Current Affairs: Economy issues

Current Affairs: Economy issues: 05-12 Dec 09 By Dialogue India
India can return to 8-9% growth: Zoellick• World Bank president Robert Zoellick .• India is likely to return to a high growth of 8-9% in a year or two, helped by strong fiscal and monetary measures to counter the global financial crisis.• The 11th Plan ending in 2012 envisaged achieving an average 9% growth. The GDP growth slipped to 6.7 per cent during 2008-09 as a result of the global crisis, after three years of 9% growth.Ecopetrol, RIL to explore deepwater blocks in Colombia• Reliance Exploration and Production DMCC (REP), a wholly owned subsidiary of Reliance Industries Ltd. (RIL), and Ecopetrol of Colombia (Ecopetrol) signed the Farm-out Agreements, effective from November 23. • Borojo North Block 42 and Borojo South Block 43 in Colombia, subject to approval by ANH, the Colombian national upstream regulator.• According to the agreements, Ecopetrol acquires a 20 per cent stake in the blocks while REP will retain the balance and the operatorship in these blocks.Beyond expectations• The Central Statistical Organisation’s estimate of a robust GDP growth of 7.9 per cent during the second quarter of the year (July-September 2009).• 7.7 per cent recorded at the same time last year.• During the first quarter, the economy grew by 6.1 per cent. • The second quarter seems to reinforce the forecasts of the IMF and the World Bank that India and China, along with a few other developing countries, will be in the forefront of a global recovery. • The second quarter growth has been driven by strong performances of the manufacturing sector, which was up by 9.2 per cent compared to 5.1 per cent last year, and the mining and quarrying sector that registered 9.5 per cent as against 3.7 per cent. The growth in the services sector too has been impressive with the Community, Social and Personal services sub-segment posting a 12.7 per cent growth. • The impact of the stimulus measures is continuing but there are signs of private consumption expenditure reviving. While there are reasons to be optimistic, a word or two of caution will be in order. 1. Agriculture and allied activities have grown by just 0.9 per cent, down from 2.7 per cent a year ago and 2.4 per cent in the previous quarter. 2. Even that does not take into account the estimated fall in the production of rice, pulses, and oil seeds during the Kharif season. The consensus is that agriculture will fare worse in the third quarter. The ethanol challenge• The Cabinet has once again decided that the Petroleum Ministry must ensure mandatory blending of 5 per cent ethanol with petrol. • Deadline after deadline has passed since 2006 and the ambitious programme is yet to take off. A complex set of factors involving the sugar industry and the ethanol market is at play• In recent months, the oil marketing companies have been unable to contract for even half the quantity of ethanol needed for 5 per cent doping. And the quantities offered are at rates as high as Rs.41 a litre. The oil companies have until now offered Rs.21.50, although they are open to paying a little more. One of them has meanwhile planned to invest in sugar mills to ensure a captive source of ethanol. • The cost of petrol is Rs.23 a litre and the blending of ethanol obtained at a price that is any higher will be uneconomical. • There just may not be enough ethanol available in India to meet the blending requirement unless the acreage under sugarcane goes up significantly, and sugar mills are given the option to process sugarcane juice directly into ethanol instead of sugar. • Both these moves will have an impact on sugar production and sugar prices. Given the rising price of sugar and the insistence by the State governments that the sugar mills meet first the demands of the beverage industry, finding enough ethanol is going to be difficult.• Sugarcane-based ethanol is indeed “the most successful alternative fuel to date.” As an excellent oxygenate and octane booster, it clearly has technical advantages. • But in India, the world’s second largest producer of sugar, almost 90 per cent of ethanol comes from cane molasses, spelling dependence on a single feedstock. Sugarcane production has historically been marked by a certain cyclical volatility, with bumper years followed by years of low production. • In order to reduce its dependence on oil imports, rather than setting much store by ethanol, India should look more aggressively at other options including hybrid fuels and CNG. Several countries of the world, notably Brazil — which introduced ethanol-blended petrol as early as in 1931 — have come a long way here. • But India has several limitations including land availability constraints and food security concerns that may leave a limited role for the biofuel option for now. It is time the realities of the situation were factored into ethanol policy.Curtains down on Bajaj scooters• Bajaj Auto announced on Wednesday that it is exiting the scooter segment altogether, bringing the curtains down on its iconic product line.• The company had stopped making the Chetak — once the world’s largest selling scooter — almost three years ago, and according to its MD Rajeev Bajaj, it will stop production of its non-starter Kristal series by end of the current fiscal.• Bajaj Auto says it will now focus on making motorcycles.Tata's show the way for reservations in India Inc• The Tatas were the first to bring many material things to India — power, star hotels and steel, to name a few. The $71-billion group with interests from tea-to-telecom is also now probably the first to introduce a hiring policy that emphasises ‘positive discrimination’ for its scores of enterprises located across the country from the seashores to deserts to mountain tops.RBI to promote take-out financing• It is a mechanism wherein originator (of a loan) enters into an agreement to sell the loan to another lender at a mutually agreed price in future date. Here the originator holds the loan in his books for the initial years while the buyer of the loan retains its till maturity.China poised to beat India in gold consumption• China will overtake India as the world’s largest gold consumer in 2009, with total demand forecast at 432 tonne compared with 422 tonne from India.• China’s investment demand alone was forecast at 83 tonne, exceeding India’s 53 tonne. India bought 200 tonne from the International Monetary Fund in November, which helped send gold to successive records.• India’s purchase also strengthened speculation that other emerging country central banks will follow suit, particularly China, which has the world’s largest foreign exchange reserves worth $2.27 trillion, mostly held in US Treasury bonds.

(Study Notes) Current Affairs: Economic Issues: 28 Nov- 5 Dec 0’9 by DialogueIndia

Dubai rattles the world with its loan rescheduling program
· Dubai World, the government investment company with $59 billion of liabilities, sought to delay repayment on much of its debt.
· The announcement sent shockwaves throughout the financial and political world.
· Credit-default swaps tied to debt sold by Dubai rose as much as 131 basis points to 571.
· For India, which has tens of thousands of its citizens living and working in the emirate, the concerns are more direct: thousands of its expats staring at job losses and the economy, sharply reduced trade.
· India, which gets nearly a quarter of the remittances from the United Arab Emirates and has lakhs of labourers working in the region, could be worse off than most other nations if the crisis escalates into a full-blown one like the Russian or Argentinean crises of the past. India’s exports to the UAE stood at $23.92 billion in FY09.
The Economic Crisis
· The south-east Asian financial crisis of 1997, which engulfed Indonesia and South Korea, started in Thailand.
· In 2001 it was Argentina.
· Last year’s problems first bubbled to the surface in Iceland and Ireland.
RBI to ask banks to furnish exposure details
· Banks on Friday said they had an exposure of Rs. 5,000-6,500 crore in the Middle East city, and said the debt repayment crisis in Dubai might not have major impact on their balance sheets.
· Bank of Baorda, the largest Indian lender in the United Arab Emirates (UAE), said it had an exposure of Rs. 5,000 crore in Dubai.
· “We have only a 7-8 per cent of our total loan-book in the entire Gulf region, which amounts to Rs. 10,000-crore. These accounts are well maintained and is unlikely to cause any kind of impact on the balance-sheet,” Bank of Baroda Chairman and Managing Director M. D. Mallya said.
Bank consolidation: pitfalls of a hasty decision financial scene
· After a period of relative quiet, the subject of consolidation in the Indian banking industry is back in focus.
· While no policy statements have come from either the government or the Reserve Bank of India, reports of a meeting that the chairmen of the five top public sector banks had with officials of the Finance Ministry have evoked renewed interest in the subject.
· New government stance- PSBs should look at consolidation as a serious option but the initiatives should come from the banks themselves. In other words, the Finance Ministry will not drive the mergers but will play a supportive role if proposals do emanate from banks.
· The latest policy stance is in sharp contrast to the one that prevailed earlier, when the government wanted mergers to take place within a fixed timeframe.
· Consolidation has been on the policy agenda ever since the Narasimham II Committee’s report on financial sector reform (1997) recommended the creation of four or five large banks in place of the 27 PSBs.
· Enhanced capital adequacy was touted as one of the benefits.
· However, if the government is to retain at least 51 per cent of the equity capital in any PSB, identifying a merger partner becomes extremely difficult.This is because barring two, all the PSBs are listed on the stock market with varying degrees of non-government shareholding.
· The following factors suggest that any such merger will be neither voluntary nor free from glitches.
· One is the ownership structure of the PSBs all of which have the government as the majority shareholder. Despite the Finance Minister’s assertion that mergers will not be dictated, boards of individual banks and their chairmen will be only too eager to please the powers that be. Such attitude is extremely difficult to shake off if past experience is any guide.
· Two, the government being the majority shareholder does not mean that it can ignore the interests of minority shareholders. Guidelines of the Securities and Exchange Board of India and stock exchanges will have to follow.
· Three, it is difficult to see synergies accruing from such mergers.
· For instance, seeking a geographical or cultural fit between two banks is only theoretically possible. All government-owned banks have acquired an all India character even though in their private sector days they have regional in character. A merger will entail duplication of branch network especially in towns and metros.
· Synergy in technology application will be equally elusive given that the banks are in different stages of technology absorption and use different platforms.
· A more difficult task is to achieve a cultural fit post-merger. Though all of them are government-owned, each has certain unique cultural strengths that cannot be retained after the merger. In their pre-nationalisation days, some of the banks had affinities with specific business activities and groups. These have continued under government ownership. For instance, Bank of India and Bank of Baroda have had a strong stock market tradition, which has flourished well into their public sector days.
· There is a real possibility that such strengths will be dissipated after merger with a bank with little exposure to the stock markets.
· Four, a successful merger implies a reasonably smooth integration of staff and human resources related systems.
· This will be, by far, the biggest challenge. By their very nature, bank or financial service entities are people-centric. It is not clear whether those who advocate mergers as an easy option are aware of the strengths of such human capital.
· There are many other reasons why a merger between PSBs will neither be easy nor beneficial.
· Some of the world’s biggest banks, the Citigroup notably, which relied heavily on mergers and acquisitions to grow phenomenally, have been rapped on the knuckles by the regulators and are realising that such stupendous inorganic growth has come at a price.
· Again in the U.S. the intense pace of bank consolidation that followed the federal inter-state banking legislation in 1994 has not been beneficial for small businesses, which are the major job creators.
· According to a study conducted on behalf of the U.S. Small Business Administration Office and Advocacy, their access to credit has been sharply curtailed.
UNIDO all set to launch $7 million energy efficiency project in India
· The United Nations Industrial Development Organization (UNIDO) is all set to launch a major initiative costing $7 million to promote energy efficiency in selected energy intensive micro, small and medium enterprises (MSME) clusters across india .
· The objective was to enhance energy efficiency and increase the share of renewable energy in these sectors.
· The project, to be spread over a period of four years, is funded by the Global Environment Facility (GEF) and is part of the country programme of cooperation between India and UNIDO.
· The nodal agency for execution of this project is Department of Industrial Policy & Promotion (DIPP).
· It has selected 12 prominent cities,The clusters selected included Khurja, Thangarh and Morbi (ceramics), Jalandhar, Nagaur, Tumkur (hand tools), Belgaum, Coimbatore and Indore (foundries), Jagadhri and Jamnagar (brass clusters) and dairy in Gujarat.
3G offers higher capacity and enhanced network functionalities
· mood on two counts — first on the feat of India achieving 500 million telephones well ahead of the target in November 2009, second on the timely introduction of 3G mobile service in the country.
· 3G is a term coined by global cellular community to indicate the next generation of mobile service capabilities (higher capacity and enhanced network functionalities) that allow advanced services and applications including Multimedia.3G in the mobile network is a basket of good services and facilities for the customers.
IT professionals asked to move up the value chainNarayana Murthy, Chairman and chief mentor, Infosys, speaks at the World Newspaper Congress in Hyderabad.
· the global sourcing industry, which is pegged at $500 billion at present, was expected to triple by 2020, of which India’s share was likely to be anywhere between $175 billion and $300 billion.
· Unlike the previous decade where 75 per cent of the revenues to India came from Fortune 500 companies, small and medium business were expected to contribute at least 50 per cent share — between $90 billion and $150 billion — in the coming years.
· While the U.S. and the U.K. contributed a major share of 80 per cent of revenues, 50 per cent of the revenues (anywhere between $90 billion and $150 billion) was expected to come from BRIC (Brazil, Russia, India and China) countries.
· The contribution from the banking, financial services, insurance, telecom and manufacturing segments, which now stood at 75 per cent, would come down as public sector companies, healthcare, media, utilities and other sectors were set to take 50 per cent share, he said.


Indo-Gulf Business Forum on Dec. 9
· ASSOCHAM, jointly with the FAPCCI, is organising on December 9 a conference on ‘Indo-Gulf Business Forum-2009’ followed by one-on-one business meetings. In Hyderabad.
· Gulf ambassadors and economic counsellors besides many businessmen, including office-bearers of chambers of commerce in GCC countries are expected to attend.
Alstom’s 33.3 pc stake in NPCIL-BHEL JV
· Nuclear Power Corporation of India on Tuesday said French power equipment maker Alstom will be the third partner and hold 33.3 per cent stake in the proposed joint venture with Bharat Heavy Electricals.
SIEMA moots Geographical Indication recognition for pumpsets
· Coimbatore
· The Southern India Engineering Manufacturers’ Association has mooted Geographical Indication (GI) registration for pumpsets made here.
· “With quality and the large number of manufacturers here, getting the registration should be the next step forward,” Jayakumar Ramdass, President of the Association told The Hindu.
· The first pumpset was made here in 1932. Since then, the industry had grown and had been recognised for affordable pricing, quality of materials used, performance and after-sales service, he said.
Supreme Court rejects petition against insurance amendment Bill
· Bill seeks to abolish commission charged by LIC agents
· Wants to replace it with a fee charged from customers