RBI announces a slew of measures to curb forex outflows
As a part of its fight to prop up the battered rupee, the Reserve Bank of India (RBI), on 14 August 2013, unveiled a slew of measures aimed at curbing forex outflows. While the measures are aimed at moderating outflows, the RBI added that genuine requirement beyond these limits will continue to be considered under the approval route.
The central bank has reduced the limit for overseas direct investment (ODI) by domestic companies under automatic route from 400 per cent of the net worth to 100 per cent. This reduced limit will also apply to remittances made under the ODI scheme by domestic companies for setting up unincorporated entities overseas in the energy and natural resources sectors.
The reduction will not apply to ODIs by Navratna PSUs, ONGC Videsh and Oil India in overseas unincorporated entities and incorporated entities.
The RBI also reduced the limit for remittances made by resident individuals under the liberalised remittances scheme (LRS) from $2 lakh to $75,000 a year.
Resident individuals are, however, allowed to set up joint ventures/ wholly-owned subsidiaries outside under the ODI route within the revised LRS limit.
The RBI also said while the new curbs on the use of LRS for prohibited transactions like margin trading and lottery will continue, use of LRS for acquisition of immovable property outside directly or indirectly will, henceforth, not be allowed.
More curbs on FX outflow to check rupee decline
Government of India imposed restrictions on foreign exchange outflows and gold imports on 14 August 2013, in a new attempt to prop up the rupee, as a spike in inflation added pressure on policymakers to curb a crippling external deficit.
Finance Minister P. Chidambaram also reiterated his pledge to narrow the current account deficit—the main source of the rupee’s weakness— to 3.8 percent of gross domestic product in 2013-14 and said the currency would not be allowed to slide into “free fall”.
The Reserve Bank of India’s steps to support the currency included cutting the amount of overseas direct investments allowed by Indians. Those investments reached $3.2 billion in July, according to the central bank data.
Separately, the central bank banned imports of gold coins and bars, which constituted about 36 percent of total billion demand in India in 2012, and will require domestic buyers to pay cash for the yellow metal, among other measures.
The steps came as data showed the headline inflation rate jumped above the central bank’s target range of 4 to 5 percent in July for the first time since March, making it even harder for the bank to refocus on supporting India’s slowing economy.
The Indian authorities fear continued falls in the rupee will exacerbate the current account deficit in the short term, deter investment and further curb growth in Asia’s third-largest economy.
Use forex reserves to curb Re volatility: WB economist
World Bank Chief Economist Kaushik Basu has said that India should use forex reserves to curb volatility in the currency market and not to look to IMF for funds.
Basu, who was Chief Economic Adviser in the Finance Ministry before taking over his assignment with the World Bank, added that the government should not “overreact” to depreciation of rupee.
On the possibility of India approaching the International Monetary Fund (IMF) for money, Basu said: “I don’t think we are in a situation where there is any need for that. India has enough foreign exchange reserve. So, the question of having to turn to IMF is not there.”
India has a foreign exchange reserve of about $280 billion.
Meanwhile, he said India’s present economic woes are not comparable to the problems the country faced in 1991. "That is completely a non-question because if you just look at a couple of numbers, then you say there is absolutely no comparison. Foreign exchange reserves in 1991 were down to $3 billion; India now sits on $280 billion foreign exchange reserves,” he said.
On measures taken by RBI to arrest the fall of rupee, he said: “Supporting the currency is a typical matter. Typically, what RBI has done is what central banks with floating exchange rates do.” RBI has announced stern measures, including curbs on Indian firms investing abroad and a reduction of outward remittances, to restrict the outflow of foreign currency and stabilise rupee. Widening CAD, which touched to a record high of 4.8 per cent in 2012-13, was also seen to be putting pressure on rupee.
Effects of falling Rupee
Moving from bad to worse, the Indian rupee hit new all-time low of 64.13 against the dollar on 19 August 2013, on sluggish local stocks and continued dollar demand from importers. The continuous depreciation of the Indian currency will affect:
Importers/Exporters: Importers will strongly feel the pinch of falling rupee as they will be forced to pay more rupees on importing products. Conversely, a feeble rupee will bring delight to the exporters as goods exported abroad will fetch dollars which in return will translate into more rupees. Also, a weak rupee will make Indian produce more competitive in global markets which will be fruitful for India's exports. Buying imported stuff will become a very costly affair. You will have to shell out extra on imported goods.
Fuel price: A weak rupee will increase the burden of Oil Marketing Companies (OMCs) and this will surely be passed on to the consumers as the companies are allowed to do so following deregulation of petrol and partial deregulation of diesel. If the OMCs increase fuel prices, there will be a substantial increase in overall cost of transportation which will stoke up inflation.
RBI’s monetary policy: If the depreciation in rupee continues, it will further increase inflation. In such a situation RBI will have very less room to cut policy rates. No cut in policy rate will add to the borrower’s woes.
Students studying abroad: Students who are studying abroad will bear the brunt most owing to depreciating rupee. Expenses incurred towards the university/college fee as well as that of living will shoot up, thereby spelling a huge burden on the students.
Tourism: The depreciating rupee will is a big dampener if you are planning your holiday abroad. Your travel charges as well as hotel charges will escalate drastically, let alone shopping and other miscellaneous spending activity.
Overseas Indians: Money saved is money earned. Depreciation of rupee is certainly good news for the overseas Indians. Those working abroad can gain more on remitting money to their homeland.
Country’s fiscal health: A frail rupee will add fuel to the rising import bill of the country and thereby increasing its current account deficit (CAD). A widening CAD is bound to pose a threat to the growth of overall economy.
New Company Law enacted
On 8 August 2013, the Parliament cleared the long-awaited Companies Bill 2012, with the Rajya Sabha passing sweeping measures to replace a 57-year-old predecessor.
The new law will empower small shareholders, smoothen corporate governance and compel large companies to spend more on social welfare under the broad head of corporate social responsibility (CSR).
It also imposes checks and balances to prevent frauds, make corporate board room decisions transparent and hold auditors and directors more accountable.
The legislation, which had been in the works for several years and was passed by the Lok Sabha in December 2012, will allow the creation of special courts for speedy trials—an assurance to investors that cases will not linger.
At least a third of a company’s board should comprise of independent directors and at least one of the board members should be a woman, according to the new law.
All companies will have to move to a uniform financial year ending March 31. Only companie, which are holding or subsidiary arms of a foreign entity requiring consolidation outside India, can have a different financial year, but with the approval of Tribunal.
The new law will allow shareholders’ associations to take legal action against companies’ promoters and management through ‘Class Action Suits’—a form of lawsuit where a large group of people collectively bring a claim to court. This acts as a deterrent to carry out a fraud by tailoring and influencing board decisions only to suit promoter and management interests.
It also makes it mandatory for firms to rotate auditors within a stipulated time-frame—a practice which public sector enterprises and banks currently adopt.
Besides, the legislation also contains provisions defining rules for inter-corporate loans and norms for creation of a web of step-down sister companies or subsidiaries.
The Serious Fraud Investigation Office (SFIO), an agency mandated to investigate corporate scams, will be empowered with a statutory status, armed with the authority to impose punitive measures, and in specific instances, even arrest persons found guilty of corporate crimes.
Land Acquisition Bill gets Lok Sabha’s nod
On 29 August 2013, the Lok Sabha okayed a new farmer-friendly land acquisition Bill that promises to address landowners’ concerns as regards relief and rehabilitation. A last-minute division of votes forced by the Trinamool Congress saw 216 members voting in its favour and 19 against it.
The Bill will replace the archaic Act of 1894 that is silent on the issue of resettlement and rehabilitation of those displaced by land acquisition. It bans forcible acquisition of land and makes it mandatory to seek farmers’ consent before acquisition. The “urgency clause” in the existing Act, used by district collectors to acquire land, will now apply only in case of national security and defence-related projects. Landowners will also get spin-off benefits by way of small portions of developed land adjoining the upcoming projects, for commercial use.
The Bill defines the term “public purpose” for land acquisition. This will include agro-based industry and similar activities. The Bill says when land is to be acquired by the State for a private entity or a PPP project, it will have to conduct social and environment-impact assessments of the area besides identifying the families that would be affected if the land was acquired.
The private entity seeking land must then obtain the consent of 80 per cent of the affected families before it gets the government to acquire land for it. In the case of PPPs, the entity will have to secure the consent of 70 per cent of the affected families.
Payment of compensation and fulfilling relief and rehabilitation requirements as mentioned in the Bill will be the third condition for getting possession of the land acquired through State intervention.
The Bill proposes payment of compensation which is up to four times the market value in rural areas and twice the market value in urban areas. The Bill also provides for compensation to those dependent on the land for their livelihood. The definition of “affected family” includes farm labourers, tenants and workers in the area for three years prior to acquisition.
A Land Acquisition and Rehabilitation and Resettlement Authority will be established for settling disputes relating to the process of acquisition, compensation, and relief and rehabilitation.
The Bill will apply retrospectively. It means, in case of the previously acquired land for which no compensation has been paid so far, the provisions of the new Bill will apply. The Bill also provides for a consultation process with gram sabhas.
Food Security Bill passed by Lok Sabha
On 26 August 2013, Lok Sabha cleared the National Food Security Bill with near-unanimity.The Bill provides for food subsidy to two-thirds of the population and cost the exchequer Rs 1.24 lakh crore during 2-13-14. It will now go to the Rajya Sabha for final ratification before the President gives his ascent.
The ambitious Bill was adopted by the House through a voice vote, after an 11-hour non-stop discussion on the measure and a statutory resolution seeking to disapprove the ordinance promulgated on July 5. Over 300 amendments moved by the Opposition were rejected.
Touted as an election “game-changer”, the Bill will enable crores of eligible families to get rice at Rs 3 per kg and wheat at Rs 2 per kg.
The Bill provides immunity against whimsical political masters, as it provides for food security allowance to the beneficiaries if the food-grain is not supplied to them.
A special focus has been put on nutritional support to women and children in the Bill. Women will get a Rs 6,000 maternity allowance besides nutritional food. Children in the age group of six months to 14 years will be entitled to take home ration or hot cooked food under the prescribed nutritional norms.
The original Bill was introduced in the Lok Sabha on 22 December 2011 to addresses the issue of food security. It was referred to a Standing Committee on Food, Consumer Affairs and Public Distribution, which interacted with other Central ministries, organisations and individuals, and visited States before submitting its report to the Speaker on 17 January 2013.
India-China dialogue on Central Asia
On 14 August 2013, India and China held their first-ever dialogue on Central Asia, discussing the similarity of their respective interests in the resource-rich region. They had a conversation on specific issues like regional security and counter-terrorism, Shanghai Cooperation Organisation (SCO), energy security, development partnerships and people-to-people contacts with the countries of the region.
The Indian side at the dialogue held in Beijing was led by Ajay Bisaria, Joint Secretary (Eurasia) in the External Affairs Ministry while the Chinese delegation was headed by Zhang Hanhui, Director General of the Department of European-Central Asian Affairs in the Chinese Foreign Ministry.
The two sides discussed the situation in Central Asia, focusing on the very similar India and Chinese approaches and economic relationships with the countries of the region.
The Chinese side briefed the Indian delegation on China’s vision of its relations with Central Asia while the Indian side explained the details of New Delhi’s ‘Connect Central Asia’ policy.
Both India and China are in the neighbourhood of Central Asia and have established close political and economic ties with the countries of the region. Both the delegations stated that strong relations with the countries of the Central Asian region were an important priority in their foreign policy.
The dialogue reflected the growing engagement between the Foreign Offices of India and China and comes after similar comprehensive dialogues on Africa, West Asia, Afghanistan and counter-terrorism issues.
India inks pacts with energy-rich Iraq
On 23 August 2013, India and Iraq signed four MoUs, including those for cooperation in the field of energy and water resources management. The agreements were signed during the visit of Iraqi Prime Minister Nouri al-Maliki, after wide-ranging talks between Prime Minister Manmohan Singh and his Iraqi counterpart.
This was the first Head of Government-level visit between the two countries since 1975. The agreement on energy cooperation is significant considering the fact that Iraq has emerged as the second largest exporter of oil to India after Saudi Arabia, displacing Iran.
The pact envisages cooperation in the areas of upstream and downstream oil and gas activities and related infrastructure. The agreement marks a significant upgrading of energy relationship from a buyer-seller one to a strategic engagement.
Under the water resources development and management agreement, Iraq has sought India’s assistance so that the country can again become the cradle of civilisation. Iraq has two great rivers—Tigris and Euphrates. But years of uncertainty, wars, have destroyed the entire water infrastructure in the country. It is now obliged to import a lot of food items from abroad, including Turkey, Syria and India. Baghdad would like India to cooperate in the water resource management so that its fertile land could again be used for food production.
Aware of the role Iraq is expected to play in the coming years in meeting India’s energy needs, New Delhi pulled out all the stops to accord a warm welcome to the Iraqi Premier. President Pranab Mukherjee told him that India was committed to assisting Iraq in the process of rebuilding its infrastructure and institutions.
Visit of Prime Minister of Bhutan
During the visit of Prime Minister of Bhutan, Tshering Tobgay ,India announced Rs 5,000-crore financial package for Bhutan as the two countries agreed to closely coordinate and cooperate with each other on issues relating to their security interests.
New Delhi would contribute Rs 4,500 crore towards Bhutan’s 11th plan, apart from extending Rs 500-crore economic stimulus package, said a joint statement issued by the two countries after talks between Prime Minister Manmohan Singh and his Bhutanese counterpart Tsheing Tobgay.
The meeting was significant in the backdrop of the recent acrimony in the relationship when India withdrew oil and gas subsidies to the Himalayan nation on the eve of elections. It clearly indicated that India has not taken kindly to the friendly overtures being made by Bhutan towards China without taking New Delhi into confidence. However, Tobgay is understood to have assured New Delhi that Bhutan would do nothing that would hurt India’s strategic security interests.
Two of India’s five proposed specialised cancer treatment hospitals will come up at Jhajjar and Karnal in Haryana. The first National Cancer Institute (NCI) will come up on the premises of Phase II of the All India Institute of Medical Science (AIIMS) at Bhadsa in Jhajjar. Karnal will get the North Zone Hospital for treatment up to tertiary level among the four National Zonal Cancer Hospitals to be set up.
Robert Mugabe sworn-in as Zimbabwe President for a new five-year term
On 22 August 2013, Zimbabwean President Robert Mugabe, Africa’s oldest leader at 89, was sworn in for a new five-year term in the face of criticism from opponents and the West that his re-election in a July vote was not credible.
Mugabe, who has ruled since independence from Britain in 1980, has told critics of his re-election to “go hang” and has vowed to press ahead with nationalist policies forcing foreign firms to turn over majority stakes to black Zimbabweans.
His long-time rival and opponent in the last three elections, Morgan Tsvangirai, boycotted the ceremony. He has denounced the July 31 election as a “huge fraud” and a “coup by ballot”, alleging massive rigging by Mugabe’s ZANU-PF party. Mugabe and his ruling party have rejected these allegations. This will be Mugabe’s fifth term as President of the southern African State.
He had also served two terms as Prime Minister after 1980 independence ended white minority rule in the country previously known as Rhodesia.
Mugabe and senior officials from his ruling ZANU-PF party are the target of sanctions imposed by governments in the West, who accuse them of staying in power through massive human-rights violations and vote rigging.
DO YOU KNOW
August 13 is celebrated as international left-handers’ day. It was first celebrated in 1992 as an opportunity for left-handers everywhere to celebrate their uniqueness in “Lefty Zones” and increase public awareness of the “struggles left-handers are forced to deal with on a day-to-day basis”.
Scientists in the US have discovered a new animal living in the cloud forests of Colombia and Ecuador. It has been named olinguito, and is the first new species of carnivore to be identified in the western hemisphere in 35 years. The first clue to its existence was uncovered by Kristofer Helgen, a Smithsonian zoologist, who found a mislabelled specimen in a Chicago museum collection. Researchers said that despite the animal’s cat feline and bear-like appearance, the olinguito is actually a member of the Procyonidae family, along with raccoons, coatis, kinkajous and olingos.
World’s biggest book, “Kadve Pravachan”, of size 30x24 feet, written by Jain Muni Shri Tarun Sagar, was released by world’s shortest woman Jyoti Amge on 18 August 2013.
The National Media Centre in New Delhi was inaugurated by Prime Minister Manmohan Singh on 24 August 2013.
India has bypassed Japan to become the world’s third largest Internet user after China and the United States, and its users are significantly younger than those of other emerging economies, according to the global digital measurement and analytics firm comScore. India now has nearly 74 million Internet users, a 31 per cent increase over March 2012.
Melbourne, Australia has been named the world’s most liveable city for the third year in a row, according to a survey of 140 cities released by the Economist Intelligence Unit (EIU). Syrian capital Damascus has been ranked last. Melbourne beat out Vienna, followed by Canadian cities Vancouver, Toronto and Calgary. Australia’s Adelaide, Perth and Sydney also made it into a top 10 list which also included the Finnish capital, Helsinki, and Auckland, New Zealand.
The share of agriculture and allied sectors in India’s GDP declined to 13.7% in 2012-13 due to shift from traditional agrarian economy to industry and service sectors.
As per advance estimates, the production of foodgrains in India has increased from 230.8 million tonnes in 2007-08 to 255.4 million tonnes in 2013-14. Similarly, productivity of foodgrains has increased from 1,860 kg per hectare in 2007-08 to 2,125 kg a hectare in 2012-13.
Mid-sized private lender Ratnakar Bank has acquired British banking major RBS’ business banking, credit cards and mortgage portfolio for an undisclosed sum.
Fitsoul is a sports and fitness retailer, co-promoted by cricketer Mahendra Singh Dhoni.
Dinesh K. Sarraf will be the new chairman and managing director of ONGC.
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