(Current Affairs) Economy & Energy | April: 2016

Economy

RBI to still Guard the Inflations

  • Reserve Bank of India Governor Raghuram Rajan may have raised a quiet toast with his colleagues on Friday evening after retail inflation data showed the central bank had met its January 2016 target of slowing the price gains to under 6 per cent.
  • The satisfaction would be understandable given that the RBI had less than a year ago — at the end of February 2015 — entered into a historic agreement with the government on an inflation targeting monetary framework with clear and specified goals and timelines.
  • The first target of limiting retail inflation to 6 per cent or below by January 2016 has now been met, with the government reporting CPI data that showed the headline number at 5.59 per cent.
  • While the reading is a 17- month high, it has slowed considerably from the 11.15per cent recorded in November 2013.
  • It’s the journey ahead to the next milestone of 5 per cent by March 2017 which is likely to challenge monetary policy makers.
  • The target agreed by the government and the central bank is for inflation of 4 per cent, with a band of plus or minus 2 per cent. There are several factorsthat could contribute to roiling the RBI’s inflation targeting plans.

Public and private banks will face serious competition from mew entrants

  • Reserve Bank of India Governor Raghuram Rajan told public and private sector banks to prepare for serious competition from new entrants and small banks as he assured them that the turbulence in the domestic financial market would end sooner than, later offering tremendous growth opportunities.

  • Competition was needed for new solutions to emerge and to cut cost of transactions.

  • However, new products and technology should be used initially in a measured manner, he said, reiterating that he would cross the river feeling the stones, one stone at a time.

  • The Reserve Bank was in the process of strengthening the public sector banks. Oneof the measures was to strengthen the boards governing the banks. New board members would be brought in through a transparent process.

  • Universal banking licences would be reopened soon, he said, but pointed out that small banks would connect better with those requiring smaller loans where “character banking” would merge with new technological tools to aggregate information and make decisions on that basis.

  • The RBI has also initiated three major steps to improve transactions.

  • These include aunified payment interface which would be facilitated by an e-mail-like identity of the persons involved; trade receivables exchanges, which would bridge the gap between payment by a company to a manufacturer.

Industrial activity shrank for the second consecutive month

  • Industrial activity shrank 1.3 per cent in December 2015 for the second consecutive month with the capital goods sector taking the lead.
  • Consumer price inflation accelerated to 5.7 per cent in January. And the Index of Industrial Production for December 2015 stood at 183.4, which is 1.3 per cent lower than its level in December 2014.
  • The contraction in the IIP in December comes after a 3.4 per cent drop in November 2015.
  • The manufacturing sector contracted 2.44 per cent for the second straight month,while mining and electricity sectors grew 2.92 per cent and 3.15 per cent respectively in December.
  • The capital goods sector, by usage, contracted by 19.69 per cent in December.
  • Consumer durables, however, maintained a strong growth showing, registering a growth of 16.49 per cent in December on the back of 12.5 per cent in November. Consumer non-durables contracted 3.2 per cent while intermediate good grew modestly, by 0.94 per cent in December.

NSEL and FTIL would be merged together

  • The Ministry of Corporate Affairs (MCA) has ordered the merger of Mumbai- based National Spot Exchange Ltd. (NSEL), which was embroiled in a Rs.5,600-crore settlement scam in July 2013, with Jignesh Shah- promoted Financial Technologies India Ltd (FTIL).
  • In an order issued, the government said that the merger will be applicable from March 31, 2015.
  • Simply put, all the liabilities of NSEL as on March 31, 2015, would shift on the books of FTIL. NSEL as a corporate entity would cease to exist post the merger.
  • This is the first time that the government has ordered a merger between two private entities under Section 396 of The Companies Act, 1956. The government had issued a draft merger order on 21st October 2014.

RBI governor says Balance sheet clean up will only have short term effect

  • The ongoing clean- up of bank balance sheets will help spur economic growth and improve the lenders’ profitability, Re- serve Bank of India (RBI) Governor Raghuram Rajan said..
  • The RBI had conducted an asset quality review (AQR) of banks and identified specific accounts, which banks have to identify as non-performing in twoquarters, October-December and January-March.
  • As a result, bad loans have hit banks’ profitability in the third quarter with most of them posting heavy losses in Q3.
  • State Bank of India reported 62 per cent drop in its net profit on the back of over Rs. 20,000 crore rise in non-performing loans or bad loans.
  • Private banks, which are in a much better shape on the asset quality front, saw their business growing much more than their public sector counterpart.
  • Non-food credit growth from public sector banks, the more stressed part of the system, grew at only 6.6 per cent over the calendar year 2015.
  • In contrast, non- food credit growth in private sectorbanks was 20.2 %, per cent.
  • The Indian banking sector is seeing rise in stressed assets over the last three years.
  • According to RBI data, stressed asset, that is gross NPA plus standard restructured advances, as a percentage of advances moved up to 11.3 per cent as on September 2015 as compared to 9.2 per cent in March 2013.

In order to align small savings with market Interest rates might be reduced

  • Interest rates for small savings schemes, such as Post office Savings Account, Public Provident Fund and Post office Fixed Deposit Scheme, may be reduced by the government to align them more.
  • The new rates would be applicable from April 1, 2016. The rates for the long-term schemes and those for the girl child and senior citizens will remain unaffected by the decision.
  • The Reserve Bank, over the last one year, has reduced interest rates by over a percent- age point.
  • At present, the small savings rates are linked to government securities and are readjusted every year. The decision is to start adjusting the rates on quarterly basis.
  • The smalls saving schemes include Post office Monthly Income Scheme (MIS), PPF, Post office Fixed Deposit Scheme, Senior Citizens Savings Scheme, Post office Savings Account and Sukanya Samriddhi Accounts.
  • While the rates for the girl child and senior citizen schemes will also be adjusted every quarter, the spreads they have over the G-Sec rates will be left unaltered.

RBI directed banks to accelerate provisioning requirement

  • The Reserve Bank of India (RBI) has directed commercial banks to accelerate provisioning requirement, from April 1, for the existing stock of restructured loans that are showing signs of stress.
  • RBI has identified bank specific accounts in which respective lenders have to make higher provisioning from April 1.
  • These accounts were restructured earlier. Banks have provided only 5 per cent for these restructured loans, but now the central bank has directed them to increase the provisioning by 2.5 per cent every quarter so that by March 31, 2017, provisioning reached the 15 per cent level — in line with sub-standard accounts.
  • However, banks are not allowed to classify these accounts as non-perform- ing assets.
  • The central bank has given four quarter to banks, starting April 1, to make full provisioning for the identified accounts, so that a bank is not hit in one go.
  • The central bank’s move comes in the back drop of RBI Governor Raghuram Rajan’s drive to clean up banks’ balance sheets by March 2017.
  • In February 2014, the central bank issued a set of guidelines on joint lenders’ forum and laid out a corrective action plan with the objective of revitalising distressed assets in the banking system.
  • In that circular, RBI had said that banks have to face accelerated provisioning if the borrower’s account continues to show weakness.
  • The step to increase provisioning is seen in line with the accelerated provisioning requirement.

Govt. plans to set up 2,000 waterports

  • Government plans to set up 2,000 waterports as well as “Ro—Ro” services at five select places to transport goods and vehicles.
  • Besides, there is a plan to develop 1,300 islands and 280 light houses as major attractions for tourists.
  • Not only this we will develop our 1,300 islands as major tourist attraction.
  • The government will soon start Ro- —Ro (Roll—on Roll—of) service at five places including Haldia, Patna, Varanasi and Sahibganj with the World Bank assistance.
  • Once they are operational, trucks could be transported till the points leading to huge savings which in turn would boost economy.
  • He also informed that government is constructing waterways on a 1,620 kilometer stretch on the Ganga between Varanasi and Haldia and 30 water ports would be constructed there.

US ranked India in second last position in Intellectual property Index

  • India was ranked 37 out of 38 countries, with only Venezuela scoring lower, in the U.S. Chamber of Commerce-International Intellectual Property Index.

  • The report, comes at a time when the government is close to finalising a National Intellectual Property policy to improve the IP regime, increase IP awareness and strengthen enforcement of rules.

  • The U.S. was ranked first, followed by the UK, Germany, France and Sweden. India’s peers in the BRICS grouping were all ranked ahead with Russia ranked 20th, China (22nd), South Africa (26th) and Brazil (29th).

  • The 38 economies benchmarked in the 2016 Index accounts for nearly 85 per cent of the global GDP.

  • The Index — produced by the Chamber’s Global Intellectual Property Center(GIPC) — is based on 30 criteria critical to innovation including patent, copyright and trademark protections, enforcement, and engagement in international treaties etc. The GIPC report found that among India’s key areas of weakness was the use of compulsory licensing (CL) for commercial and non- emergency situations, and the expanded use of CL being considered by the Indian government.

Government easing rules to grant construction permits around airports

  • The government is easing rules for granting construction permits around airports and monuments by developing colour-coded maps in a bid to give fillip to urban growth.
  • Developers have to get permits from Airport Authority of India (AII) in New Delhi to build projects around the country’s airports.
  • AII has come out with colour- coded zonal map. The airspaces used by jetliners for landings and take offs are highlighted in the map. No construction will be allowed in such spaces.
  • Construction would be allowed in those areas that fall out of “colour coded” zones.
  • Developers don’t have to come all the way to Delhi to get building height clearances among others.
  • The government will soon empower urban local bodies to follow the colour-coded zonal maps and authorise real estate development accordingly.
  • Jaipur International Airport is the first one to develop a colour-coded map.
  • All the other civilian airports across India, including 28 defence airports that are being used for civilian purposes, will have their maps ready by December 2016.
  • The Ministry of Culture in collaboration with ISRO is developing colour-coded maps for 281 monuments that fall in construction zones.
  • Ministry of Culture has launched a mobile app that enables online approvals for construction around monuments in just 72 hours.

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