General Awareness : Economy - July, 2014

(General Awareness For Bank's Exams) Economy

July - 2014

Rs. 2923 cr fine on telcos for violating issuance norms

The Government has imposed a penalty of about Rs 2,923 crore on telecom operators in the past seven years for issuing mobile connections without proper verifications.
TERM cells have imposed penalty on non—compliant consumer application form (CAF) and filing of complaints/FIR against forged cases.
Major deficiencies in issuing mobile connections were related to missing CAF, missing photo or document proof, subscriber’s acquisition based on forged or fake documents, pre—activated mobile connections, more than 9 connections to an individual in one service area etc.

Govt slaps $579 m additional penalty on Reliance Industries

The government has slapped an additional penalty of $579 million on Reliance Industries for producing less than targeted natural gas from its KG-D6 block.
With this, the total penalty on RIL for missing the target in four fiscal years beginning April 1, 2010 now stands at a cumulative $2.376 billion.
The Production Sharing Contract (PSC) allows RIL and its partners BP Plc and Niko Resources to deduct all capital and operating expenses from the sale of gas before sharing profit with the government.
The creation of excess or unutilised infrastructure impacts the government’s profit share and this is sought to be corrected by disallowing part of the expenses incurred.
Gas output from the Dhirubhai-1 and 3 gas field in the eastern offshore KG-D6 block was supposed to be 80 million standard cubic meters per day but actual production was only 35.33 mmscmd in 2011-12, 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14.

TRAI warns against raising call rates

Telecom Regulatory Authority of India (TRAI) has warned telecom service providers against increasing call rates and other tariffs beyond the base (maximum) rates in a bid to pay off their debts.
Base rates or headline tariffs are the maximum call or service rates that a telecom operator can charge to its customers but normally companies charge less than these rates.
At present most of the telecom operators have fixed base rate at 2 paise per second. The regulator allows free hand to fix telecom call and service rates as it feels that competition in the market will keep control on tariffs.
Apprehensions over an increase in rates were spiked after TRAI recently released its recommendations on spectrum sharing and lowering of leased line rates that could lead to cost savings for mobile operators.
“I do not expect headline tariff to change. If they change, as and when they change, then the TRAI reserves the right to go back and look at it again if forbearance should be continued or not.” TRAI Chairman Mr. Khullar said.

Double digit growth for pharma industry in June

The Indian pharmaceutical industry, grappling with the addition of more than a 100 formulations in the National List of Essential Medicines (NLEM), which caps the price of drugs grew in double digits in June 2014.
Further, domestic pharmaceutical companies grew 12.8 per cent while multinational (MNC) pharma players grew at 2.8 per cent during the month.
Indian companies grew 15.3 per cent in the non-NLEM category, MNC pharma firms grew at 5.8 per cent.
Due to price caps, profit margins will be reduced and ‘breathing space’ for the industry has been effectively reduced. Manufacturers are expected to re-work their portfolios to include controlled and non-controlled drugs.

Six entities get permission to start airline operations

The Civil Aviation Ministry has issued No Objection Certificates (NOCs) to six entities whose applications to start airlines in India were pending for long. These six — Air One, Premier Air, Zexus Air (all national), Turbo Megha, Air Carnival and Zav Airways (all regional).
At present, India has eight airlines — Air India, Jet Airways, Jet Lite, IndiGo, SpiceJet, Go Air, Air Costa and AirAsia India.
In 2005 three new airlines — Kingfisher Airlines, Go Air and SpiceJet (re-launched) — commenced operations. In 2006, IndiGo joined them offering low fares.
In the last two years, air fares have gone up by 20-25 per cent, and this has resulted in a stagnated growth. With the new players, fares will see a correction of 20-25 per cent, which will help the market to revive.

TRAI suggests Rs.2,400-crore plan for two island chains

The Telecom Regulatory Authority of India (TRAI), recommended a Rs.2,400-crore project to connect India’s two major outlying island chains ;Andaman & Nicobar Islands (ANI) and Lakshadweep, with stable and strong cable-based networks to replace the satellite mode of transmission.
The move is expected to encourage more operators to run services in these island chains. At the same time, the regulator has recommended the retention of the satellite option.
For ANI, TRAI has suggested connecting 22 islands, which included 18 islands with a population of above 100 and four islands which have the presence of police, forest camps and tourists. Only 29 out of 576 islands in ANI are inhabited and 90 per cent of the population lives on just three islands — North, Middle and South Andaman Islands.
For Lakshadweep, TRAI has projected connectivity in ten inhabited villages. Here, 11 out of 36 islands are inhabited. Lakshadweep is part of the Kerala circle and only two operators — BSNL and Airtel operate services — as against eight in mainland Kerala.

CAG files adverse report on PPP projects

The Comptroller and Auditor-General of India (CAG) has picked holes in the way the Public Private Partnership (PPP) was handled in two vital infrastructure sectors.
The Mumbai airport and three of the Railways projects mostly faulted on procedural grounds.
In case of the Mumbai airport, the CAG has asked the government to review the operator’s performance because when project cost had doubled, the gap was filled by asking passengers to shell out a development cess.
On the other hand, the revenue share of another consortium member — the public sector Airports Authority of India (AAI) — was “set to decline with the outsourcing of activities as noticed in the case of domestic and international cargo activities and the Airport Hotel project.”
Railway projects include a railway line to a port, something that new Railway Minister D. V. Sadananda Gowda hopes to promote in a big way to solve the ‘last mile problem’.
A CAG report on the Railways , said it had violated rules while selecting private players. Also, the Railways did not formulate any model agreement for execution of the projects within the time frame nor did it adopt the model prescribed by the Planning Commission for PPP projects.

SEBI eases disclosure norms for AIFs

Alternative Investment Funds (AIFs) are basically funds established, or incorporated in India, for the purpose of pooling in capital from Indian and foreign investors for investing as per a pre-decided policy.
The Securities and Exchange Board of India said that all AIF have to disclose the ‘disciplinary history’ of the fund, its sponsor, manager, directors, partners, promoters and associates for the last five years.
Further, SEBI said any change in placement memorandum (which consists of details of disciplinary actions of the funds) to all would be intimated to investors and to SEBI once every six months on a consolidated basis, as against the current practice of seven days.
Under SEBI guidelines, AIFs can operate broadly in three categories. The Category-I AIFs are those funds that get incentives from the government, SEBI or other regulators and include Social Venture Funds, Infrastructure Funds, Venture Capital Funds and SME Funds. The Category-III AIFs are those trading with a view to making short-term returns and it includes hedge funds, among others. The Category-II AIFs can invest anywhere in any combination but are prohibited from raising debt, except for meeting their day-to-day operational requirements. These AIFs include private equity funds, debt funds or fund of funds, as also all others falling outside the ambit of two other categories.

SEBI finalises draft norms for Infra Investment Trusts

The Securities and Exchange Board of India, came out with draft guidelines for Infrastructure Investment Trusts (InvITs), which will enable creation of a new investment product for arranging long-term financing for infrastructure projects.
These InvITs can be listed on the stock exchanges, will get tax benefits and will invest the funds collected from investors in infrastructure projects, including PPP.
An InvIT prior to making an offer of units, either through public issue or private placement, may have strategic investors such as banks, international multilateral financial institutions, FPIs including sovereign wealth funds, which together invest not less than 5 per cent of the size of the InvIT or such amount as may be specified by Sebi.
The proposed holding of an InvIT in the underlying assets shall be not less than Rs.500 crore, and the offer size of the InvIT shall not be less then Rs.250 crore at the time of initial offer of units.
The aggregate consolidated borrowing of the InvIT and the underlying SPVs shall never exceed 49 per cent of the value of InvIT assets. Further, for any borrowing exceeding 25 per cent of the value of InvIT assets, requirement of credit rating and unit holders approval has been made mandatory.
InvITs would allow investors to invest in specific products linked to infrastructure projects, while providing necessary safeguards. Besides, it would help the corporates raise significant amounts of capital for their

projects.

An InvIT which proposes to invest at least 80 per cent of the value of the assets in the completed and revenue generating infrastructure assets, The remaining 20 per cent may be invested in under construction infrastructure projects.

More steps will be taken to sustain economic recovery

Finance Minister said that there was “no contradiction in being pro-business and being pro-poor.” Only a spike in economic activity could create the resources “to service the poor” through social welfare programmes.
Mr. Jaitley outlined a road map for economic recovery through a stable tax regime, targeted subsidies for the poor and marginalised and using private investment to boost infrastructure and housing, foreign direct investment (FDI) in defence and insurance.
He said that new government has pushed for fiscal discipline than populism and it intended to rationalise subsidies so that they benefitted the poor, not the middle class through subsidies in the oil sector and education.

Contingent liabilities of states a cause for concern, says RBI paper\

A working paper of the Reserve Bank of India titled ``Debt sustainability at the State level in India’’ sounded a warning that the contingent liabilities, primarily in the form of issuance of guarantees by the state governments, remained an area of concern.
Going forward, there could be downside risks in case the slowdown in growth momentum observed during the last two years persisted.
The debt position of state governments witnessed a significant improvement from 2004-05 onwards. This has been attributed, among others, to the implementation of of Fiscal Responsibility and Budget Management (FRBM) Acts/Fiscal Responsibility Legislations (FRLs) at the state level in early 2000s.
Karnataka was the first to enact its FRBM Act in September 2002, followed by Kerala (2003), Tamil Nadu (2003) and Punjab (2003).
This was also supported by the implementation of Debt Swap Scheme (DSS) from 2002-03 to 2004-05 and Debt Consolidation and Relief Facility (DCRF) from 2005-06 to 2009-10. These two debt restructuring schemes provided debt relief through debt consolidation, and reduced the interest burden on the states.
These developments were mirrored in lower debt-GDP ratio at 26.6 per cent in end-March 2008, before declining further to 21.7 per cent in end-March 2013.

Housing for all by 2022 and Rs. 7,060 crore for 100 smart cities

Finance Minister offered a tax sop for homeowners by extending the additional tax incentive on home loans.
A sum of Rs. 4,000 crore has been earmarked for National Housing Bank with a view to increase the flow of cheaper credit for affordable housing to the urban poor.
Slum development has been added to the list of Corporate Social Responsibility (CSR) activities.
Government announced 100 smart cities, which will be enabled with the latest technology like wi-fi connectivity and infrastructure and will have concepts such as sustainability, walking spaces and specialised domains.

FDI limit in insurance, defence hiked to 49 %

Government proposed hiking the foreign direct investment limit in insurance and defence sectors to 49 per cent, with full Indian management and control, through the FIPB (Foreign Investment Promotion Board) route.
Government also proposed Rs. 5,000 crore hike in defence allocation over the previous interim budget.
Mr. Jaitley also announced that Rs. 1,000 crore were being earmarked for strategic railway projects in border areas. Rs. 37,880 crore to be pumped into nation’s road network
Union Budget 2014 has given importance to fast-tracking highways and improving the road infrastructure.
Proposal of investment in National Highways Authority of India and State roads of an amount of Rs. 37,880 crore which includes Rs. 3,000 crore for the North East.
Mr. Jaitley also proposed setting up of an institution, called 3P India, with a corpus of Rs. 500 crore to provide support to mainstreaming PPPs.
Mr. Jaitley proposed to develop an additional 15,000 km of gas pipeline systems in the country using appropriate PPP models.

Government to take on GAAR implementation soon: Revenue Secretary

Revenue Secretary Shaktikanta Das on Saturday said the government would shortly take a view on whether controversial tax law GAAR should be implemented from the scheduled date of April, 2015.
The Government had earlier proposed imposing the General Anti-Avoidance Rules (GAAR) from April 1, 2015, for those claiming tax benefit of over Rs. 3 crore. The rules are aimed at minimising tax avoidance for investments made by entities based in tax havens.
As per the existing proposal, investments made after March 2013 will be covered under GAAR with effect from assessment year 2016-17.

RBI Governor launches Indian Bank's mobile branches

Indian Bank has, as part of the urban financial inclusion initiative, launched two mobile branches with ATM facility in Chennai.
Under the financial inclusion initiative, Indian Bank has provided banking services to 5,098 villages, of which 4,934 villages have been covered through smart card enabled business correspondent model.
Bank already operates eight mobile branches providing banking services in 70 villages.

AI now part of Star Alliance

Air India formally became a member of Star Alliance, a conglomeration of 26 overseas airlines.
Air India passenger can now travel to over 1,300 destinations right across the network and enjoy world-class service, better connectivity and seamless travel.”
The biggest growth will come from Air India's home market, which till now was served by 13 Star Alliance members flying to 10 destinations.

Finmin examining issues concerning merger of PSU banks: Sandhu

Finance Ministry said it is examining various issues pertaining to mergers of public sector banks and that there will be some forward movement in the current year itself.
Earlier this week Finance Minister Arun Jaitley in his Budget speech said: “There have been some suggestions for consolidation of Public Sector Banks. Government, in principle, agrees to consider these suggestions.”
Mr. Jaitley, speaking to reporters after the Budget, had said that the consolidation could be between a big bank and its subsidiaries.

Nabard launches RuPay Kisan cards

National Bank for Agriculture and Rural Development (Nabard) rolled out RuPay Kisan Card and RuPay Debit Card, it is in the nature of ATM cum Debit Card, is being issued by any cooperative bank in the state of Haryana.
RuPay cards by cooperative banks will enable them to improve their customer service and bring it on par with any other bank to farmers and other customers.

Budget has no impact on India sovereign ratings: Standard & Poor’s

S&P said Indian budget will not have ay impact on it's sovereign rating. With growth oriented budget India hoped for improvement in rating.
Good rating leads to lower interest rates on loans from outside the country.
S&P is the only one of the three major credit agencies to have a 'negative' outlook on India.

BSE forms 11-member advisory group on REITs

The Bombay Stock Exchange (BSE) has launched an advisory group on REITs (real estate investment trusts), which are aimed at attracting long-term funds to the cash-strapped realty sector from both foreign as well as domestic investors.
REITs can bring in USD 10 billion of foreign funds into the sector by the end of this fiscal.
REITs were originally announced in FY 2014 Budget, but at that time the government did not offer any tax sops to attract investors. But Arun Jaitley had announced tax incentives like exemption from long-term capital gains tax to popularise REITs.

RBI eases reserve norms for banks issuing infra bonds

The Reserve Bank of India, in order to encourage infrastructure development and affordable housing, exempted long-term bonds from the mandatory regulatory norms such as the Cash Reserve Ratio (CRR), the Statutory Liquidity Ratio (SLR) and Priority Sector Lending (PSL) if the money raised is used for funding of such projects.
The objective of these instructions is to mitigate the Asset-Liability Management (ALM) problems faced by banks in extending project loans to infrastructure and core industries sectors, and also to ease the raising of long term resources for project loans to infrastructure and affordable housing sectors
The RBI said that apart from what is technically defined as infrastructure, affordable housing is another segment of the economy which requires long-term funding.
India is looking at investing $1 trillion in infrastructure development by 2017, half of which is expected to come from the private sector.
Finance Minister during budget speech also said that banks will be encouraged to extend long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, sometimes known as the 5/25 structure.
Under the 5/25 structure, bank may fix longer amortisation period for loans to projects in infrastructure and core industries sectors, say 25 years, with periodic refinancing, say every five years. This ensures that banks Asset and Liability is properly managed

Govt clears 19 FDI proposals

The government has cleared 19 foreign investment proposals, including that of Walt Disney Company and Reckitt Benckiser (India), entailing total investment of Rs. 2,326.72 crore.
The FIPB, however, rejected an investment proposal of Multi-Commodity Exchange of India (MCX), the FIPB also rejected foreign investment application of George Institute for Global Health (Hyderabad), BIESSE Manufacturing Company (Bangalore) and three others.
The government gave its nod to the proposal of Walt Disney Company (Southeast Asia) Pte Ltd, Singapore

Revenue collection expected to exceed target this fiscal: Jaitley

After missing target in the last financial year, the government on Monday exuded confidence that tax collection during the current fiscal would exceed budget estimate of Rs. 13.64 lakh crore.
During 2013-14, tax collection fell short of target by a whopping Rs. 77,000 crore. The government collected Rs. 11.58 lakh crore against the budget estimate of Rs. 12.35 lakh crore.
Mr. Jaitley emphasised that the credibility of Income Tax department is its greatest asset. “Credibility of income tax department is its greatest asset, that’s why highest standards of ethics are expected from officers of the department,”.
There are doubts about the meeting of indirect tax collection target for the current fiscal as there is slowdown in the economy. On income tax front, however, there is possibility of surpassing target.