(General Awareness For Bank's Exams)Economy
June - 2014

E-auction of iron ore

•  The Goa Mines and Geology Department will hold its third e-auction of iron ore on May 12, wherein six lakh tonnes of ore, lying at jetties and the Mormugao Port Trust (MPT) would be e-auctioned.

• The State, through MSTC Ltd., has auctioned 1.62 million tonnes of iron ore through two e-auctions in February and March, realising around Rs.260 crore, which would go to the State treasury.

•  These e-auctions are held under the supervision of a Supreme Court-appointed monitoring committee, headed by U. V. Singh.

•  The Supreme Court, partially relaxing its October 5 ban on iron ore activities in the State, in December last had permitted the Goa Mines Department to auction about 15 million tonnes of iron ore lying at jetties, mining leases, plots, beneficiary plants and port, all under the supervision of its committee.

•  However, on April 21, the apex court lifted its ban on mining activities, but putting a cap of 20 million tonnes for annual production and ruling that since the renewal of all the deemed mining leases in the State had expired on November, 2007, and the operations carried out, thereafter, have been termed illegal, the mining lessees will not be entitled to the sale value of the ore sold in e-auction but to the approximate cost (not actual cost) of the extraction of the ore.

•  Making government the custodian of the money collected through e-auction, the court directed the State to pay 50 per cent of wages of all the workers who were laid off or were not paid salaries since the time the mining operations were suspended.

Metro AG

• German retailer Metro AG plans to have 50 wholesale stores in India by 2020 and make the country one of its 'focus expansion' markets alongside Russia, China and Turkey.

•  India has always been an important future growth market of Metro .

•  The Dusseldorf-based company was the first global player to enter the cash-andcarry wholesale segment in India, back in India. It currently operates 16 outlets in the country.

Prepayment fee on floating rate term loans

• The Reserve Bank of India (RBI) said that banks cannot levy charges on individual customers if they choose to close their floating rate loans.

•  Some banks charge a fee if an individual borrower chooses to close his or her loan. This fee varies from bank to bank, and is mostly in the range of 1-3%.

•  In its first bi-monthly monetary policy review on 1 April, RBI had indicated that in the interest of their consumers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty.

• Accordingly, it is advised that banks will not be permitted to charge foreclosure charges/pre-payment penalties on all floating rate term loans sanctioned to individual borrowers.

No Special trade benefits for Russia

• U.S. President Barack Obama intends to withdraw special privileges granted to Russia because the country is too economically advanced to need preferential treatment reserved for less developed countries.

•  Mr. Obama notified Congress that he intends to remove Russia from the Generalised System of Preferences (GSP) programme as Moscow is “sufficiently advanced” to warrant any preferential treatment.

•  Once Russia’s eligibility is withdrawn, which would be effected via a presidential proclamation, U.S. imports of GSP-eligible goods from Russia will be subject to normal, non-preferential rates of duty.

•  The purpose of the programme, which allowed $19.9 billion in imports to enter the U.S. duty-free in 2012, is to assist developing countries to use trade to boost their economic development.

•  Russia has advanced beyond the level of economic development and competitiveness for GSP eligibility. As such, Russia should no longer qualify to receive GSP benefits.
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Global 2000'

• MukeshAmbani-led Reliance Industries leads the pack of 54 Indian companies in Forbes' annual list of the world's 2000 largest and most powerful public companies, with Chinese companies occupying the top three slots on the list.

•  The Forbes 'Global 2000' is a comprehensive list of the world's largest, most powerful public companies, as measured by revenues, profits, assets and market value.

•  China is home to the world's top three biggest public companies and five of the top 10.

•  The US retains its dominance as the country with the most Global 2000 companies at 564.

•  Japan trails the US with 225 companies in aggregate.

•  India is home to 54 of the world's biggest companies.

•  Reliance Industries is ranked 135 on the list with a market value of 50.9 billion dollars and 72.8 billion dollars in sales as on May 2014.

•  Reliance is followed by State Bank of India which is ranked 155 and has a 23.6 billion dollars market value.

•  The other Indian companies on the list are Oil and Natural Gas ranked 176, ICICI Bank (304), Tata Motors (332), Indian Oil (416), HDFC Bank (422), Coal India (428), Larsen & Toubro (500), Tata Consultancy Services (543), BhartiAirtel (625), Axis Bank (630), Infosys (727), Bank of Baroda (801), Mahindra & Mahindra (803), ITC (830), Wipro (849), Bharat Heavy Electricals (873), GAIL India (955), Tata Steel (983) and Power Grid of India (1011).

•  Also making the list are Bharat Petroleum (1045), HCL Technologies (1153), Hindustan Petroleum (1211), Adani Enterprises (1233), Kotak Mahindra Bank (1255), Sun Pharma Industries (1294), Steel Authority of India (1329), Bajaj Auto (1499), Hero Motocorp (1912), Jindal Steel & Power (1955), Grasim Industries (1981) and JSW Steel (1990).

Issue of natural gas export

•  A bi-partisan group of 22 American senators have expressed reservation on the export of natural gas to Asian countries such as India and China, arguing that such a move by Obama Administration would result in an increase in cost for consumers and businesses at home.

•  They said the “large-scale exports of natural gas to Asia could also jeopardize America’s goal of achieving energy independence, a goal made more achievable by the recent increase in domestic gas production”.

•  The senators urged Mr. Obama to consider the impacts on American manufacturing and families that rely on natural gas.

•  The recent approval for export of liquefied natural gas from a sixth export facility has meant that the total approved exports now exceeds the amount of gas currently being used in every single American home and commercial business.

•  The exports well exceeds the high export scenario referenced by a Department of Energy study in 2012 that indicated prices could increase by up to 54 per cent and it would translate into more than $60 billion a year in higher energy costs for American consumers and businesses.

U.K. rich list

•  India-born Hinduja brothers have emerged as Britain’s richest, valued at £11.9 billion, in the Sunday Times’ annual list of the super rich.

•  Gopichand and SrichandHinduja run the multinational Hinduja Group with interests across automotive, real estate and oil.

•  Arsenal shareholder and Russian tycoon AlisherUsmanov fell to second place after his estimated fortune dropped to £10.65 billion. He is followed by Laskshmi Mittal with £10.25 billion, registering a growth of £250 million.

•  London now has the most billionaires for any city with 72. The total number for U.K. has crossed 100 for the first time to reach 104 billionaires with a combined wealth of over £301 billion. The next most prosperous city in the world is Moscow with 48 billionaires, just ahead of New York and San Francisco.

•  The Duke of Westminster is the richest Briton with around £8.5 billion and is ranked 10th.

Automatic tax information

•  As they continue their efforts to clamp down on the menace of black money, India and other countries will have to wait at least till 2017 before the new global standard for automatic exchange of tax information comes into effect.

•  India, Switzerland and 45 other nations had agreed upon automatic exchange of tax information, which is seen as a major step forward in global efforts against banking secrecy practices.

•  Paris-based Organisation for Economic Cooperation and Development (OECD) sets the global tax standards and frames conventions against tax frauds, among others.

•  The new standard, expected to be finalised in September this year, provides for exchange of information on bank account balances, interests, dividends, other financial income and sales proceeds to compute possible capital gains.

•  By becoming part of the declaration, these countries have committed to implementing automatic exchange of tax information. The declaration also comes as a boost for India, which is making efforts to get details from Switzerland on alleged illicit funds stashed away by Indians there.

•  Automatic exchange of information would allow for “collecting all bank information on non-resident to pass this information on to the countries of residence of these taxpayers so that they can no longer hide money on offshore accounts.

•  The standard was developed at the OECD and endorsed by the G20 Finance Ministers.

Introduction of minimum wage in Switzerland

• Swiss voters have rejected a proposal to introduce a minimum wage of 3,000 Swiss francs per month (4,500 dollars).

•  77 per cent of voters cast ballots against the measure.

•  At 25 dollars an hour, it would be the highest minimum wage in the world.

•  The referendum was launched by left-wing parties and trade unions, which argued that such a salary was necessary for making a decent living in Switzerland, where the cost of living is among the highest in Europe.

•  The government and employers associations had campaigned against the plan, warning that companies would shift operations to neighbouring countries and Switzerland’s important tourism sector would suffer.

Closure of few iron ore mines

• The Supreme Court ordered the temporary closure of nearly half of the iron ore mines in top producing state Odisha due to non-renewal of years-old leases, in a blow to local steel mills that depend heavily on high-quality ore from the state.

•  Odisha, which allows exports of only half of total iron ore output, produced more than 70 million tonnes in the last fiscal year from 56 operating mines.

•  The move is unlikely to lift global iron ore prices given the limited flows from Odisha to international markets, but it could force Indian steelmakers to source the raw material overseas and soak up some of a forecast global supply surplus.

•  The 26 suspended mines produced about 40 million tonnes.

•  The verdict could force steelmakers to cut output or import expensive iron ore.

Net neutrality

• The U.S. Federal Communications Commission may have jeopardised prospects for “net neutrality,” a principle requiring non-discrimination by Internet service providers between their client websites, when it voted in favour of a proposal to allow ISPs to charge higher fees to those who seek to deliver higher-quality content in the U.S.

•  Effectively giving a green light for plans to create Internet “fast lanes,” with paid priority accorded to relatively deep-pocketed service providers such as NetFlix and YouTube, the FCC passed the proposal by a 3-2 vote among its commissioners, along party lines.

•  While the vote does not signal a final outcome in the deliberations on preserving net neutrality, and the public will now be allowed to comment on the proposal before a final ruling is enacted later this year, the decision flies in the face of intensifying protest by 100 top tech companies including Google, Facebook, Twitter and Amazon.

•  Their concern is that smaller companies that are unable to pay for high-speed data delivery may face “additional obstacles against bigger rivals,” and the higher prices charged by these websites to overcome these barriers could get passed on to individual consumers.

Most Expensive Billionaire Home

• Reliance Industries Chairman MukeshAmbani’s skyscraper residence in Mumbai is the most expensive billionaire home in the world, according to a Forbes list, which also includes Indian-origin steel tycoon Lakshmi Mittal’s houses in London.

•  Ambani’s 27-storey, 400,000-square-foot skyscraper home ‘Antilia’, named after a mythical island in the Atlantic, tops the Forbes list of the most expensive homes in the world.

•  The house has six storeys of parking, three helicopter pads, and reportedly requires a staff of 600 to keep it running.

US-China trade

• United States Secretary of State John Kerry has described China’s moves to deploy an oil rig in waters disputed by Vietnam as “provocative,” prompting an angry rebuttal from Beijing.

•  The Chinese government accused the U.S. of making “erroneous” remarks that had “emboldened some countries’ provocations.”

•  In recent days, Chinese and Vietnamese vessels have been in a tense stand-off, sparked by China’s deployment of an oil rig in the waters of the South China Sea off the Paracel Islands, which are claimed by Beijing.

•  Vietnam dispatched ships in response, arguing that the waters were within its exclusive economic zone, located around 200 nautical miles from its coastline.

•  China has maintained that it was well within its rights to deploy the $ 1 billion rig in the waters off the Paracel Islands, which it claims. Beijing would, however, have been aware of the possibility of a backlash from Vietnam, which disputes China’s claims. 

Mining : a legitimate economic activity

• As more than 100 mines had been closed down in Odisha due to lack of statutory clearances following unearthing of the illegal mining scam, a high-level meeting recently decided to make mining activity a legitimate economic activity by complying with all statutory requirements through combined efforts of the State and Central governments.

•  The meeting was held at the Secretariat here under the chairmanship of Odisha Chief Secretary Jugal Kishore Mohapatra.

•  Union Mines Secretary Anup Kumar Pujari, Secretary and Union Steel Secretary G. Mohan Kumar and other officials attended the meeting.

•  Mines & Minerals Development and Regulation Act, 1957 was the governing legislation in the country and all issues relating to lease, auction, prospecting license, renewal etc. should be decided as per the provisions of the Act.

•  Available data shows that there were about 59 operating mines in Odisha, including 41 iron and manganese mines, six coal mines, one bauxite mine, five chromite and six limestone mines.

•  The issues relating to coal, water allocation and energy charges of National Aluminium Company (NALCO) and Steel Authority of India Limited (SAIL) were also discussed at the meeting. Mr. Mohapatra asked the PSUs to settle the issues through mutual discussions without promoting further litigation in these matters.

Myntra acquired by Flipkart

•  Flipkart India Pvt Ltd, the country’s largest e-commerce firm, has acquired rival Myntra.com in the largest-ever deal in the country’s e-commerce market.

•  The current policy does not allow FDI in business-to-consumer e-commerce even as 100 per cent FDI is allowed in business-to-business e-commerce.

•  Myntra co-founder and chief executive MukeshBansal will head the fashion business of both Myntra and Flipkart, and Myntra will operate as an independent entity and retain its website, while Flipkart will continue selling apparel on its site.

•  The Flipkart-Myntra deal comes amid a strong revival of interest in the Indian e-commerce market, but the trigger clearly is the need for consolidation to fight global majors Amazon and eBay Inc.
  NaMo factor and digital economy

•  Most recently, Prime Ministerial candidate NarendraModi made a bold pitch for IT becoming the face of India, and, in the process, coined the Twitter-friendly phrase ‘India Talent (IT)’ + ‘Information Technology (IT)’ is equal to ‘India Tomorrow (IT)’.

•  The Indian political class, after the fall of the Rajiv Gandhi administration, has certainly enjoyed talking about using technology and IT to boost economic growth and bring about development.

•  The greatest failures of the outgoing dispensation, with regard to IT and the digital economy, were most certainly its inability to bring broadband penetration to a respectable level, and its borderline negligent behaviour towards the start-up ecosystem.

•  Sadly, the e-commerce industry has grown only on the back of foreign capital. Sadder still is the fact that some of the biggest e-tailers such as Flipkart and Snapdeal cannot deliver to Congress scion Rahul Gandhi’s constituency Amethi due to a combination of poor physical infrastructure and concern over security.

•  There is little doubt that the UPA-led government viewed technology-aided economic growth through the narrow prisms of technological ‘solutionism’ — implementing technology for the sake of looking technology-savvy and hoping that growth will follow — and fear.

Import curbs on Gold

•  The high import duty and supply curbs on gold had a telling effect on demand for the yellow metal gold in the first quarter of calendar 2014 when demand slid 26 per cent to 190.3 tonnes. Figures released by World Gold Council’s (WGC) India demand statistics showed that in value terms, it slid 33 per cent to Rs. 48,853 crore and 41 per cent in dollar terms to $7.9 billion.

•  Of this, jewellery demand declined 9 per cent to 159.5 tonnes and 18 per cent in value terms to Rs. 37,377.8 crore while investment demand declined 54 per cent in volume terms to 44.7 tonnes and 59 per cent in value terms to Rs. 11,475.2 crore.

•  With the election of the BJP and its declared pro-business approach, there is an expectation that the short-term curbs on gold will be removed. Another factor is the hope that there will be relaxation of the curbs which will lead to a reduction in the prevailing premium.

FDI from India in Ireland

•  Plagued by rising unemployment, Ireland has stepped up efforts to attract investment from emerging countries, including India, by projecting itself as the gateway for the European Union (EU) market.

•  The Investment and Development Agency (IDA), Ireland, responsible for inward investments, is targeting a five-fold jump in foreign direct investment (FDI) from India by 2020. IDA Ireland officials are reaching out to Indian companies and leading business groups to promote Ireland as a preferred investment destination to do business with Europe.

•  About 30 Indian companies, including 19 through IDA’s initiatives, have already set up base in Ireland.

•  Ireland is targeting companies in the area of life sciences, medical technologies, electronics, software, financial services, digital media and high-end manufacturing.

•  In 2013, Indian companies accounted for 2.4 per cent of all FDI projects into Ireland and IDA Ireland plans to double FDI from India by 2016 and five-fold by 2020.

Balancing act of RBI

•  The Reserve Bank of India’s credit policy review, will be the first after the new government has taken charge. It is also the second bi-monthly policy for the current year (2014-15). The RBI has switched to the system of reviewing credit policy once in two months from the earlier once in 45 days or so following the recommendation recommendation of the Urjit Patel committee.

•  Fortunately, very few expect the government to interfere, certainly not so soon after taking office. Moreover, there has been a positive message from the meeting RBI Governor RaghuramRajan had with new Finance Minister ArunJaitley on May26. In this very first meeting with a senior government official, Mr. Jaitley has listed out his priorities — price stability, stimulate growth and fiscal consolidation — and said he is keenly aware of the need to do a tough balancing act in reconciling the several policy oblectives.

•  India’s inflation problems are structural in nature. The RBI cannot influence supply-side factors, which are responsible for food inflation. Supply side pressures on prices will be felt when investment picks up consequent on the new government’s initiatives.

•  Balance sheet problems of public sector banks are another reason standing in the way of lower interest rates. The combination of bad and restructured loans means little room for banks to lower interest rates.

•  The policy document will stress the obvious point that inflation is a problem for the government and the RBI.

Latest Current Account Deficit

•  India’s current account deficit (CAD) for the January-March period narrowed sharply to $1.2 billion (0.2 per cent of GDP) from $18.1 billion (3.6 per cent of GDP) in the same period last year, which was also lower than $4.2 billion (0.9 per cent of GDP) in the October-December quarter of 2013-14.

•  “The lower CAD was primarily on account of a decline in the trade deficit as decline in imports was sharper than that in export.”

•  As per preliminary data on India’s balance of payments (BoP), released by the RBI, merchandise exports declined by 1.3 per cent to $ 83.7 billion for the fourth quarter of 2013-14, as against an increase of 5.9 per cent in the fourth quarter of 2012-13.

•  Contraction in the trade deficit, coupled with a rise in net invisibles receipts, resulted in a reduction of CAD to $32.40 billion (1.7 per cent of GDP) in 2013-14 from $87.80 billion (4.7 per cent of GDP) in 2012-13.

•  The RBI said that net inflows under the capital and financial account (excluding change in foreign exchange reserves) declined to $48.80 billion in 2013-14 from $89 billion in corresponding period of 2012-13 owing to lower net FDI and portfolio flows, net repayment of loans and trade credit and advances.

New era in Industry?

NBFCs work

• Non-Banking Finance Companies (NBFCs) are working as per the rules and regulations of the Reserve Bank of India (RBI) and their dealings are transparent, according to Thomas George Muthoot, chairman, Association of Kerala Non-Banking Finance Companies.

•  This was in the wake of the ongoing ‘Operation Kuberan.

•  NBFCs played a very important role in the financial inclusion programme of the Government of India. Customers could make use of the services of the grievance redress forum set up by the NBFCs. A fair practices code, prescribed by the RBI, was being followed. The code may be viewed on the websites of the companies.

•  RBI had given the freedom to the boards of NBFCs to fix the rates, considering the cost of funds and margin and risk premium. The business being market driven, there was no scope for charging high rates, especially as the NBFCs were functioning in a very competitive space.

•  NBFCs had certificates of registration obtained from the RBI and registered NBFCs do not accept blank cheques, stamp papers, signed white papers, and title deeds. RBI norms on Know Your Customer and corporate governance were being strictly adhered to. The apex bank’s guidelines on transferring 20 per cent of the net profit to the reserve fund were being complied with.

Foreign currency accounts and RBI directive

• The Reserve Bank of India has directed banks to convert credit balances in any inoperative foreign currency (FC) denominated deposit into Indian rupee if the former remains not in use for three years from the date of maturity of deposit.

•  Thereafter, the depositor shall be entitled to claim either the said Indian rupee proceeds and interest or the foreign currency equivalent of the Indian rupee proceeds of the original deposit.

•  The RBI further said in case of inoperative foreign currency denominated deposit not in use for three years and having no fixed maturity period, the bank should give three month notice to the depositor and convert the deposit from the foreign currency to Indian rupee. 
   

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