(Current Affairs) Economy & Energy | January: 2016

Economy

China’s yuan takes another step towards SDR basket inclusion

  • China’s currency, the yuan, took an-other step forward towards join-ing the elite group of global re-serve currencies on Saturday when the International Monetary Fund’s (IMF) staff on Saturday recommended that the Chinese currency be included in the IMF’s benchmark foreign exchange basket, a move that will indirectly benefit India as well.
  • Managing Director of the IMF Christine Lagarde also endorsed the yuan’s inclusion in the IMF’s Special Drawing Rights basket.
  • The staff of the IMF has today issued a paper to the Executive Board on the quinquennial re-view of the SDR (Special Drawing Rights). A key focus of the Board review is whether the Chinese renminbi (RMB), also meets the other existing criterion, that the currency be ‘freely usable’, which is defined as being ‘widely used’ for international transactions and ‘widely traded’ in the principal foreign exchange markets.
  • SDR are not a currency them-selves, but are a certain number of rights given by the IMF to countries who, in a crisis, can draw up-on any of the reserve currencies in the basket — currently the dollar, euro, yen and pound.
  • The inclusion of the yuan in this basket has been endorsed by almost all of the major economies of the world, including Germany, Britain, France and Italy.
  • The U.S. was historically cautious about this, but recently softened its stance in September when President Obama said the U.S. would support China’s bid for inclusion in the SDR basket as long as it met the IMF’s technical specifications, which it now has.

PM vows to work towards a globally integrated economy

  • Top CEOs from India and the U.K. on Friday pitched for a more transparent and consistent deci-sion-making regime as also a uni-form treatment of corporates across the world, as Prime Minister Narendra Modi vowed to work “ceaselessly” towards Indian economy’s integration with the rest of the world.

  • A reconstituted India-UK CE-Os Forum, during its first meet-ing, identified six overarching themes as important areas of collaboration to take forward — smart cities and the digital economy, healthcare, education and skills, engineering, defence and security, and financial and professional services.

  • The meeting took place in the presence of Mr. Modi as well as his British counterpart David Cameron. “We are confidently, consistently and ceaselessly working to integrate our economy with the world,” Mr. Modi told the gather-ing at 11 Downing Street, next door to Mr. Cameron’s offIce in London. Mr. Cameron encouraged the company chairs and chief executives to identify the “best ways to build new trade partnerships and investment opportunities and use the strength of existing commercial relationships to identify and build more partnerships between innovative Indian and U.K. companies.”

  • The forum was co-chaired by Tata Group chairman Cyrus Mis-try on the Indian side and Standard Life chairman Sir Gerry Grimstone on the U.K. side. “The common ask of the industry in both countries is a business environment characterised by simplicity in structures and processes, clarity and transparency in decision-making and uniformity and consistency in the treatment of corporates and people across borders,” Mr. Mistry said.

  • “The new UK-India CEOs Fo-rum provides a powerful foundation with which to implement initiatives that will bring our two countries closer together, based on mutual respect and shared values,” said Mr. Mistry, who was joined by the likes of Bharti Enter-prises chairman Sunil Bharti Mittal, Tata Consultancy Services CEO & MD N. Chandrasekaran and Bharat Forge Chairman Baba Kalyani.

  • “Today’s meeting was a great opportunity to celebrate the success of the UK-India commercial relationship. India is the third largest investor in the U.K., and the U.K. is the largest G20 investor in India,” Mr. Gerry Grim-stone said. “This forum will forge deeper collaboration in areas where there is scope to take relationship to the next levels,” said Mr. Grim-stone, whose U.K. team included leading British company representatives like Vodafone chief executive Vitorio Calao, BAE CEO Ian King and Rolls-Royce CEO Warren East.

  • The U.K. is the largest G20 investor in India, with 535 U.K. businesses employing 6,91,000 people across the country in sectors as diverse as retail, infrastructure, construction, information and communications technology, creative industries and health-care. In the U.K., around 800 In-dian businesses employ 110,000 people.

India aims to triple its steel production

  • Union Minister for Steel and Mines Narendra Singh Tomar has said that the country is striving hard to achieve its target of tripling the current annual steel production of 100 million tonnes by 2025.
  • Globally, the steel industry is going through a crisis with a fall in production by 2.3 per cent this year. However, India has been able to show a four per cent increase in production despite heavy imports from China.
  • Four new large steel plants would be established in Chhattisgarh, Jharkhand andKarnataka.

Royal dining at Buckingham Palace

  • Prime Minister Narendra Modi met Queen Elizabeth II over lunch at the Buckingham Palace on Friday.
  • The Prime Minister arrived in a Jaguar, and the 89-year-old Queen greeted Mr. Modi at the Grand Entrance of the palace, shaking hands with him before they moved on to inspect items from the Royal Collection, brought out specially for the Prime Minister’s visit.
  • While a ceremonial ride in a gilded carriage with the Queen associated with an official state visit was missing for Mr. Modi, the more intimate setting of a lunch with her had been stressed upon as an indication of the closeness of ties between India and the U.K. Mr. Modi was hosted at Chequers, the British Prime Minister’s country residence in Buckinghamshire, on Thursday

North-East connectivity project struck in hurdles

  • The ambitious Rs.15,000 crore North East connectivity project is struggling to take of one year after India and Japan jointly agreed to work on the project to quickly transform the region into a manufacturing hub with the help of bet-ter road infrastructure.

  • There were differences between JICA (Japan International Cooperation Agency) and the National Highways and Infrastructure Development Corporation (NHIDCL) on issues such as the various costs involved in the project, and the technology that is to be used in building roads.

  • There are also differences between the two on the manner in which environment and social impact assessments are to be carried out. NHIDCL is a wholly owned company of the Ministry of Road Transport & Highways (MORTH) and is the project implementing agency.

  • Also, it is learnt that local stakeholders such as the Khasi Hills Autonomous District Council in Meghalaya are yet to give their ‘no objection certificates’.

  • With the Japanese Prime Minister Shinzo Abe slated to visit India later next month, the Prime Minister’s office (PMO) has sought a status report of the project and will shortly hold an inter-ministerial meeting on it to expeditiously resolve all the outstanding issues.

Vodafone set to invest 2 billion dollar in India

  • Vodafone, India’s second largest telecommunications service provider by number of users, will invest Rs.13,000 crore or $2 billion on capacity expansion and new business initiatives.
  • Vodafone, which ranks behind Bharti Airtel in the Indian telecom market, is already the largest FDI investor in the country with investments exceeding Rs.1,11,000 crore since starting its Indian operations in 2007.
  • Vittorio Colao, Vodafone Group Plc CEO, committed to the latest investment during his meeting with Prime Minister Narendra Modi in Lon-don on Friday. The announcement of the increase in investment comes as the U.K. major readies to tap the Indian capital market with an initial public offering.

Key indicators register fall

  • Growth in industrial production, as measured by the Index of Industri-al Production, slowed down in September to 3.6 per cent from the break-neck 6.3 per cent achieved in August. Retail inflation for October, also released on Thursday, accelerated to 5 per cent from 4.4 per cent in September, marking the fourth consecutive month of consumer price inflation quickening.

  • “The General Index (of Industrial Production) for the month of September 2015 stands at 178.0, which is 3.6 per cent higher as com-pared to the level in the month of September 2014. The cumulative growth for the period April-September 2015-16 over the corresponding period of the previous year stands at 4 per cent,” the government said in a release.

  • The 3.6 per cent growth rate in industrial production seems more the norm than the high 6.3 achieved the previous month. In fact, the growth rate achieved in September is exactly the median growth rate over the period January-September. August seems to have been an aberration, registering a growth rate 2.6 percentage points higher than the median.

  • That said, some elements of the index certainly have fallen more drastically than others. Growth in the manufacturing sector, for ex-ample, plummeted to 2.6 per cent in September from a heady 6.6 per cent the previous month. However, this 2.6 per cent is low even com-pared to more ‘normal’ months, falling well below the 3.9 per cent median growth rate since January.

  • An exception The electricity sector, on the other hand, grew very strongly in September, coming in at 11.4 per cent, up from 5.6 per cent in Au-gust. This is the fastest growth the sector has seen since August 2014. Notably, by usage, the capital goods sector slowed down considerably, coming in at 10.5 per cent in September compared to 21.4 per cent in August.

  • However, this could be more of a correction since the sector grew at 10.6 per cent in July. Consumer goods, a measure of demand in the economy, also slowed to 0.6 per cent in September compared to 6 per cent in Au-gust. Growth in the Consumer Price Index, at 5 per cent in October, was the highest it has been since June, when it was 5.4 per cent. The greatest increase can be seen in the food and beverages segment, which accelerated from 4.3 per cent in September to 5.3 per cent in October. Here, urban Indians felt the pinch more than rural Indians, although the rate of inflation quicken considerably for the latter as well. Food inflation in urban India went from 3.8 per cent in September to 5.4 per cent in October.

  • The same numbers are 4.5 per cent and 5.4 per cent for rural India. Significantly, growth in the fuel and light segment of the CPI slowed for the third consecutive month to 5.3 per cent from 5.8 per cent two months ago. Inflation in clothing and footwear, at 5.6 per cent was at a multi-year low, lower than it has been for at least three and a half years.

  • Although CPI inflation has been accelerating lately, it is still within the Reserve Bank of India’s com-fort zone of 6 per cent that it want-ed to achieve by January 2016.

Subir Gokarn appointed ED at IMF

  • Former Reserve Bank of India Deputy Governor Subir Gokarn was on Thursday appointed as an Executive Director on the board of the International Monetary Fund (IMF).

  • “The Appointments Committee of the Cabinet has approved the proposal for appointment of Mr. Subir Gokaran, Economist as Executive Director representing the Indian Constituency (India, Bangladesh, Bhutan and Sri Lanka) at the International Monetary Fund vice Mr. Rakesh Mohan,” the government said in a release.

  • Mr. Gokarn’s name was cleared by Appointments Committee of Cabinet headed by Prime Minister Narendra Modi, as per an order issued by the Department of Personnel and Training. He replaces Mr. Rakesh Mohan at the IMF.

Government relaxes FDI norms across 15 sectors

  • The Centre on Tuesday announced ‘Big Bang’ Foreign Direct Investment (FDI) reforms, easing norms across 15 sectors including defence, banking, construction, single brand retail, broadcasting and civil aviation. The move is aimed at boosting the investment environment and attracting more foreign capital to the country.

  • The announcement was made two days after the Bharatiya Janata Party-led National Democratic Alliance suffered a resounding defeat in the Bihar Assembly elections. It also came on the eve of Prime Minister Narendra Modi’s visit to the U.K., where he could have otherwise faced tough questions on his government’s major initiatives to spur foreign investment.

  • For facilitating faster approvals on most of the proposals, the government also raised the threshold limit of approval by Foreign Investment Promotion Board from the earlier Rs.3,000 crore to Rs.5,000 crore. As per the existing policy, FIPB considers foreign investment proposals of in-flow up to Rs.3,000 crore and those above that limit are placed for consideration of the Cabinet Committee on Economic Affairs.

  • According to an official release, the crux of these reforms is to further ease, rationalise and simplify the process of foreign investments in the country and to put more and more FDI proposals on automatic route in-stead of Government route where time and energy of the investors is wasted.

  • For the sake of ease of doing business, the Industry Ministry will soon consolidate all FDI related instructions contained in various notifications & press notes and prepare a booklet so that the investors do not have to refer to several documents of different time-frames.

  • The official release said refining of foreign investment norms in construction is to facilitate the construction of 50 million houses for poor. It added that opening up of the manufacturing sector for wholesale, retail and e-commerce is aimed at motivating industries to Make In India and sell it to the customers here instead of importing from other countries.

  • The struggling construction sector will be a major beneficiary as radical changes in FDI norms have been brought in to boost demand for steel, cement and spur economic activity, ultimately with an aim to help build 50 million affordable houses for the poor.

  • Foreign investment up to 49 per cent has been allowed under automatic route from the earlier government approved route. Proposals for foreign investment in excess of 49 per cent will be considered by FIPB. Portfolio investment and foreign venture capital investment, which were restricted to 24 per cent, have now been hiked to 49 per cent and that too through the automatic route.

  • To ensure that ownership and control remain in Indian hands, Government approval, of course, will be required in case of infusion of fresh foreign in-vestment within the permitted automatic route level, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor.

  • The government also decided to plantation activities namely; coffee, rubber, cardamom , palm oil tree and olive oil tree plantations also for 100 per cent foreign investment under automatic route. As of now, only tea plantation was open to foreign investment.

Infrastructure key to draw FDI in general aviation

  • The Government’s decision to allow 100 per cent Foreign Direct Investment (FDI) in general aviation and ground handling services is likely to benefit these segments as foreign air charter operators and ground handlers with deep pockets and expertise will set up base here or buy out existing players.

  • Still, the policy decision must be backed by infrastructure on the ground, say ex-perts and industry executives.

  • The general aviation sector, comprising 120 non-scheduled operators with a fleet of close to 200 jet and turbo-prop aircraft in India, is suffering from heavy losses amidst high operating cost, under-utilised capacity and tough regulatory environment that is considered stringent for movement of aircraft carrying HNIs, corporate honchos and foreigners.

  • “In India 35 per cent of general aviation aircraft capacity is under-utilised. Here the maximum utilisation per air-craft is 400 hours per year compared to 800 to 900 hours internationally. Unless we improve the flying hours here, viability will remain a distant dream and no one will be keen to invest,” Mr. Wadhwa said.

Now, Telangana eyes share in e-commerce pie

  • After Kerala and Karnataka, it has become the turn of Telangana State to feel the pinch over loss of tax revenue from the growing e-commerce transactions.
  • Though the State, more so its cosmopolitan capital Hyderabad, contributes significantly to the booming e-tail-ing business, the sunrise sector hardly brings in any additional tax revenues under the existing tax laws.
  • The annual sales turnover of one leading e-commerce company in Hyderabad alone is estimated at Rs. 2,500 crore. There are other players too. Thus the government, sources revealed, has been exploring possibilities, including amending provisions of its VAT Act, suitably to bring e-commerce transactions under the State tax net.
  • Governed by Central Sales Tax laws, e-commerce companies like Amazon and Flip-kart among others, which were encouraged to set up their fulfilment centres in Hyderabad do not charge VAT on the goods supplied to the consumer States. As facilitators of these transactions, they are only liable to pay ser-vice tax under the CST. Under the existing tax laws, when goods move from one State to other, taxes accrue to the State from which goods originate.
  • But with emergence of e-commerce as a popular B to C business model, manufacturing States are walking away with all the tax revenue while the consumer States are left out of VAT though the sales actually take place in their territory where the goods are delivered, they point out.
  • The proposed GST regime offers hope to address the e-commerce concerns of consuming States by bringing both goods and services under the same tax rates. The taxes on inter-state supply of goods and services under the GST would go to the consuming State.

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