• Extension of Delhi Metro to YMCA Chowk Faridabad with the corridor length of 13.875 KMs is being executed at a cost of `2494 crore. For this, Government of Haryana is contributing 1557.40 crore.
• Cashless medical facility will be implemented from the year 2013-14, for the employees of the Government of Haryana, its PSUs, Local Bodies, Cooperative Institutions, Autonomous Bodies, etc. to fulfill their expectation
ANDHRA PRADESH
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Anam Ramnarayana Reddy, the Finance Minister of Andhra Pradesh on 18 March 2013 presented the budget for the year 2013-14 to the Andhra Pradesh legislature.
Budget 2013-14 of Andhra Pradesh at a Glance
• For the financial year 2013-14, government proposes an expenditure of 161348 crores Rupees. Non-plan expenditure is estimated at 101926 crores Rupees and Plan expenditure at 59422 crores Rupees. • The estimated revenue surplus is 1023 crores Rupees and fiscal deficit is estimated at 24487 crores Rupees at 2.85 percent of GSDP
• First ever exclusive Agriculture action plan was presented to the Legislature.
• The revised estimates of 2012-13 indicate a revenue surplus of 1685 crores against the budgeted revenue surplus of 4444 crores Rupees. The fiscal deficit is estimated at.21129 crores Rupees which would be 2.86% of GSDP.
• The Gross State Domestic Product of Andhra Pradesh (GSDP) at current prices for the year 2012-13 as per the Advance estimates is 738497 crores rupees - an increase of 12.72 percent over the quick estimate of the GSDP of the previous year.
• The interest subvention scheme of Vaddileni Runalu is launched for the benefit of the farmers. An allocation of 500 crores rupees is made in the budget.
• A provision of 6128 crores rupees is proposed in year 2013-14 for Agriculture and Allied Sectors. • The allocation for Social Welfare department is 4122 crores rupees in 2013-14. The allocation has been increased by 1445 crores Rupees over 2677 Rupees crores allocated in the year 2012-13. • Five Districts i.e. Rangareddy, Hyderabad, East Godavari, Ananthapur and Chittoor are selected for implementation Aadhar Enabled Payment of all benefits in the first phase.
• Under the economic support schemes, Government is implementing the SC action plan so as to provide assistance to 66213 beneficiaries with an outlay of 423.86 crores rupees.
• For improving health infrastructure in tribal areas, Government have sanctioned buildings for (59) PHCs, (238) Sub-Centres and (19) CHNCs with a cost of 45.97 crore Rupees under NRHM.
Different new initiatives were launched by the Government in light of Integrated Rural and Urban development Programme. Find here the high points of the Initiatives
• A Skill Development Fund (SDF) has been established for implementation of RYK (Rajiv Yuva Kiranalu) which will leverage all funds meant for skill building among youth.
• The Government have accessed 12525.66 crores Rupees for 253 Projects under Government of India’s Flagship urban programme of Jawaharlal Nehru National Urban Renewal Mission (JNNURM) to improve the infrastructure in the urban areas of the State.
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• Government has taken up training programmes through Mission for Elimination of Poverty in Municipal Areas (MEPMA)
• The state government will spend an additional amount of 1980 crores Rupees towards costs of land acquisition and relief and rehabilitation for the Hyderabad Metro Rail project.
• The Government is committed to bring in Godavari waters and execute Krishna Phase – III project to meet the drinking water needs of Hyderabad city. The outlay for the projects are 3725 crores Rupees and 1670 crores Rupees respectively.
• During 2013-14, the government will be investing 1738 crores Rupees by leveraging funds under National Rural Health Mission and 13th Finance Commission grants in addition to our own resources to strengthen the Health Service Delivery System.
• To improve access to engineering education, new constituent engineering colleges of JNTU have been sanctioned at Manthani (Karimnagar) with the help of Singareni Colleries, Singur (Medak) and Kalikiri (Chittoor). Five new polytechnics were opened this year at Chinamerengi (Vizianagaram) Narpala (Anantapur) Kosigi (Mahaboobnagar), Cheriyal (Warangal), and Chegunta (Medak).
• The Mid Day Meals scheme is implemented upto Class-X benefitting 70.54 lakh children in 61415 Primary, 9216 Upper Primary and 10292 High Schools. It is also proposed to construct Kitchen sheds during the year 2013-14 across all schools.
• Under Rastriya Madhyamik Siksha Abhiyan Scheme construction of 2143 School Buildings at a cost of 670.89 crores rupees has been approved by the central government.
• The Government has decided to formulate a Master Plan for Road connectivity in Scheduled Tribal Area / IAP area to take up road connectivity works in an integrated manner.
• Government of India has communicated in-principle approval for two National Investment and Manufacturing Zones (NIMZ) at Pileru in Chittoor district and another in Zaheerabad in Medak District.
• Mee Seva, an online web based citizen-centric service facility has been set up to provide access to the citizens for getting services from multiple Government offices.
• Responding to the current adverse seasonal conditions in the State, Government has sanctioned an amount of 332.35 crores Rupees and released 70 crores Rupees to meet the immediate requirement for supply of water in rural and urban areas of the State.
• For districts affected with Left Wing Extremism, Government has accorded priority to construction and strengthening of fortified Police Stations
• Government is also continuing with its much acclaimed outreach programme, Revenue Sadassulu to resolve land disputes and other grievances of the people.
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• Government has constituted Tenth Pay Revision Commission in March 2012.The Pay Revision Commissioner has also since assumed charge.
• The online system introduced to provide a tool to the Departments to manage distribution of LOC efficiently and Electronic payment of bills (RTGS and NEFT) directly into the accounts of the payees.
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CORPORATE WORLD UPDATES
EUROPEAN COMMISSION APPROVED TAKEOVER OF NYSE-EURONEXT
The European Commission (EC) on 26 June 2013 approved Inter Continental Exchange’s (ICE) proposed 8.2 billion dollars takeover of NYSE-Euronext.
The European Commission stated that ICE and NYSE-Euronext are not direct competitors in most markets and will be facing strong competition from other exchanges.
Inter Continental Exchange is based in Atlanta, Georgia and is popular as a commodities marketplace. It announced its stock-and-cash offer for NYSE—Euronext, valued at 33.12 dollars per share, in December 2012.
The deal is supposed to give ICE control of the New York Stock Exchange and London-based Liffe, Europe’s second-largest derivatives market. The combined ICE—NYSE Euronext will become the third-largest exchange group globally, behind Hong Kong Exchanges and Clearing and CME Group.
It is worth mentioning here that the Commission approval had been widely expected: after a joint bid for NYSE—Euronext by ICE and Nasdaq failedin year 2012. The ICE had proactively asked the Commission to examine the new bid.
The deal was approved by NYSE-Euronext shareholders earlier in June 2013 and is expected to close in the second half of 2013.
STRIDES PHARMA RECEIVED WHO PRE-QUALIFICATION
Strides Arcolab Pharma, the drug firm on 25 June 2013 announced that it was given World Health Organisation (WHO) pre- qualification for the anti-malarial tablets which will be launched immediately. These tablets are called Artemether and Lumifantrine (AL) tablets.
The Artemether and Lumifantrine (AL) tablets consist of more than 80 percent artemesinin combination therapy (ACT), which is procured under Global Fund as well as similar programmes. This is said to be yet another initiative of Strides Arcolab Pharma for making affordable and high quality medicines which will be available in African sub-continent as well as other middle-income countries.
World Health Organisation (WHO) pre- qualification of medicines is actually the service which is provided by the WHO in order to assess safety, quality as well as efficacy of the medicinal products. It is very important to note that in the year 2002, Artemether and Lumefantrine tablets were included to the WHO’s list of Essential Medicines.
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Artemether and Lumifantrine (AL) tablets of Strides Arcolab Pharma will be produced at the US Food and Drug Administration approved and WHO pre-qualified facility in Bengaluru.
There were more than 300 million new malaria cases detected in the year 2011 in Africa alone. With the approval of Artemether and Lumifantrine (AL) tablets, Strides Arcolab Pharma has become the only pharmaceutical company to offer complete treatment portfolio for diseases such as malaria, TB and HIV. These three are the major diseases which plague the middle-income as well as low income countries.
MUTHOOT FINANCE GOT APPROVAL TO ESTABLISH WHITE LABEL ATMS
Muthoot Finance got in-principal approval from the Reserve Bank of India (RBI) for establishing as well as operating White Label ATMs (WLAs). The White Label ATMs (WLAs) are the ones which are not owned and operated by the bank but by another non-bank entity. By paying a stipulated fee, anyone can use it for the purpose of financial transaction with any other bank branch.
As the part of RBI’s Scheme A, Muthoot decided to establish 9000 ATMs. According to this scheme, Muthoot Finance will establish 1000 ATMs in first year, 2000 in second year and 6000 in third year.
Muthoot Finance already began the process of identification of sponsor banks. Apart from this, the company has also decided to finalise the network of ATMs all over India. RBI decided to have more WLAs in tier-III to tier-VI centres of Muthoot Finance.
RBI GUIDELINES UNDER SCHEME A
Under this scheme, RBI gives the approval in case a company establishes a minimum of 1000 ATMs in first year, twice the number of first year in second year as well as thrice the second year’s installation in third year.
Under the Scheme A, for every 3 WLAs installed in tier-III to VI centres, one WLA is allowed to be installed in tier-I to II centres. Out of the total WLAs installed in tiers-III to VI centres, at least 10 percent should be installed in tier-V & VI centres.
As of now, only the banks were allowed to establish the ATMs as the extended delivery channels. Then, RBI allowed even the non-banking entities to establish, own as well as operate the WLAs for expansion reach in tiers-III to VI.
WORLD GOLD COUNCIL ESTABLISHED LOCAL UNIT IN INDIA
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The World Gold Council established its complete local unit in India with the full-fledged corporate structure. As of now, the World Gold Council was operating in India as the liaison office only.
This corporate structure will help the World Gold Council in taking up the activities on much larger scale in Indian markets. This will help the World Gold Council in entering in the commercial arrangements with major gold industry players as well as the banks. As of now, as the liaison office, World Gold Council was able only to promote existence of its parent company. It was not able to promote the individual products of the Indian entity.
At present, the Reserve Bank of India forbids any liaison office established in India to enter into commercial activity of any kind in India.
In the year 2011, the World Gold Council had signed a memorandum of understanding with India Post in order to promote gold medallion in India through postal network. At that time, World Gold Council had also agreed to get involved in promotional as well as advertising activities for the sale of gold medallions through India Post.
The World Gold Council is actually the non-profit organisation of leading gold mining companies of the world. It was established back in 1987 for promotion of use of gold. The aim of World Gold Council is to stimulate gold demand from investors, consumers and industry.
TATA COMMISSIONED A 1MW GEOTHERMAL PLANT IN AUSTRALIA
Tata Power with Geodynamics commissioned a 1 MW geothermal plant in Australia, thereby strengthening the footprint in overseas market. Tata Power already has a minority stake in Geodynamics, which is an Australia-based leading player in Enhanced Geothermal System (EGS) technology.
Tata Power has an objective of 20-25 percent generation portfolio from clean energy. Geodynamics, in the meanwhile, already has its geothermal exploration interests in three Australian states. It also includes the license for exploration of 2000 square kilometres of the area in Cooper Basin.
The housing of Geodynamics in the Cooper Basin contains the hottest granites on earth. It is estimated that this housing of Geodynamics in the Cooper Basin can facilitate the thermal resource equivalent of 50 billion barrels of oil.
Apart from a geothermal plant in Australia, Tata power is also implementing the 250 MW geothermal projects, in Indonesia. This will be in partnership with the Origin energy and PT Supraco.
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The geothermal energy is a form of natural heat which is found in the Earth as well as in Enhanced Geothermal System (EGS) technology. The extraction of heat takes place from within the granites which are found at a depth of over 4000 metres.
EXIM BANK GRANTED LICENSE TO OPEN REPRESENTATIVE OFFICE
The Export Import (EXIM) Bank of India announced on 19 June 2013 that it received a license for opening the representative office in Yangon, Myanmar. The license was granted to the EXIM Bank by U Thein Zaw, Deputy Director General, Financial Institutions Supervision Department, Central Bank of Myanmar.
EXIM Bank extended seven lines of credit (LOC) worth a total of 247.43 million US dollar to Myanmar Foreign Trade Bank (MFTB). Through these LOCs, a range of projects such as setting up Moreh-Tamu OFC link, manufacturing of Tata vehicles, upgradation of the Yangon - Mandalay railway system, upgradation of Thanbayakan Petrochemical Complex, Thanlyin refinery projects, setting up of three transmission lines and assembly and manufacturing plant for assembly are being carried out.
Apart from all these projects, during PM Manmohan Singh’s visit to Myanmar in May 2012, a Memorandum of Understanding (MOU) was signed between EXIM Bank and MFTB for LOCs aggregating to 500 million US dollar. Under this MoU, 16 ongoing irrigation schemes, projects for the purpose of procurement of rolling stock, two irrigation projects as well as upgradation of 3 main railway workshops in Myanmar need to be covered.
The overall trade of India with Myanmar increased 4.1 percent and touched 1.9 billion US dollar in 2013-14 financial year.
TATA COFFEE INAUGURATED PREMIUM EXTRACTION PLANT AT TN
Tata Coffee, the largest plantation company of Asia on 19 June 2013 inaugurated the premium extraction plant at Theni near Madurai in Tamil Nadu. This plant is opened for the processing of coffee beans into freeze dried powder, which in turn can be used for export purpose to the international markets.
IMPORTANT POINTS RELATED TO THE EXTRACTION PLANT
The extraction plant is established at a cost of 80 crore Rupees.
The plant has an installed capacity of 2000 tonnes per annum.
This is a hi-tech plant which is inaugurated with a purpose of producing freeze dried; spray dried and agglomerated instant coffee, while at the same time keeping its aroma intact.
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The freeze dried coffee has an advantage of retaining the aroma in a better way, while at the same time giving rich colour, flavour as well as appearance to this beverage.
This extraction plant is situated at the instant coffee manufacturing facility of Tata, which is around 170 km away from Tuticorin port in the southern part of the state. The instant coffee facility of Tata is the 100 percent export-oriented unit which has the installed capacity of 4000 tonnes per annum.
It is important to note that the Theni plant had become top most exporter of the soluble coffee to Russia as well as CIS countries in the 2012-13 fiscal year.
ABOUT TATA COFFEE
Tata Coffee is the subsidiary of Tata Global Beverages Ltd.
It produces a total of 10000 tonnes of shade grown Arabica and Robusta beans in 19 estates all over South India.
Also, it exports green coffee to Gulf countries, Asia, Europe and North America regions.
It is the largest integrated coffee plantation company of the world.
ICSI AND NISM SIGNED AN MoU
The Institute of Company Secretaries of India (ICSI) and National Institute of Securities Markets (NISM) signed a Memorandum of Understanding (MoU) for the purpose of joint promotion of corporate as well as securities market governance.
Major points of the MoU:
Under the MoU, the professionals of securities market will get training in the corporate governance matters.
Also, the company secretaries will get training on the issues of securities market, under the signed MoU.
Both ICSI and NISM will together take up the research projects as well as publish the papers on various subjects such as sustainability reporting, corporate social responsibility, corporate governance and financial markets.
Apart from this, ICSI and NISM, under the signed MoU will jointly conduct the development programmes for top managements or the directors in various areas such as finance and management, accounting, corporate laws and corporate governance
VENUS REMEDIES LTD RECEIVED PATENT FOR POTENTOX FROM MEXICO
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Venus Remedies Limited, the global pharmaceutical company received novel antibiotic product Potentox patented from Mexico. The patent was granted to it by the Mexican Institute of Industrial Property (IMPI). The patent will provide it protection of composition of Potentox.
The patent will facilitate the company with an exclusivity period for Potentox up to 2025. Potentox is also patented from other countries such as Ukraine, Canada, South Africa, South Korea, New Zealand, Australia, USA and India.
Potentox is the Antibiotic Adjuvant Entity (AAE). It is the drug used for treatment of hospital-acquired pneumonia as well as febrile neutropenia infections which are caused by quinolones or aminoglycoside-resistant microbes. This drug is growing at the compound annual growth rate (CAGR) of 50 percent since 2010.
The overall international market for the treatment of hospital-acquired bacterial infections was found out to be 9 billion US dollar in 2010. Potentox is composed for addressal of demands of around 50 percent of this market.
SUBRAMANIAN RAMADORAI APPOINTED CHAIRMAN OF AIRASIA INDIA
Subramanian Ramadorai, former head of the Tata Consultancy Services (TCS), was appointed as the Chairman of AirAsia India on 18 June 2013.
ABOUT SUBRAMANIAN RAMADORAI
Subramanian Ramadorai, at present is the Advisor to Prime Minister Manmohan Singh in the national council on skill development.
He also holds the rank of cabinet minister in the Government of India.
He is the Vice-Chairman of TCS.
He received various awards which also include Padma Bhushan and Commander of the Order of the British Empire.
With the appointment of S. Ramadorai, majority of AirAsia board now consists of Tata Group representatives. AirAsia is a joint venture company along with Arun Bhatia of Telestra Tradeplace and the Tata Group. Mittu Chandilya is the head of operations of AirAsia India.
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Earlier in April 2013, The Government of India cleared proposal of AirAsia to invest 80.98 crore Rupees in Indian subsidiary.
RATAN TATA APPOINTED AS CHIEF ADVISOR OF AIRASIA INDIA
AirAsia on 17 June 2013 appointed Ratan Tata, the ex-chairman of the Tata Group as the Chief Advisor of AirAsia’s India board.
Ratan Tata paved the way for creating joint venture between AirAsia, Arun Bhatia of Telestra Tradeplace and the Tata Group. In the joint venture, AirAsia has 49 percent share, while Tata has 30 percent share. Remaining 21 percent share is held by Arun Bhatia.
It is expected that AirAsia will bring competitive pricing in aviation market of India. AirAsia will start its operations by 2013 end.
MAERSK LINE UNVEILED WORLD'S BIGGEST CONTAINER SHIP
Maersk Line on 14 June 2013 unveiled the World’s Largest Container ship. With the launch of the new fleet of super-size vessels, Denmark’s Maresk Line hope to deliver better saving and returns in form of profits in the industry that is suffering due to overcapacity, cut-throat competition and weak economies.
The 55000 tonne ship has been named as Maersk McKinney Moller (on the name of son of Maersk group founder). The ship was unveiled in the South Korean Shipyard, where it was built. Maersk Line is a unit of the oil and shipping group A.P. Moller-Maersk. These are also called Triple E vessel because of its design standards, which is based on Economies of Scale, Energy Efficiency and Environmental Improvements.
The length of the newly launched vessel is equivalent to four football pitches and it has been developed at an expense of 185-million US dollars and is the first of the twenty ships that is to be delivered to Maersk Line. The Maersk McKinney Moller vessel is 400 meter long and 59 meter wide and has a capacity of transport 18270 containers of size 20 foot.
ABOUT MAERSK LINE
Maersk Line is the global containerized division of the A.P. Moller – Maersk Group. The first Maersk Line vessel sailed in 1904.
INDUSIND BANK AND WESTERN UNION BUSINESS SOLUTIONS TIE UP
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IndusInd Bank, the private sector bank tied up with Western Union Business Solutions in order to provide effective foreign exchange payments for SMEs or small and medium enterprises in India. IndusInd Bank additionally signed two Western Union’s licensed agents as their referral agents in order to help marketing of these services in India. This service will go live in 22 cities of India and its aim is to provide doorstep service to its clients.
Small as well as mid-sized enterprises play a crucial role for the economy of India. There are around 30 million Indian SMEs which contribute significantly to the GDP of India. The tie up will help these SMEs in getting access to the foreign exchange products. Also, the tie up will allow the SMEs in increasing the efficiency as well as ease with which these companies trade with the global partners.
CCI APPROVED MYLAN-UNICHEM DEAL
The Competition Commission of India (CCI) on 10 June 2013 has approved acquisition of a manufacturing facility of Unichem Laboratories by pharma firm Mylan Laboratories.
As per the deal Mylan will acquire the newly established manufacturing facility pharma company, Unichem located in a Special Economic Zone in Dhar district of Madhya Pradesh, from. It makes 'Finished Dosage Forms (FDFs).
It was after carrying out of the agreement between Mylan and Unichem on 11 March 2013; Mylan had approached CCI for its approval in April 2013.
Earlier it was observed that the planned acquisition by Mylan was with the objective to export products to be manufactured at the company facility. But, it was noted by the regulator that the deal is not going to affect any market in India as Mylan is neither acquiring any shares, voting rights or control in Unichem nor any brands or intellectual property rights from Unichem.
Mylan has 11 manufacturing facilities in India, of which 8 facilities are for manufacture of Active Pharmaceutical Ingredients (API) and two are for making FDFs. Whereas Unichem have seven manufacturing facilities in India, of which 2 facilities are for manufacture of APIs and five are for FDFs which form the core of its business.
MICROSOFT INDIA AND JIS GROUP TO SET UP INNOVATION CENTER
Microsoft India on 11 June 2013 announced its partnership with the Kolkata-based JIS Group for setting up its innovation centre.
The new innovation will be set up in Kolkata, the eastern region of the country which will allow students access to Microsoft's laboratory facilities. The name of the programme, sponsored by Microsoft, is Ed-Vantage and will equip students to get directly absorbed in industry.
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The benefit of the innovation centre is that students can get access to Microsoft products ahead of their market launch through the laboratory. This is counted to be Microsoft's first and only tie-up in the eastern region. Overall Microsoft has tie-ups with 10 other educational institutions around the nation catering the needs of approximately 8000 students that are enrolled into the programme.
Through the Programme at innovation centre employment facilitation will be provided to 100 odds students and around 250 students of JIS will be selected for internship across industry.
RIL ANNOUNCED TO INVEST 1.5 LAKH CRORE OVER NEXT THREE YEARS
Reliance Industries (RIL) announced that it was planning to invest a whooping amount of 1.5 lakh crore Rupees or 26 billion US dollar by 2016. The RIL Chairman Mukesh Ambani, at the Annual General Meeting held on 6 June 2013 announced that this investment will be embarked and that it would be the largest ever investment undertaken by the company.
Pointing out about the commencement of Silvassa Petchem plant in 2013, Mukesh Ambani declared that RIL will become one of the top 5 Petchem producers of the world as RIL will expand its petchem capacity from 15 mtpa to 25 mtpa.
The resource base of the RIL will also add significantly to the company because of recent gas discovery 2 km below the currently producing gas field at the KG-D6 block. The retail business of the company has also crossed the revenue of 10000 crore Rupees. It also received an EBITDA of 78 crore Rupees and also plans to achieve 40000 to 50000 crore Rupees in the near future.
RIL is the largest private sector company of India that has business in various sectors such as telecom, retail, span energy and petrochemicals.
DGFT AND GOVERNMENT OF DELHI SIGNED MoU TO USE e-BRC
Directorate General of Foreign Trade (DGFT) and Commissioner (Trade and Taxes), Government of NCT of Delhi signed a Memorandum of understanding (MoU) on 5 June 2013 for making use of electronic Bank Realization Certificate (e-BRC).
The MoU was signed between Prashant Goyal, Commissioner (Trade & Taxes) and DK Singh, Additional DGFT.
Transmission of Bank realization against shipping bills was made obligatory since 16 August 2012. Eighty-one banks have transmitted more than 38 lakhs e-BRC to DGFT. DGFT had asked the State Governments to make use of the e-BRC in their efforts to refund VAT and other related tax administration.
The Government of Delhi became the second state to sign the MoU. The first state to sign this MoU was Maharashtra that signed it on 18 April 2013.
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RAILTEL & IIT ROORKEE SIGNED MoU TO ESTABLISH 8TH TCOE
RailTel Corrporation signed a Memorandum of Understanding with IIT Roorkee on 5 June 2013 establishment of RailTel IIT Roorkee Centre of Excellence in Telecom (RICET). With the signing of this MoU, India got its 8th Telecom Centre of Excellence (TCOE).
The TCOE will be funded by RailTel through 100% budgetary support over 5 year period for doing Research & Development in the field of ICT & Broadband Applications.
RailTel Corporation is the Mini Ratna (Category I) PSU of the Ministry of Railways. It is one of the largest telecom infrastructure providers in India with the country wide optic fiber network along Railway right of way.
Seven TCOEs are already established in India by the major Telecom operators in partnership with premier institutions like IITs & IIMs. The existing TCOEs have created more than 28 innovations and products in various fields of telecommunication. These products and innovations are also available for the commercial purposes. With the signing of current MoU, North India got its first TCOE.
The area of R&D in the field of development of applications, services and technology in the domain of broadband & ICT will be in the hands of RICET. This will facilitate affordable services to all the citizens with the availability of high network. This will include in-house development of applications, customizing applications for specific use as per local requirements or through collaboration with national or international organisations for promotion of affordable broadband infrastructure in India.
Some probable areas for Broadband Applications and Innovations shall be Development of Vernacular Language Tools to convert content into local language; Development of Cloud based e-gov, e-agri, and other e-services.
BBC & ZEEQ SIGNED AGREEMENT FOR BRING CBEEBIES’S TO INDIA
BBC Worldwide and Edutainment Channel ZeeQ on 4 June 2013 announced that they signed a licensing agreement which would facilitate to bring time band of the CBeebies’s programmes to the Indian audience.
CBeebies is the BBC’s pre-school channel. The agreement between BBC and ZeeQ will help the latter in airing the programme from CBeebies in India from Monday to Thursday for one hour. The CBeebies band will be launched on 10 June 2013. During the band, live action series of Teletubbies for pre-schoolers will also be aired. Apart from Teletubbies, other shows that will be aired include Charlie and Lola as well as 3rd & Bird.
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These shows will also be dubbed in Hindi language for dual language feed of the channel. At present, ZeeQ caters to the age segment of 4-14 years. The agreement between BBC and ZeeQ will help the latter in additionally catering to the age group of 0-3 years as well.
ZeeQ has mix of animated shows as well as live action at present. The reach of this channel is around 20 million households. The prominent shows of this channel include MI Four- The Multiple Intelligence quiz, Sid the Science Kid, Teenovation, Amar Chitra Katha Heroes, Science with BrainCafe, Word Match and The Weekly Wrap.
In the year 2012, BBC Worldwide had stopped its two entertainment channels in India- CBeebies and BBC Entertainment.
SUN PHARMA GOT APPROVAL FOR DEPO-TESTOSTERONE INJECTION
Sun Pharmaceutical Industries, the drug company, on 4 June 2013 announced that got the final approval from US health regulator, US Food and Drug Administration (USFDA) for generic testosterone cypionate injection used for the treatment of testosterone hormone deficiency.
Sun Pharmaceutical Industries got final approval from USFDA for abbreviated new drug application (ANDA) for generic version of Depo-Testosterone Injection, Testosterone Cypionate Injection USP. The approval was given for the injection in 100 mg/ml and 200mg/ml strengths.
The generic testosterone cypionate injection of Sun Pharma is rapeutically equivalent to the Depo Testosterone injection of Pfizer Inc.
This injection is used for the purpose of replacement therapy in males under those conditions which are associated with the symptoms of deficiency or lack of endogenous testosterone.
COCA-COLA OPENED ITS BOTTLING PLANT IN MYANMAR
Coca-Cola, the largest soft-drink maker of the world, opened its bottling plant in Myanmar on 4 June 2013 as part of its planned five-year 200 million US dollar investment. The plant was opened in Myanmar after more than 6 decades.
Coca-Cola announced that its bottling plant was inaugurated in Hmawbi Township, a suburb of Yangon, the
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biggest city of Myanmar, along with the local partner Pinya Manufacturing Co.
The investment will enable Coca-Cola in creating over 22000 related jobs in the country over the time period of five years. The capital investment will help in increasing the production capacity as well as in growing the logistics such as distribution and sales operations apart from making improvement in marketing.
Various companies of the US cut off the business connections from Myanmar in 1988 following the military brutality that put down the pro-democracy uprising. In the year 1996, PepsiCo announced about its plan to sell 40 percent stake in soft drink bottling venture in Myanmar. However, Coke as well as Pepsi was still available in Myanmar because they were imported from other countries.
At present, Coca-Cola and Sprite are produced in 425 ml plastic bottles which have Myanmar-language labeling. Local production of classic 300 ml glass bottle as well as aluminum cans will begin by July 2013. Coca-Cola Zero, the diet drink will however be imported from other countries in cans.
Coca-Cola has a target of opening over 100000 outlets across Myanmar for next six months. Now, the only countries which do not officially have Coca-Cola business are North Korea and Cuba.
MoU SIGNED BETWEEN CCI AND ACCC FOR COOPERATION
A Memorandum of Understanding was signed between Competition Commission of India (CCI) and Australian Competition and Consumer Commission (ACCC) on Cooperation at Canberra, Australia on 3 June 2013.
This MoU was signed by the Chairperson of CCI, Ashok Chawla and Chairman of ACCC, Rod Sims. The signing took place in the presence of State Minister of Corporate Affairs (Independent Charge), Sachin Pilot.
FEATURES OF THE MOU
The MoU provides for sharing information on significant developments in competition policy and enforcement developments in the respective jurisdictions.
The MoU provides for common interest of CCI and ACCC to work together in technical cooperation activities as well as cooperate in appropriate cases, consistent with the respective enforcement interests, legal constraints, and available resources.
It is planned to evaluate the effectiveness of the cooperation under the Memorandum on a regular basis to ensure that the expectations and needs are being met.
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IT IS ALSO EXPECTED TO FURTHER STRENGTHEN EXISTING COOPERATION BETWEEN CCI AND ACCC. AMAZON LAUNCHED INDIAN MARKETPLACE AT AMAZON.IN
Amazon.com, the world's largest online retailer in Month of June 2013 entered into Indian e-commerce market with the launch of its marketplace Amazon.in, offering books, movies and television shows for sale.
The launch of online marketplace has helped Amazon overcome Indian regulatory obstacles that prevent foreign online retailers from having an entirely owned Indian arm selling directly in India. The model adopted by Amazon is fully compliant with all relevant Indian laws.
The new marketplace is going to offer Indian customers with a shopping destination to purchase products from third-party sellers. It is important here to note that the India represents Amazon’s tenth marketplace launch.
In its present model, Amazon.in does not own any of the commodities that are sold through the website but it just acts as a collector to all the retailers who desire to display their products on the website. It is worth mentioning here that in Amazon's US website there are both Amazon-owned goods and third-party products being sold.
Amazon.in will start with selling around 7 million book titles available for purchase and nearly 13000 movie titles and the with the simultaneous expansion into other categories such as cameras and phones in the near future.
Amazon has been enthusiastically lobbying with the Indian Government in order to allow foreign direct investment in online retail and to relax the regulations against foreign e-commerce companies. Meanwhile, government had relaxed norms for offline multi-brand retail allowing 51 percent FDI deciding it against implementing similar provisions for the players on the web.
Amazon India has also come up with an option called Fulfillment by Amazon in which it is supposed to provide end-to-end logistics solutions to retailers who wish to avail of this service.
GOVT. APPOINTED FIVE PART-TIME DIRECTORS ON BOARD OF AIR INDIA
The Minister of Civil Aviation, Ajit Singh appointed five part-time Directors on Board of Air India in the Last week of May 2013. This has been done in order to use the specialised skills as well as suggestions of the Directors in order to achieve the targets which are set up by the Government of India in the Turnaround Plan and Financial Restructuring Plan for Air India.
The five non-official part-time Directors appointed on the Board of Air India are:
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Gurucharan Das: He is a Graduate with Hon. from Harvard University in Philosophy and has worked as CEO of Procter & Gamble India.
Prem Vrat: He is M.Tech. and Ph.D. and is presently working as Vice Chancellor and Professor of ITM University Gurgaon.
Air Marshal (Retd.) K.K. Nohwar: He is a military aviator with more than 40 years of experience in the field of aviation.
Ravindra H. Dholakia: He is Ph.D. in Economics and M.A. with distinction, Gold Medalist in Economics and Eco-Metrics. He is Professor in Economics and Public System of IIM, Ahmedabad.
Renuka Ramnath: She holds a Bachelor Degree of Engineering and MBA with AMP from Harvard Business School. She is a founder, Managing Director and CEO of Multiples Alternate Asset Management which manages 400 million US dollar of Indian and international capital.
COMPAT ORDERED 11 CEMENT COMPANIES TO DEPOSIT 630 CRORE
The Competition Appellate Tribunal (COMPAT) on 17 May 2013 ordered 11 cement manufacturers to deposit an amount of 630 crore Rupees before it heard manufacturer’s appeal against 6307 crore Rupees fine imposed on them by Competition Commission of India (CCI) in June 2012. Competition Commission of India (CCI) is the competition watchdog for price manipulation as well as cartelization. COMPAT posted cement manufacturers’ case for final hearing in the month of August 2013.
COMPAT had ordered the cement manufacturers to deposit a 10 percent amount of total penalty imposed on it by CCI in June 2012.
THE LIST OF THESE CEMENT MANUFACTURERS INCLUDE
JP Associates
UltraTech Cement
Ambuja Cements
ACC
Binani Cement
India Cements
Grasim Cements
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Madras Cements
Century Textiles
JK Cements
Indian unit of France's Lafarge SA
All these manufacturers have been ordered to make the payment within one month. Failure of doing so will result in their appeal being dismissed.
The spokesperson for JP Associates explained that all the cement manufacturers were looking for different options, which also includes challenging the decision of Compat in Supreme Court. The matter will also be discussed with the Cement Manufacturers Association of India (CMA). CCI imposed highest penalty of 1323.6 crore Rupees on the JP Associates. Additionally, the fine of 73 lakh was imposed on CMA.
The penalty was stayed by the competition appellate tribunal, but the desist order as well as the cease order would remain against these manufacturers.
GOLD COINS WITH SACH IN TENDULKAR’S FACE AND SIGNATURE
The limited edition gold coins with Sachin Tendulkar’s face and signature engraved on them were launched on 13 May 2013 by Valuemart Gold and Jewels on the occasion of Akshaya Tritiya.
ABOUT THE LIMITED EDITION GOLD COINS
A total number of one lakh limited edition Sachin Tendulkar gold coins were launched by Valuemart Gold and Jewels.
Each coin weighs 10 grams.
The price of each 24 karat gold coin is 34000 Rupees.
The limited edition special gold coin can be had from valuemartgold.com as well as jewellery stores in India.
Valuemart Gold and Jewels also additionally signed Sachin Tendulkar as the brand ambassador for time duration of three years in February 2013.
YAHOO INTRODUCED REVAMP IN FLICKR WITH 1TB FREE STORAGE
Yahoo, in the month of May 2013, redesigned the Flickr photo-sharing service by offering its users up to 1 TB storage without levying any fee. The restoration enables the users to host the
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longer video clips as well as high resolution photos. Apart from this, new app was also launched for the Android devices.
The principal technology analyst at consultants Davies Murphy Group Europe, Chris Green explained that this move by Yahoo would help it in putting Flickr back in the market. This also shows the competition with Google.
Google offers its users an overall free storage of 15 GB across the primary cloud service. Facebook, on the other hand, has no defined limits like these, but it adjusts by compromising on the quality of high-resolution images.
Flickr was bought by Yahoo in 2005. The number of users increased on the site since then, but it still did not reached up to its maximum potential, especially when compared to the competitors like 500px, Facebook and Instagram.
NEW FEATURES INTRODUCED IN REVAMPED FLICKR
1TB upload limit
A redesigned user-interface
New Activity Feed
New Android app
Larger 200MB limit on every photo’s size
Three-minute cap on playback of video clips
However, certain charges have also been levied. For example, users wishing for advert-free interface will have to shell out 49.99 US dollar yearly. Anyone who wishes to get 2TB storage limit will have to pay 499.99 US dollar yearly.
IL&FS IAML SIGNED MOU WITH EIGHT PUBLIC SECTOR BANKS
IL&FS Infra Asset Management Limited (IAML), an Asset Management Company (AMC) promoted by IL&FS Financial Services Limited (IFIN) to manage the IL&FS Infrastructure Debt Fund (IIDF), on 13 May 2013 signed a Memorandum of Understanding (MoU) with eight Public Sector Banks (PSBs) including Allahabad Bank, Bank of India, Canara Bank, Central Bank of India, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce and UCO Bank for acquisition of infrastructure loans.
Signing this landmark MoU which will pave the way for setting-up of more such infra debt funds and financing thereof.
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IIDF will complement domestic banks in providing required funding to infrastructure sector and would be integral part of the IL&FS Group’s efforts in taking India’s infrastructure growth story to the next level.
IFFCO SIGNED AGREEMENT WITH VALE SA
Indian Farmers Fertiliser Co-operative (IFFCO), on 11 May 2013 signed a long-term agreement with Brazilian mining company Vale SA for supply of rock phosphate. It is used in manufacturing phosphatic soil nutrients.
IFFCO signed this agreement in order to strengthen its phosphate sourcing for manufacturing of phosphatic fertilisers in India.
SRINIVASAN APPOINTED AS CEO OF ANGLOGOLD ASHANTI
Srinivasan Venkatakrishnan, also known as Venkat was on 9 May 2013 appointed as the new Chief Executive Officer of South Africa’s AngloGold Ashanti. Venkat has remained with the Johannesburg headquartered AngloGold Ashanti for nine years. At present, he is the finance head of the company. Venkat replaced Mark Cutifani who quit in April 2013.
Venkat was the Chief Financial Officer at Ashanti Goldfields. Later, Ashanti Goldfields merged with the AngloGold Limited in May 2004, which eventually created AngloGold Ashanti. With the merger of these two companies, Venkat became the CFO of the combined company.
UK'S CAIRN ENERGY SOLD 8% STAKE IN CAIRN INDIA FOR 910 US $
UK’s Cairn Energy plc on 7 May 2013 sold 8 per cent stake in Cairn India for 910 million US dollars. Cairn Energy retains about 10 per cent shareholding in Cairn India following the sale.
The fund will be used to fulfill Cairn’s current capital needs, which include the development of discovered resources in the North Sea. Cairn Energy in June 2012 had sold 3.5 per cent stake in Cairn India for about 360 million US dollars. Cairn Energy is based in Edinburgh.
IVAN MENEZES NAMED AS NEW CEO OF DIAGEO
Ivan Menezes was named as the new Chief Executive Officer of Spirits Company Diageo on 7 May 2013. He replaced Paul Walsh who remained the CEO of this British firm since 2000. Ivan Menezes was the Chief Operating Officer of the company.
Menezes will take on his office from 1 July 2013. The Chairman of Diageo, Franz Humer explained that the handover of the role of CEO was given to Ivan Menezes at the time when their business was strong in terms of global development.
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Ivan Menezes originally hailed from India. He later headed up the key North America division of Diageo for 8 years before he was appointed as the COO in 2012.
WALMART REPLACED EXXONMOBIL TO RECORD HIGHEST REVENUE
500 largest companies of the US, Fortune 500 scored the near-record revenues in 2012 and retailer Walmart became the biggest profit maker on annual list by replacing ExxonMobil, according to the Fortune magazine. Apple reached into the list of top 10. This was the first time that Apple entered the list of Top 10, an increase of six places from number 17 positions in 2011.
The overall earnings of Fortune 500, accounted for 820 billion US dollar in 2012, a decrease from an all-time high of 824.5 billion US dollar in 2011. Fortune magazine described that earnings of Fortune 500 amounted to a sale of 6.8 percent.
Fortune senior editor-at-large Shawn Tully explained that these companies will have to increase their staff as well as pay higher salary in the wake of improving economy. Walmart won the first position on the list, replacing energy company ExxonMobil after it posted revenue of 469.2 billion US dollar or 19.3 billion US dollar more than the revenue of ExxonMobil. It is worth noticing that both Walmart and Exxon have exchanged top most positions in recent years. In the list, various energy companies emerged great players. Chevron remained at the third position and Phillips 66 remained at the fourth position. Valero Energy was placed at the ninth position.
In the list of top 10 companies were, Warren Buffett's Berkshire Hathaway at the fifth position, Apple (sixth), General Motors (Seventh), General Electric (Eighth) and Ford Motor (Tenth). In the financial sector, JPMorgan Chase was placed at 18th position, Bank of America at the 21st position, Wells Fargo at 25th position and Citigroup ranked at 26th position.
CCEA CLEARED IKEA'S INVESTMENT PROPOSAL
The Cabinet Committee on Economic Affairs (CCEA) on 2 May 2013 cleared Swedish furniture major IKEA’s 10500-crore rupees investment proposal in India. It will allow IKEA to establish 25 exclusive stores and food cafes in India.This will be the biggest foreign investment in the retail segment till now. It will also provide an opportunity to Indian small and medium enterprises in a wide range of labour intensive sectors for integrating into global value chain. Moreover, it will also provide a diverse choice for the Indian consumers for a wide range of products.
In 2012, the government had relaxed foreign investment rules and regulations, which allow 100 percent FDI in single brand retail. The government also had removed some of the restrictive conditions which include removing the mandatory 30 percent sourcing of goods from Indian small enterprises for single brand retail trading.
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IKEA has more than 300 stores across the world and an annual revenue of 27.5 billion Euros (190000 crore rupees).
AUROBINDO PHARMA RECEIVED APPROVAL FROM USFDA
Aurobindo Pharma, the drug firm on 26 April 2013 announced that it received an approval from US Food & Drug Administration (USFDA), the US health regulator for manufacturing as well as marketing the generic Cefadroxil oral suspension. Generic Cefadroxil is used for the treatment of bacterial infections in US market.
Aurobindo Pharma got an approval from US Food & Drug Administration (USFDA) for manufacturing and marketing Cefadroxil in strengths of 250mg/5mL and 500mg/5mL. Cefadroxil is generic equivalent of Duricef of Warner Chilcott Company Inc. Duricef is also used for oral suspension in similar strength.
Cefadroxil oral suspension got approval out of cephalosporin formulations manufacturing facility of the company in Hyderabad. With this, Aurobindo Pharma got a total of 187 abbreviated new drug application (ANDA) approvals from the US health regulator. This includes 4 from Aurolife Pharma LLC and 27 tentative approvals.
FACEBOOK BOUGHT PARSE TO BUILD APPS FOR MOBILE PLATFORMS
Facebook on 26 April 2013 announced that it bought the San Francisco-based Parse, a startup which specialises in powering the mobile applications. This has been done in order to make this social networking site friendlier for tablet computers as well as the smartphones.
Though the amount of the deal was not announced but it is estimated to be somewhere around 85 million US dollar. Buying Parse for Facebook would help the developers in building the apps rapidly for the span devices as well as mobile platforms.
Parse facilitates software developers’ tools in order to build the applications as well as handling the behind-the-scenes tasks like data storage as well as servers in order to handle the services for app users, respective of mobile devices involved.
This in turn would help in getting rid of the need for managing the servers as well as complex infrastructures, thereby allowing for greater concentration on building the excellent user experience.
Parse laid its foundation in June 2011. It was looking for new round of funding when Facebook approached it for the deal. Facebook now has the priority of following over one billion members on smartphones as well as tablets, which are becoming much-used gadgets in today’s times.
SSTL APPOINTMENT DMITRY SHUKOV AS ITS NEW CEO
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Sistema Shyam Tele Services (SSTL) on 24 April 2013 announced that Dmitry Shukov will take over as its CEO. Dmitry Shukov will resume the office from 1 June 2013.
Sistema Shyam Tele Services (SSTL) operates under the MTS brand in India. Vsevolod Rozanov is the present President as well as CEO of the company and will now move to Sistema JSFC headquarters in Moscow. Vsevolod Rozanov is said to be the wheel of SSTL since October 2008. Dmitry Shukov comes with 20 years of experience. Earlier, he was the CEO of MTS Turkmenistan and MTS Uzbekistan.
GOOGLE INC ACQUIRED WAVII FOR 30 MILLION US DOLLAR
Google Inc acquired Wavii; the news summarization app based in Seattle, for around 30 million US dollar cash. The successful bid of Google came after the Apple Inc expressed its interest to buy Wavii. Apple wanted to acquire the company for the Siri division.
It is important to note that Google’s acquisition came a few weeks after Yahoo Inc made an equal payment for acquiring Summly, the news reader. Summly is the competitor of Wavii.
The deals took place in order to enhance the customer experience for news. Both Google and Yahoo, maintain very high traffic news sites. The semantic search knowledge of Wavii is a great addition to google Knowledge because this would further help in contextualizing the information which is used by Google to show on sidebar of most of the searches.
ABOUT WAVII
Wavii helps the users in getting instant news updates on almost all the topics. Wavii creates the updates for the users’ favourite gadgets, politicians, celebrities or more. It basically allows you to get personalised news feed. It allows you to follow the topics of your choice and thus facilitate you with the news feeds on those topics of interest.
ETIHAD AIRWAYS TOOK OVER 24 PC STAKE IN JET AIRWAYS
Abu Dhabi based Etihad Airways on 24 April 2013 confirmed taking over of 24 per cent minority stake in Jet Airways for 379 million dollars (2058 Crore). With the take over Etihad Airways will be subscribing to 27.3 million new shares at 754.74 rupees per share. It will be the first time that a foreign airline will be picking up a stake in an Indian airline.
Etihad Airways is on an aggressive expansion drive and is also going to make a 150 million Dollars equity investment in Jet's frequent flyer programme and spend 70 million Dollars to buy Jet's three pairs of Heathrow slots through the sale and leaseback . Including the 379 million dollars equity investment, Etihad will drive in all around 600 million dollars into Jet Airways.
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It is important here to note that Jet's majority ownership will remain with Indian nationals and Jet's founder and non-executive chairman Naresh Goyal will hold 51 per cent of the airline after the deal, which is subject to shareholder approval.
Also, as a part of the deal Jet will establish a hub in Abu Dhabi and expand its reach through Etihad Airways' global network. The partnership is supposed to bring in significant benefits and opportunities for global growth to both airlines. The deal will allow Etihad Airways to compete more effectively in one of the largest and fastest-growing markets in the world.
RELIANCE SIGNED PACT WITH AIRTEL FOR INTERNATIONAL BANDWIDTH
Bharti Airtel and Reliance Jio Infocom on 23 April 2013 had signed an agreement for International Bandwidth. As per the agreement Reliance Jio will be provided with data capacity on its i2i submarine cable by Bharti Airtel.
The i2i Sub marine cable connects India to Singapore and is entirely owned by Bharti Airtel. The cable whose landing points are at Chennai in India and Tuas in Singapore consists of eight fibre pairs capable of supporting multiple terabits of capacity per fibre pair.
USE OF THE HIGH-SPEED LINK
• The high-speed link will facilitate Reliance Jio to widen its network and service reach to customers across Asia-Pacific region.
• It will also connect Reliance Jio directly to the world’s major business hubs and ISPs, thus, helping the operator to meet the bandwidth demand and provide ultra-fast data experience to its customers.
The deal is being considered as the second major deal signed by Reliance Jio after it had signed an agreement to lease capacity from Reliance Communications’ optical fibre cable network.
FOURTH HUGE NATURAL GAS RESERVE IN MOZAMBIQUE BLOCK
Bharat Petroleum Corp Ltd (BPCL) and Videocon Industries on 22 April 2013 declared that they discovered the fourth huge natural gas reserve in the offshore Mozambique block in Africa. It is the same block where the two companies hold 10 percent share each.
The discovery of this natural gas reserve is said to be very important because it would help the private sector consumer durables in getting higher stake than earlier. The two companies announced that Videocon Hydrocarbon Holdings (subsidiary of Videocon Industries) and Bharat Petro Resources Ltd (a BPCL unit) made the discovery in offshore Area 1 of the Rovuma basin.
ONGC Videsh Ltd which is the international-level arm of ONGC with Oil India Ltd (OIL) was negotiating for the stake of Videocon in this block. Anadarko Petroleum Corp, the US energy
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firm is the operator of this block with 36.5 percent stake in block. Mitsui & Co Ltd of Japan is the second-biggest stakeholder in this block that holds 20 percent stake.
The companies announced that drilling took place in the Orca-1 exploration well, which was digged in till 16391 feet approximately and in water depths of 3481 feet.
NARENDRA KUMAR APPOINTED MANAGING DIRECTOR OF IGL
Narendra Kumar took over as the Managing Director of Indraprastha Gas Ltd (IGL) on 22 April 2013. IGL is the only supplier of the Piped Natural Gas (PNG) and Compressed Natural Gas (CNG) in Delhi.
Narendra Kumar replaced M Ravindran, who in turn was appointed as the Director (HR) of GAIL India Ltd, the state gas utility. IGL is the joint venture of Bharat Petroleum Corp Ltd and GAIL along with the Government of Delhi, which holds 5 percent equity stake.
INDIAN MOBILE SERVICES WILL REACH 1.2 TRILLION RUPEES IN 2013
The mobile services market in India would grow 8 percent to 1.2 trillion Rupees in 2013, according to the revelations of research firm Gartner. However, this would account for just 2 percent of the mobile services revenue of the world because the operators are struggling for increasing the profit margins.
The revenues from the mobile services were 1.1 trillion Rupees in 2012. Gartner revealed that the mobile connections in India would grow to 770 million in 2013, an increase of 11 percent from, 712 million connections in the year 2012.
However, the mobile market would keep facing the challenges in case the average revenue per unit (ARPU) does not grow. Gartner Principal Research Analyst Shalini Verma explained that in case the present conditions in Indian telecom market did not change, the country would account for 12 percent of overall mobile connections, but merely 2 percent of overall mobile services revenue.
There are two main challenges which Indian telecom operator’s face and this are- growth of the profit margin as well as successful competition with service providers such as WatsApp and Facebook. It is important to note that India has an increased demand for local mobile apps as well as mobile broadband. However, the rural expansion of these mobile services will add to the loss to the mobile service providers. The key, in such a case, for the operators is to insert themselves in value chain of video and social apps.
AIR ASIA APPOINTED THE CEO FOR INDIA VENTURE
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Air Asia, the low cost carrier on 21 April 2013 announced that AirAsia India approved and appointed the Chief Executive Officer, whose name will be a revelation. The AirAsia Group chief Tony Fernandes declared that the appointment of AirAsia CEO was done but his name would be revealed later.
AirAsia is said to be the largest low-cost carrier in Asia which created a joint venture with Telestra Tradeplace and Tata Sons. The venture was approved by Foreign Investment Promotion Board on 4 April 2013.
The Foreign Investment Promotion Board (FIPB) on 6 March 2013 cleared the investment proposal of AirAsia, the Malaysian budget carrier to launch the new airline along with Tata Group and Arun Bhatia's Telestra Tradeplace in India. AirAsia plans to start the operations from June 2013.
FAA APPROVED RESUMPTION OF DREAMLINER FLIGHTS
The US aviation regulator FAA on 20 April 2013 approved resumption of normal air service of Air India's Dreamliner aircraft, operations by mid-May 2013.
It is important here to note that Air India's Dreamliner was grounded since January 2013 after battery fire incidents; The US Aviation regulator FAA had approved Boeing's revamped battery system for these new generation long-haul aircraft.
It was decided that a team of engineers from Boeing will be coming into India and they are likely to start work by 22 April 2013 to reset the new batteries on the six Dreamliners of Air India.
The US Federal Aviation Administration (FAA) permitted the new battery design made by the Japanese battery manufacturer and Boeing. It was only after the battery fire incidents, that the entire global fleet of 50 Boeing-787s, owned by eight airlines, including Air India, was grounded.
UNIVERSAL COMMODITY EXCHANGE WENT LIVE
Universal Commodity Exchange, the sixth commodity platform, went live on 19 April 2013 with 100 members on board. UCX received the Ministry approval and Government certification on 30 August 2012. It is promoted by Commex Technology in joint venture with IDBI Bank, IFFCO, NABARD and REC. It has started trading in 11 contracts across nine commodities - gold, silver, crude oil, chana, RSS4 rubber, mustard, soyabean, refined soya oil and turmeric.
The Commodity exchange, In order to attract volumes, will charge a fee of 1 Rupee for every transaction totalling 1 lakh Rupees for the first three months. On the other hand, it has fixed a four-slab fee structure based on the turnover.
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As an inaugural offer, trading and clearing member are charged a concession membership fee of 2.5 lakh against 5 lakh Rupees while a trading member have to shell out 1 lakh Rupees against regular charge of 1.5 lakh. The exchange will also be available on the commonly used ODIN trading platform. It has already got ready delivery centres for metals and agriculture commodities in major markets.
The key benefits which are given to members consist of multi segment product offering, optimal fees and deposits, zero blockage of excess risk capital, simplified and quick on-boarding of members, independent and professional management with a strong promoter consortium and customer centric approach.
WHAT IS UNIVERSAL COMMODITY EXCHANGE?
Universal Commodity Exchange limited is the next generation national level commodity exchange for derivatives market across all commodity segments.
It aims to be one of the largest commodity derivatives exchange ensuring price transparency and a robust risk management & surveillance system for facilitating online trading, clearing & settlement operations for the market across the country. UCX is headquartered in the financial capital of India, Mumbai.
MICROSOFT MOST ATTRACTIVE EMPLOYER IN INDIA: SURVEY
Microsoft, the IT and software company was declared as the most attractive employer of India for 2013 for the third time in a row, as per the latest survey conducted by the HR service company, Randstad. Microsoft was followed by Hewlett Packard (HP) and Google India at second and third ranks respectively.
In the list of top 10 most attractive employers, there were IBM (4th), ONGC (5th), Sony (6th), Larsen & Toubro (7th), Steel Authority of India (8th), SBI (9th) and Tata Consultancy Services (10th).
Apart from this, special recognition awards were given away to Steel Authority of India Ltd (SAIL) in the manufacturing sector, Oil and Natural Gas Corporation (ONGC) in the energy sector and Larsen & Toubro in the infrastructure sector.
FEATURES OF SURVEY
• The survey conducted by Randstad observed that in Indian markets there is higher level of attrition, which is why it is important for the company to go for employer branding because it helps in attracting as well as retaining the top talents.
• The survey covered 7000 respondents. It was found that Indian workforce preferred job security along with competitive salary.
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• In comparison to 2012, this year there is a considerable increase in salary as well as employee benefit importance, which is followed by job security.
Apart from competitive salary as well as job security, there were other factors which appeared in top five list and these factors included pleasant working ambience, work-life balance as well as career progression opportunities.
MUTHOOT FINCORP TO LAUNCH 100 CRORE NCB ISSUE
Muthoot Fincorp, which is actually a part of Muthoot Pappachan Group, announced launching 100 crore Rupees non-convertible debenture (NCB) issue in order to fund the expansion of microfinance as well as small and medium enterprise (SME) business.
With the launch of this non-convertible debenture (NCB) issue, Muthoot Fincorp will hit the bond market. Microfinance as well as SME business of Muthoot Fincorp is grown as the part of diversification from the gold loans. Muthoot Fincorp, at present, has 300 crore Rupees microfinance portfolio, which the company planned to double by end of 2013-14 fiscal year. Muthoot Fincorp also planned to built the SME as well as micro SME business in alliance by approximately 300 crore Rupees.
Muthoot Fincorp is one of the top most gold loan companies in India. Its rivals include Muthoot Finance and Mannapuram Finance. It is important to note that Muthoot also acquired Panchratna Securities, the finance company in order to focus on the microfinance business. Muthoot, apart from this, has also applied to the Reserve Bank of India for NBFC-MFI registration as well as name change of the new subsidiary.
TWITTER LAUNCHED A NEW MUSIC SERVICE CALLED #MUSIC
Twitter on 18 April 2013 unveiled a new music app called #Music which will recommend tracks on the basis of who you follow on the social network. Songs will be played directly in the app via services such as Spotify, Radio and iTunes. The new software displays songs which user’s friends are at present listening to and also suggestions from artists. It follows moves by other social networks like Facebook to include music recommendations into their services. In 2012, Spotify announced its own follow system, but the functionality is not rolled out to users on mobile yet.
#Music will be available initially in the UK and Ireland, Canada, US, Australia and New Zealand but later on more countries will be added in the list.
AAI & MITRE PARTNERED FOR SETTING UP R&D CENTRE
The Airports Authority of India (AAI) partnered with MITRE Corporation, the US-based technology provider for setting up the high-tech research, development and training facility in
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Hyderabad. This merger was done for development of in-house capabilities in the air navigation services. In the second week of April 2013, AAI and the MITRE Corporation signed two agreements for establishing this Hyderabad centre as well as for transferring the knowledge and technology. The proposed Hyderabad-based R&D and technical centre would be providing the comprehensive laboratory capabilities in order to assist the daily air traffic management operations as well as maintenance of AAI. The centre would also carry out the performance analysis. As far as the transfer of knowledge and technology is concerned, there would be the sophisticated technology for providing training to air traffic controllers (ATC). This technology would be called Human-in-the-Loop (HITL) computer simulation capability.
HITL is actually the virtual and real-time ATC simulation which needs human interaction with the ground and airborne automation for managing the air traffic in operational scenario. HITL also identifies the ATC issues and develops the solutions for dealing with these issues.
MITRE Corporation is additionally offering portable ATC simulation system which can be utilised for training the personnel at any location while making use of just a few laptops. It is important to note that AAI also partnered with MITRE Corporation since 2006 for various purposes such as Air Traffic Management (CNS-ATM) activities, Navigation, Surveillance and Communications. AAI is the first sponsor of MITRE for HITL Technology. With this, AAI became one of the very rare advanced aviation research organisations in entire world to possess a capability like this.
AIRTEL RESTRAINED TO PROVIDE SERVICES IN NON-LICENSED CIRCLES
Supreme Court on 11 April 2013 restrained Bharti Airtel from providing 3G roaming services to new customers in non-licensed seven circles. The seven circles where Airtel does not have license to provide 3G services are Kerala, Madhya Pradesh, Haryana , Maharashtra, Gujarat, Uttar Pradesh East and Kolkata.
A Supreme Court bench including Chief Justice Altamas Kabir and Justice Vikramajit Sen issued notices to the Union government and Reliance Communications Ltd and sought their response within two weeks on the petition filed by Bharti Airtel which challenged a Delhi High Court order. The order had approved DoT’s decision to hold the 3G roaming pact of the applicant as illegal.
The Department of Telecommunications (DoT) had issued a notification on 15 March 2013 which restrained Bharti from providing 3G intra-circle roaming facilities in seven circles where it did not have the spectrum. It also imposed penalty of 350 crore rupees for the alleged violation of the licence terms and conditions. A single-judge bench of the high court on 18 March 2013 had put stay order on the operation of the notification.
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However, later on a division bench of the high court on 4 April 2013 had set aside the single judge’s order. The Bharti Airtel challenged the decision of the division bench of the high court.
MOBILE VISUAL SEARCH PLATFORM OCUTAG LAUNCHED BY RICOH
Ricoh Innovations Corporation (RIC), a subsidiary of Ricoh Company Ltd on 9 April 2013 launched a mobile visual search platform called Ocutag. It connects users with a variety of digital media by capturing an image. The first implementation for this technology was done with Disney UTV Digital’s new smartphone app in India. In fact, the UTV Stars app is the first entertainment app for smartphones in India that offers Bollywood news, Movies, gossip and live TV all in one app.
Ocutag platform allows app developer to incorporate Ricoh’s visual search technology into their mobile apps by using the application programming interface. Snap Search connects users to their favourite Bollywood stars and allows them to click a picture of a movie poster and providing features like tweets, movie trailers, behind the scenes videos, pictures etc. RIC is headquartered in California’s Silicon Valley with a subsidiary in Bangalore.
TVS MOTOR AND BMW MOTORRAD TIED UP TO DEVELOP BIKES
The TVS Motor Co. Ltd. and BMW Motorrad on 8 April 2013 announced a deal to jointly develop Made in India Bikes in below 500 CC segment. BMW signed a long term joint technical co-operation and manufacturing agreement with TVS.
At present, BMW operates in the 600 to 1600 cc category of Bikes, while TVS operates in sub-250 cc category of bikes. The bikes developed in a joint collaboration of the two companies will be launched in the market in two distinct variants of which one variant will be badged with BMW and sold in India and international market and the second variant will be badged with TVS and is to be sold in India and the global market as per the desire of TVS Motors. Products developed in the joint-collaboration of the two giants will be rolled-out in the market in 2015 and the initial stage development of these products will take place in TVS current facilities located at Hosur or Mysore.
VOLVO SIGNED JEEV MILKHA SINGH AS BRAND AMBASSADOR
Swedish luxury carmaker Volvo on 7 April 2013 signed golfer Jeev Milkha Singh as its Brand Ambassador in order to push sales. In 2012 the company sold 800 units and the target for 2013 is around 1100 to 1200 units. In the first quarter of 2013, Volvo has sold 276 units which is an increase of 140 percent from the year 2012.
Swedish luxury carmaker Volvo is looking to increase sales in India by around 50 per cent in 2013 to about 1200 units and will launch its new model V40 Cross Country by June 2013.The
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new model will compete directly with BMW’s X1. At present, Volvo Auto India sells four models, XC60 (SUVs), XC90, and S80 and S60 (sedans) in India.
CHINA MOBILE & VODAFONE TO BID FOR MOBILE LICENSES IN BURMA
China Mobile and Vodafone, the two biggest telecommunication companies of the world, on 4 April 2013 announced that they formed a consortium in order to bid for the mobile licenses in Burma. The license will be awarded in June 2013 and it will be operating a nationwide network for next 15 years.
It is important to note that as of now there is just 10 percent mobile penetration in Burma. The population of Burma is over 60 million. The Government therefore decided to boost the coverage to 80 percent by 2016.
In yet another consortium, Denis O'Brien's Digicel formed alliance with George Soros' Quantum Strategic Partners and Serge Pun. This consortium will look forward to initial project investment between 1.5 billion US dollar and 2 billion US dollar. Certain other companies will also bid for the licenses and these include Norway's Telenor, Qatar Telecom and Singapore's SingTel.
RAYMOND LANE RESIGNED AS HP’S CHAIRMAN
Hewlett-Packard or HP announced on 4 April 2013 that its chairman Raymond Lane was resigning from the office. Raymond Lane was re-elected in March 2013 with only 58.8 percent votes of shareholders at the annual meeting of the company.
Raymond Lane resigned on the grounds of criticism by the shareholders for paying 11 billion US dollar for Autonomy. Though Raymond Lane would continue to remain in the board, but two other directors namely, John Hammergren and G Kennedy Thompson will leave the board. Ralph Whitworth will as of now, play the role of interim chairman. It is also important to note that HP decided to slash certain jobs because of the declining printer and PC business.
NTPC SIGNED LOAN AGREEMENTS WORTH 1870 CRORE WITH BANKS
The National Thermal Power Corporation Ltd signed three loan agreements worth 1870 crore Rupees on 2 April 2013. The loan agreements were signed with Canara Bank (worth 1000 crore Rupees), Punjab and Sindh Bank (570 crore Rupees) and Andhra Bank (300 crore Rupees). All these loan agreements were extended at the respective base rates of the bank. Base rate of the bank is the bare minimum rate at which the bank can lend. All these loans have the door to door tenure of 15 years. The aim of these loan agreements is to part finance the capital expenditure of NTPC.
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MOU SIGNED BETWEEN NTPC AND MINISTRY OF POWER FOR 2013-14 FINANCIAL YEAR
The National Thermal Power Corporation Ltd (NTPC) and Ministry of Power (MOP) signed a Memorandum of Understanding (MoU) 2013-14 on 2 April 2013. The MoU was signed between CMD of NTPC, Arup Roy Choudhury and Secretary Power of MOP, P. Uma Shankar.
MAIN POINTS OF THE MOU
According to the MoU signed, NTPC will work towards generation of 242 BU during 2013-14. In 2013-14, NTPC will also strive to produce 4 MMTPA coal from its own captive mines.
NTPC envisaged fresh capacity addition of 1875 MW in 2013-14.
Milestones related to other ongoing projects and Mines of NTPC are also part of MOU. Other sections associated with CSR & Sustainability, Financial Performance, Human Resource and R&D in line with guidelines of Department of Public Enterprises also formed a part of this MoU.
Ministry of Power will assist NTPC in the areas related to Commercial, Fuel Security and Ash Utilisation and land acquisition.
It is important to note that during 2012-13 financial year, NTPC added 4170 MW which is the highest ever capacity addition by NTPC in any financial year. The overall commercial capacity of NTPC is 34820 MW and total commissioned capacity of NTPC became 41184 MW.
RELIANCE JIO AND RELIANCE COMMUNICATIONS SIGNED AGREEMENT
Infocomm Ltd and Reliance Communications on 2 April 2013 signed a 1200 crore Rupees definitive agreement. As per the deal, Reliance Jio Infocomm Ltd, the Mukesh Ambani-led Reliance Industries' telecom arm will make use of the optical fibre network of Reliance Communications in order to roll out the 4G services.
Under various terms of agreement, the Reliance Jio Infocomm will make use of multiple fibre pairs across the 120000 km inter-city fibre optic network of Reliance Communications for bringing out the 4G services. Reliance Communications, in the meanwhile, will get reciprocal access to optic fibre infrastructure to be constructed by Reliance Jio Infocomm in near future.
Mukesh Ambani and Anil Ambani, known as the richest brothers of the world, have been under dispute over the natural gas interests. The relations between the two strained after the death of their father, Dhirubhai Ambani in 2002. Reliance Empire broke between the two in 2005. In 2010, Anil Ambani and Mukesh Ambani abandoned the non-competition agreement which curtailed them from entering into same businesses.
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While Mukesh Ambani is the Chairman and MD of Reliance Industries as well as the owner of IPL team- Mumbai Indians, Anil Ambani on the other hand has his businesses in finance, infrastructure and power.
GAIL TO SELL PART OF ITS 4.6 PERCENT STAKE IN CHINA GAS HOLDINGS
GAIL India ltd. decided to sell part of its 4.6 percent stake in China Gas Holdings which is Hong Kong-listed city gas distribution firm. GAIL had made a strategic investment of Rs 137 crore by acquiring 210 million shares of China Gas in 2005. The gas utility however plans to keep a small strategic interest in the company that will help it retain its board position in China Gas. GAIL has earned only Rs 16.29 crore as dividend on its investment in China Gas over seven years.
China Gas enjoys exclusive rights to set up gas distribution projects in 42 cities in China. China Gas has a 30 years exclusivity period for its city gas operations in 172 Chinese cities cities and it has a network of a 35000 kms long gas pipeline serving 7.8 million households and 49000 factories and business.
GAIL SIGNED DEAL WITH US FIRM FOR LNG LIQUEFACTION TERMINAL
State-run GAIL (India) Ltd on 1 April 2013 signed a deal of 2.3-million-tonne (mt) capacity in the Cove Point LNG liquefaction terminal project at Lusby in Maryland, US.
The US-based firm is marketing 4.6 mmtpa, out of which GAIL has booked 50% of such capacity for the period of 20 years. As per the agreement GAIL will secure its own natural gas and deliver it to the Cove Point pipeline for liquefaction at the terminal and loading into ships brought to the facility on the Chesapeake Bay.
Earlier, GAIL had signed an agreement with Sabine Pass Liquefaction, a subsidiary of Cheniere Energy Partners of the US, for a supply of 3.5 mt a year LNG.
SIGNIFICANCE OF THE DEAL SIGNED
The deal would enhance GAIL’s scale of operations in the US where the company already have presence through their participation in a shale gas asset in the Eagle Ford basin.
This deal would also provide GAIL with an opportunity to trade part of the volume in the international market apart from organizing the ships required to transport rest of the volume to India.
The deal would provide GAIL with an outlet for the gas assets it holds in the US as LNG from Cove point could be exported to nearby markets and also brought to India with necessary permissions.
L&T BAGGED ORDER WORTH 5689 CRORE FROM RVUNL
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Larsen and Toubro Ltd (L&T), the engineering and construction company, on 1 April 2013 announced that it bagged the order worth 5689 crore Rupees from Rajasthan Rajya Vidyut Utpadan Nigam Ltd in order to set up super critical thermal power project in Rajasthan.
The order includes engineering, design, supply, manufacturing, erection as well as commissioning of two coal-fired thermal units of 660 MW each with super critical parameters at Chhabra in Baran district, Rajasthan.
L&T won the contract after the international competitive bidding in which several bidders took part. The project comes with a deadline of 42 months for Unit 1 and 45 months for Unit 2. It is worth noticing that L&T also entered the advanced execution phase of various super critical thermal power projects.
With this project in hand, L&T now has a total of supply and installation of 26 super critical steam generators along with steam turbine generators of 660MW, 700MW and 800MW. The overall power order book of L&T is approximately 26000 crore Rupees now and this includes equipment orders and civil works.
SAHARA Q SHOP ENTERED INTO THE GUINNESS WORLD RECORDS
The retail business of Sahara India Pariwar called Sahara Q Shop entered into the Guinness World Records when it opened record 315 outlets in 10 states of India, just at one time on 1 April 2013.
The commencement of these retail outlets was closely monitored by the Guinness World Records’ officials in order to verify as well as register new world record of Sahara Q Shop. The certificate of the record was presented to Subrata Roy, the group chairman.
The Sahara Q Shop stands against adulteration and quality consumer merchandise products at the fair prices. At present, Sahara has 550 operational stores. By the end of 2013-14, Sahara expects to open 10000 stores across India.
The Sahara Q Shops are opened in company-owned formats as well as under the franchisees. The sizes of these shops are between 300 sq ft and 500 sq ft. The executive director of Sahara Q Shop explained that in just eight months, the consumers found quality and purity of the products, which led to an increase in the demand of Sahara Q Shops.
G.V. PRASAD APPOINTED AS CEO OF DR REDDY’S LABORATORIES
Dr Reddy’s Laboratories on 1 April 2013 appointed G.V. Prasad, the son-in-law of founder Anji Reddy, as the Chief Executive Officer of the company. The son of Anji Reddy, Satish Reddy would be the Vice-Chairman of the company, while also playing the role of Managing Director as well as the Chief Operating Officer (COO).
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NASDAQ TO BUY ESPEED PLATFORM FROM BGC FOR 750 MILLION $
Nasdaq OMX Group Inc. (NDAQ) in the month of March 2013 announced that it will buy eSpeed, the electronic trading system for U.S. Treasuries, from BGC Partners Inc. (BGCP) for about 750 million dollars in cash.
The deal is supposed to give the second-largest U.S. stock market a grip in fixed income. In exchange for eSpeed, which operates a fully executable central limit order book for electronic trading of U.S. Treasuries, Nasdaq apart from paying BGC 750 million dollars in cash also agreed for certain contingent issuances of stock that BGC values at up to 484 million dollars over 15 years.
BGC shares rose 37 percent in trading after the market closed.
Nasdaq will also issue about 15 million common shares over 15 years as part of the acquisition, pushing the potential value of the transaction to 1.23 billion Dollars.
ABOUT NASDAQ
NASDAQ is an American stock market which originally stood for National Association of Securities Dealers Automated Quotations. It is the second-largest stock market comparing to official stock exchanges by market capitalization in the world, after the New York Stock Exchange. The NASDAQ exchange platform is owned by NASDAQ OMX Group, which also owns the OMX stock market network.
IVRCL SIGNED AGREEMENT WITH TRIL TO SELL HIGHWAY PROJECTS
IVRCL Limited, the Hyderabad-based infrastructure company on 29 March 2013 announced that it signed definite agreements with TRIL Roads Private Limited, the TATA Group Company as a part of its strategic business plan for monetizing its BOT (Build, Operate and Transfer) assets. IVRCL divested the stakes in three road projects namely- IVRCL Chengapally Tollways Limited (ICTL), Salem Tollways Limited (STL) and Kumarapalayam Tollways Limited (KTL), in Tamil Nadu to TRIL Roads Private Limited.
Though the value of this deal was not disclosed, but it is estimated to be around 2200 crore Rupees. IVRCL Limited on 1 April 2013 announced that the overall deal consideration would be realised once some agreement-related conditions were agreed upon and approvals from NHAI and lenders were granted.
The Salem Tollways Limited (STL) is operating 53-km of NH-47 which extends from Salem to Kumarapalayam in Tamil Nadu, under the concession agreement which was signed with the National Highways Authority of India (NHAI). This project kicked off its commercial operations in June 2010.
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Kumarapalayam Tollways Limited (KTL) is operating 47 km of NH-47 from Kumarapalayam to Chengapalli in Tamil Nadu. The project started its commercial operations in August 2009. IVRCL Chengapally Tollways Limited (ICTL) is operating 54.83 km of NH-47 from Chengapalli-Coimbatore-Walayar highway in Tamil Nadu. The project would kick off the commercial operations in first six months of 2014 financial year.
IVRCL announced that it planned to divest other three highways as well as water projects out of a total of nine BOT projects. IVRCL operates in areas of power transmission, transportation, industrial structures, environment and water as well as buildings.
GOOGLE LAUNCHED GOOGLE PLAY MOVIES IN INDIA
Google in the Month of March 2013 added Google Play Movies features to its Google Play India Page which allows you to download or rent movies. Recently Google also has added Google Books, Google Nexus 7 Store to its Google Play in India. The Google play movies were simultaneously launched in India and Mexico.
The outstanding feature of Google Play Movies is that it allows users to buy and stream popular films and television shows which can be downloaded in the high definition (HD) or standard versions, depending on compatibility of the device.
The Google Movies play store has some great collection of English and Hindi and English movies like the Amazing Spiderman, Ted, The Bourne legacy, Total Recall and Indian movies like Ek tha Tiger, Hum Tum, Dilwale Dulhania Le Jayenge. One can also watch a movie on rent in Google Play Movies by paying an amount 100 rupees and can buy a movie for about200 Rupees. Rent and purchase amount of a movie differs from one to other.
As per the Google’s terms and conditions, customers can also return or cancel their purchase anytime within seven days of purchase if they have not begun playback. On the other hand if one has ordered content that is defective, unavailable or does not perform as stated, he may request a refund at anytime.
APPLE BOUGHT INDOOR MAPPING FIRM WIFISLAM
The American multinational corporation Apple in the month of March 2013 bought the indoor GPS mapping firm wifiSLAM for 20 million dollars. The acquisition is being seen as a challenge to Google’s dominance of mobile mapping software. WifiSLAM’s technology, which is focused on mapping indoor spaces could allow Apple to pinpoint the location of users inside buildings to within 2.5 metres — an asset that could be of high value to advertisers wishing to target mall shoppers.
Wifislam's technology works by using smartphones to pinpoint its location (and the location of your friends) in real-time to 2.5m accuracy using only ambient WiFi signals that are already
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present in buildings. It can also be seen that Google already has an extensive catalogue of public floor plans which it used to map the interior of public buildings for users of its Google Maps service.
Apple tried to challenge the domination of Google Maps when it released its own mapping software with the launch of the iPhone 5 and iOS 6 in 2012. However the software was extensively criticized for being imprecise and confusing resulting Apple to issue an apology to users and recommend using third-party products.
PRUDENTIAL, INSURANCE GIANT FINED 30 MILLION POUND BY FSA
Prudential, the insurance giant was fined 30 million Pound by the Financial Services Authority (FSA) on the grounds that Prudential did not inform about its plans to buy AIA, an Asian subsidiary of US insurer AIG. The FSA while criticizing the Chief Executive of Prudential declared that the company failed to deal in a transparent and cooperative manner with FSA over the 2010 bid to buy AIA.
The fine levied on Prudential is one of the heaviest fines imposed by Financial Services Authority (FSA).
The deal of Prudential to buy out AIA however failed because of opposition from the shareholders. FSA declared that it should have been given more time for deciding whether the deal should be approved on the regulatory grounds or not. This is so because the proposed 14.5 billion Pound rights issue of Prudential to fund this purchase would have led to a complete makeover of the risk profile of the insurance company.
FSA announced that this deal would have created an impact on confidence as well as stability of financial sector of UK as well as abroad. However, Prudential was not able to strike a 35.5bn US dollar attempt for buying AIA because the shareholders vetoed this deal on the grounds of fear of too high purchase price.
The Chief Executive of Prudential on the other hand, argued that this deal should have gone ahead because it would then lead to doubling of market share of the company in Asia. However, the Chief Executive was not able to convince AIG for accepting the lower offer of 30 billion US dollar.
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NOKIA WON PATENT INFRINGEMENT SUIT AGAINST HTC IN GERMANY
Mannheim Regional Court, a Court in Germany passed a judgement in favour of Nokia on 19 March 2013 in the case involving infringement of Nokia’s power-saving patent. The court, while passing the judgement observed that certain devices made by HTC infringed on the power-saving patent.
The case was among 22 infringement suits filed by Nokia against Taiwan’s HTC in Germany. The power-saving patent actually refers to the Nokia’s technology for saving the battery power when connected to the network.
HTC however announced that losing the case in German Court would not have a negative impact on it because it covers just three headsets- the Wildfire S, Desire S, and Rhyme, all of which are not imported into Germany anymore. Nokia in the meanwhile, also announced that it has asserted power-saving patent against HTC in United States International Trade Commission and UK. Hearing in US will begin in May 2013.
INFOSYS INKED DEAL WITH INDIA POST
Infosys, the second largest software exporter of India, signed a deal with India Post for managing the rural operations platform of the latter. Under the agreement, Infosys will help India Post in its India Post's Rural Systems Integration (RSI) program. Financial details of the deal were not disclosed.
MAIN POINTS OF THE DEAL
• According to the deal, Infosys will facilitate India Post in developing the service delivery platform by making use of the solutions like Finacle, TruSync and mConnect.
• The deal will help over 130000 rural post offices in offering the online services. • Apart from this, the deal will facilitate in connecting as well as managing over 130000
handheld devices which are used by rural postal workers. These handheld devices will help in distributing the social benefits under National Rural Employment Guarantee Act and will also help in processing the electronic money orders.
Additionally, Infosys also partnered with India Post in August 2012 for transformation of financial services operations such as banking and insurance of India Post, as well as the end-user experience under its Financial Services System Integration program.
ABOUT INDIA POST
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India Post plays an important role in socio-economic development of India. Its functions include delivery of mails, accepting the deposits under the Small Savings Schemes, providing the life insurance cover under Postal Life Insurance (PLI) and Rural Postal Life Insurance (RPLI) as well as in providing other retail services such as sales of forms and bill collection.
TSMC ACQUIRED STAKE IN LABRADOR IRON MINES HOLDINGS LTD.
Tata Steel Ltd. on 12 March 2013 announced that Tata Steel Minerals Canada Ltd. (TSMC) acquired stake in Canadian company Labrador Iron Mines Holdings Ltd. (LIM) for 163 crore Rupees.
MAIN POINTS OF THE DEAL
• According to the deal, Labrador Iron decided to transfer 51 percent stake in Howse deposit to TMSC. It is estimated that Howse deposit will have28 million tonnes of iron ore resources.
• In exchange, Tata will be transferring Timmins 4 deposit having 1.7 million tons of resources to Labrador for 16.3 crore Rupees. The payment would be recovered from sales.
• Later, Tata can increase the ownership of Howse deposit to 70 percent for 136 crore Rupees. As a part of the deal, Tata is free to further explore Howse deposit.
• Tata Steel Minerals Canada Ltd. (TSMC) and Labrador Iron Mines Holdings Ltd. (LIM) will co-operate with each other for development of rail line which will pass through Labrador Iron's rail yard facilities and connect TSMC's processing plant with main line.
It is important to note that Tata Steel had laid its footprints in Canada already after buying 27.7 percent in the New Millennium Iron Corporation.
WELSPUN COMMISSIONED ASIA’S LARGEST SOLAR POWER PROJECT
Welspun Energy, the country’s biggest developer of solar projects on 12 March 2013 commissioned Asia’s largest Solar Power Project of 50 MW at Jodhpur district in Rajasthan.
The solar power project commissioned is being counted among the largest solar project developed by Welspun Energy till date and is also the largest photovoltaic (PV) power plant in India. The project is known by the name utility-scale solar project and was commissioned just an astonishing five months; well ahead of schedule, creating a new benchmark for the industry.
Welspun Energy won the 50 MW solar projects through a competitive bid under Batch-2, Phase-1 of the Jawaharlal Nehru National Solar Mission. Welspun, earlier in year 2013 started a 15 MW unit at the site, and with short span of it now has commissioned two more units of 15 MW and 20 MW solar generators. The PV project is supposed to generate total electricity of 90 million kWh or units annually and supply clean energy to power 25 million families. It is
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estimated that with the commissioning of this project, an approximation of 83220 million tonnes of carbon dioxide emissions will be mitigated each year.
ABOUT WELSPUN ENERGY
Welspun Energy Ltd (WEL) is one of the top independent renewable energy based power generation company which focuses on developing, owning and operating a diversified portfolio of renewable energy power plants.
• Welspun was the only company to have been awarded a maximum capacity of 50 MW under this scheme, making this the largest project in India.
• The company has become the largest solar power developer in India with over 300 MW solar and wind projects on the ground.
• Welspun energy planned to develop a pipeline of 1.7 GW of renewable power projects which will be developed within 2015 and over 250 MW of renewable projects are presently being developed on ground.
Welspun Energy is part of the 3.5 billion dollar Welspun Group, which has interests in power generation, infrastructure, exploration and production of oil and natural gas, steel pipes and textiles.
REC SIGNED BILATERAL TERM-LOAN AGREEMENT WITH SBI
Rural Electrification Corporation Limited (REC) on 11 March 2013 signed a bilateral term-loan agreement worth 250 million US Dollars or 1350 crore Rupees approximately, with the State Bank of India at Hong Kong.
The funding for the agreement will be done by the offshore branch of State Bank of India, which is also the only lender. The bilateral term-loan agreement was exchanged between REC Chairman Rajeev Sharma and the officials of SBI.
Proceeds of this loan will be used by Rural Electrification Corporation Limited for Infrastructure Power Sector. The loan will also have a floating interest rate to 6 -month LIBOR. It also has door-to-door maturity of 3 years. LIBOR means the rate of interest charged by the top-quality banks on each other for the loans.
With the signing of this bilateral term-loan agreement, REC has completely made use of the External Commercial Borrowings equal to 750 million US dollars, which was sanctioned by Reserve Bank of India under approval route in 2012-13 financial year. At present, Rural Electrification Corporation Limited (REC) is involved in financing the power projects in primarily rural India.
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