(General Awareness For Bank's Exams) Economy

November -2014

Indian Rupee ends almost flat at 61.41 against US dollar

•  The Indian rupee ended almost flat at 61.41 against the Greenback on alternate bouts of buying and selling.

•  Despite a strong start, the rupee erased all its morning gains during intra-day due to sharp bouts of dollar demand from importers. However, it fell later before recouping losses to close almost flat at 61.41 on the back of fresh dollar selling from banks and exporters.

•  Sustained capital inflows into equities also helped the rupee to cap the fall to some extend, dealers said.

•  At the Interbank Foreign Exchange market (Forex), the domestic unit commenced higher at 61.35 a dollar from previous close of 61.40. It moved in a range of 61.34 and 61.49 before settling at 61.41, showing a marginal fall of one paise.

•  Meanwhile, US dollar continued its strong rallying momentum against a basket of currencies in late Asian session trade in the wake of Republican wins during the mid-term elections as well as steady improvement in US data.

Five global banks slapped fines totalling $3.4 b for forex market rigging

•  British, American and Swiss regulators slapped fines totalling $3.4 billion ( Rs.20, 900 crore) on five banks after a global regulatory probe found them guilty of rigging the foreign exchange market.

•  Five banks, including HSBC, Citibank, JP Morgan Chase, the Royal Bank of Scotland and UBS, have been fined £1.1 billion ($1.7 billion) by Britain’s market regulator, the Financial Conduct Authority for failings over foreign exchange operations.

•  Simultaneously, the US Commodity Futures Trading Commission imposed fines totalling $1.4 billion on the same five banks while UBS faced an additional fine of $138 million from the Swiss regulator, FINMA.

•  The FCA slapped a fine of £225.5 million on Citibank, while HSBC faced a penalty of £216 million. JP Morgan Chase, RBS and UBS were fined £222.1 million, £217 million, and £233 million respectively.

•  The fines related to failure to control business practices in the banks’ G10 foreign exchange trading operations, a market that FCA said was “systematically important.”

•  The banks failed in their responsibility to manage obvious risks that included conflicts of interest and confidentiality, the FCA said.

•  “Between January 1, 2008 and October 15, 2013 ineffective controls at the banks allowed G10 spot FX traders to put the banks’ interests ahead of those of their clients, other market participants and the wider UK financial system.” As a result, traders were able to behave “unacceptably” as they shared confidential information, often colluding with other traders, and attempted to manipulate G10 spot FX currency rates.

•  “Today’s record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right,” said Martin Wheatley, Chief Executive of the FCA.

Retail inflation declined to 5.5% in October

•  Helped by softening prices of food items, the retail inflation declined to 5.52 per cent in October, the lowest since the new series of data was introduced in January 2012.

•  This is the fourth consecutive month of decline in the Consumer Price Index based inflation or retail inflation, which had fallen to 6.46 per cent in the previous month.

•  The overall food inflation measured on CPI came down to 5.59 per cent in October against 7.67 per cent in the previous month.

•  Retail prices of vegetables declined by 1.45 per cent against a rise of 8.59 per cent in September, according the data released by the Ministry of Statistics and Programme Implementation.

•  Inflation in fruits slowed to 17.49 per cent from 22.4 per cent in September. Similarly the rate of price rise in protein rich items like eggs, fish and meat was at 6.34 per cent in October, slightly down from 6.35 per cent in the previous month.

RBI tightens norms for NBF Companies

•  Tightening norms for non-banking financial companies (NBFCs), the Reserve Bank of India raised the capital adequacy requirement and the net owned fund limit, among others, with an objective to mitigate risks in the sector.

•  With a view to streamlining the regulations for the sector, the RBI also revoked temporary suspension on issuance of Certificate of Registration (CoR) to companies that want to conduct business of non-banking financial institution (NBFI).

•  As per the latest directives, the RBI has raised the limit for NBFCs to maintain the net owned fund (NOF) requirement to four times by 2017 to Rs.2 crore.

•  At present, the NOF requirement is at Rs.25 lakh. In a phased manner, the NBFCs would be required to raise it to Rs.1 crore by March, 2016, and to further double it to Rs.2 crore by 2017. “NBFCs failing to achieve the prescribed ceiling within the stipulated time period shall not be eligible to hold the CoR (Certificate of Registration) as NBFCs..

Universities may offer credit transfer scheme from next year

•  The Skill Assessment Matrix for Vocational Advancement of Youth (SAMVAY) was launched to mark National Education Day.

•  It defines the rules for credit allotment and follows the National Skill Qualification Framework (NSQF) — approved by the Union government last year — which allows students to alternate between vocational and general courses.

•  “The University Grants Commission in its meeting took a decision on how various Central universities can practice choice-based credit transfer, and I hope all our universities will implement this system in the next academic year so that all our students can seamlessly study from one university to another,” Human Resource Development Minister Smriti Irani said at the launch.

•  The Ministry also launched the ‘Know Your College’ portal in the presence of President Pranab Mukherjee, Minority Affairs Minister Najma Heptulla and Ministers of State for HRD Upendra Kushwaha and Ram

Shankar Katheria

•  The portal http://www.knowyourcollege-gov.in/ has basic details of colleges offering technical courses that would help students make an informed choice.
  Indian IT services export industry to grow at steady pace

•  The Indian IT services exports industry was pegged at $50 billion in 2013-14. After growing at a robust pace of 17-18 per cent until 2011-12, growth slowed down to 11-14 per cent in 2012-13 and 2013-14 amid lower discretionary spending across companies.

•  The industry has shown signs of recovery in volume terms in 2013-14 and 2014-15 due to greater need for regulatory compliance in the banking and financial services sector (example: the Dodd-Frank Act and the Fair and Accurate Credit Transactions Act), increase in offshoring by emerging verticals such as retail and healthcare and adoption of new technologies such as social, mobility, analytics and cloud.

•  But, billing rate pressures continue in a highly competitive environment, even as global economic growth is perking up. Consequently, CRISIL Research forecasts the industry growth rate to remain below 15 per cent annually over the next two years.

•  According to the disclosures made by Tier-I IT companies, volume growth (in terms of man-month billing) bottomed out since the second half of 2012-13. CRISIL Research expects that growth in volumes will be the only means for Indian IT companies to boost revenues in the medium-term.

•  Mid-tier players have lagged larger players in overall revenue growth recovery in the past few quarters. Taking into consideration the interactions with players and their guidance, CRISIL Research expects mid-tier players to grow faster than Tier-I players in the second half of 2014-15 (over a low base).

Rate cut by RBI will give good fillip to economy says Jaitley

•  Union Finance Minister Arun Jaitley has said that since inflation has moderated, “if RBI [Reserve Bank of India], which is a highly professional organisation, in its wisdom decides to bring down the cost of capital [it] will give a good fillip to the Indian economy.”

•  The Finance Minister was delivering the key note address at the Citi’s Investor Summit: ‘India – Poised for Higher Growth’. Also present were Finance Ministry officers and RBI Deputy Governor S.S. Mundra.

India’s Exports fall in October

•  India’s exports shrunk first time this fiscal in October, declining minus - 5.04 per cent to $26.09 billion.

•  September’s exports were $28.90 billion. A nearly four-fold surge to $4.17 billion in gold imports during the Diwali month of October against $1.09 billion in the same month last year widened the trade deficit to $13.36 billion. The trade deficit was $14.25 billion in September.

•  Reserve Bank Deputy Governor S. S. Mundra told reporters here on Monday that over the past two-three days the central bank was in deliberations with the Modi Government on the steps required to be taken in view of the sharp surge in gold imports. He was responding to questions on if curbs on importing gold could be brought back.

•  Overall imports rose 3.62 per cent to $39.45 billion, according to the latest official trade data released. Especially worrying is a 9-per cent decline in engineering exports.

JSW Energy agrees to acquire two hydro projects from Jaypee

•  The prolonged Jaypee power deal was closed with billionaire Sajjan Jindal signing an agreement with Manoj Gaur to acquire two hydro power projects of Jaiprakash Power Ventures Ltd (JVPL) for Rs 9700 crore.

•  JSW Energy said it had executed documents to acquire 100 per cent stake in the two power plants with a combined capacity of 1391 MW from JPVL and other shareholders.

•  The board of directors of JPVL has approved the transfer of 300 MW Baspa II Hydro- Electric project and the 1091 MW Karcham Wangtoo Hydro-Electric project, both located in Himachal Pradesh, into a separate company called Himachal Baspa Power Company Ltd (HBPC Ltd) as a going concern through a scheme of arrangement which would be acquired by JSW Energy.

•  “Subsequent to the scheme of arrangement being made effective and subject to other terms and conditions agreed between the company and JPVL, JSW Energy proposes to acquire 100 per cent of the securities of HBPC Ltd held by JPVL,” JSW Energy said in a filing to the stock exchanges.

•  This acquisition opens a new chapter in JSW Energy and makes it the largest hydro energy producer in the private sector. With this the company total generation capacity including thermal will go up to 4531 MW.

•  Currently the company is setting up a 240 MW hydro power plant in Himachal Pradesh. Both the acquired power plants have 29 years and 37 years life respectively and can be extended for another 20 years, the company said.

•  “This is an attractive deal for our shareholders as it is expected to be earning accretive on closure. Our strategy is to increase capacity many fold and create synergy through a mix of organic and inorganic opportunities supported by excellence on operation,” Sajjan Jindal, Chairman and Managing Director, JSW Energy said.

ING Vysya Bank decided to merge with Kotak Mahindra Bank

•  In an all stock amalgamation, ING Vysya Bank decided to merge with Kotak Mahindra Bank, creating the fourth largest private sector bank in the country.

•  ING Vysya shareholders will receive 725 shares in Kotak for 1,000 shares of ING Vysya. “The share exchange ratio is considered fair and reasonable given the underlying value of ING Vysya, as also giving shareholders the ability to benefit from the potential that can be realised upon merging into Kotak,” a press release issued jointly by Kotak Mahindra Bank and ING Vysya Bank stated.

•  “This exchange ratio indicates an implied price of Rs.790 for each ING Vysya share based on the average closing price of Kotak shares during one month to November 19, 2014, which is a 16 per cent premium to a like measure of ING Vysya market price,” it added.

•  The proposed merger would result in issuance of approximately 15.2 per cent of the equity share capital of the merged Kotak.

•  One of ING Vysya’s directors will be joining the Board of Directors of Kotak.

•  The merger decision was taken at their respective board meetings of Kotak Mahindra Bank and the ING Vysya Bank.

•  The amalgamation is subject to the approval of the shareholders of Kotak and ING Vysya respectively, Reserve Bank of India under the Banking Regulation Act, the Competition Commission of India and such other regulatory approvals as may be required.

•  Upon obtaining all approvals, when the merger becomes effective, “all ING Vysya branches and employees will become Kotak branches and employees. ING Vysya’s CEO designate, Uday Sareen, will be inducted into the top management of Kotak reporting directly to Uday Kotak, Executive Vice Chairman and Managing Director of Kotak.”

Labour ministry proposed new law for small factories

•  The Labour Ministry has proposed the Small Factories (Regulation of Employment and Conditions of Services) Bill to govern wages and conditions of work in small and medium enterprises (SMEs). The Bill envisages rules for wages, overtime hours, social security and appointment of factory inspectors in units employing fewer than 40 workers.

•  While the government introduced the Factories Act (Amendment) Bill, 2014 in the Lok Sabha in August, the new Bill has been proposed to align the work conditions in the SMEs with the Factories Act amendments and allow enterprises to file compliance forms online as the government announced earlier this month.

•  “There was a demand from the SME sector for a separate Act to govern them. In line with that, this Act will reduce the number of forms required for compliance with rules. It will allow the SMEs to employ women in night shifts based on the fulfilment of certain conditions.

•  It will change the inspection system to one based on self-certification and inspections based on computer lots as announced by the government earlier this month,” a senior Labour Ministry official says.

•  The Bill builds on the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Amendment Bill, 2011, which increases the number of laws under which units will be exempt from maintaining registers and filings returns, he adds.

ATM use over 5 times will attract fee now

•  Using ATMs (automated teller machines) to withdraw money or for other purposes such as balance enquiry beyond five times in a month will attract a levy of Rs.20 a transaction from Saturday.

•  According to the Reserve Bank of India’s new guidelines that come into force from Saturday, bank customers in six metros —Delhi, Mumbai, Chennai, Kolkata, Hyderabad and Bangalore — are allowed to withdraw money and/or carry out non-financial transactions like mini-statements at ATMs of banks, where they hold saving/current accounts, free of charge only five times a month.

•  Every transaction beyond this threshold will be charged Rs.20 per use. Besides, the number of free transactions at ATMs of non-home banks has been cut to three times a month from five times.

TRAI will start review of telecom interconnect charges

•  Telecom regulator TRAI is likely to review this week interconnect charges, which one telecom operator pays to another for completing calls and SMS.

•  In the previous review, Telecom Regulatory Authority of India has reduced interconnect charges, leading to reduction in tariffs.

•  TRAI has plans to start process to review IUC (inter usage connection) charges this week,. This would be second IUC review by TRAI after the one in 2009. The regulation was framed in 2003.

•  At present, TRAI had fixed a mobile call termination charge at 20 paise per minute for all local and national long-distance charges. This charge earlier varied between 15 to 50 paise depending on the distance.

•  This means that a telecom company now pays 20 paise per minute charge to the other company on whose network call has been made.

•  The regulator raised the MTC (mobile termination charge) for incoming international calls to 40 paise per minute from 30 paise, while putting a ceiling on carriage fee of 65 paise per minute for domestic long-distance calls.

Core industries’ growth drops to 1.9 % in September

•  Growth of the eight core industries dropped to 1.9 per cent in September from 9 per cent in the same month last year due to fall in output of crude oil, natural gas, refinery products and fertilizer. The growth stood at 5.8 per cent in August.

•  Crude oil, natural gas, refinery products and fertilizer output registered a drop of 1.1 per cent, 6.2 per cent, 2.5 per cent and 11.6 per cent, respectively, in the month under review, according to the data released by the Commerce and Industry Ministry.

•  Expansion in other four sectors — coal, cement, steel and electricity — stood at 7.2 per cent, 3.2 per cent, 4 per cent and 3.8 per cent, respectively, against a rise of 13.6 per cent, 12.1 per cent, 10.7 per cent and 12.9 per cent rise, respective, in September, 2013.

•  During the April-September period, the eight sectors grew by 4 per cent against 5 per cent in the same period a year-ago.

Fiscal deficit touches 83% of full-year target in first 6 months

•  The fiscal deficit reached nearly 83 per cent of its full-year target in the first half of this fiscal, giving the government a tough job meeting its budget target even with help from a fall in global crude prices that will reduce the oil subsidy bill.

•  A 25 per cent fall in oil prices since June has helped Prime Minister Narendra Modi’s government contain oil and fertilizer subsidies, but revenue growth has been slow. In his maiden budget, Finance Minister Arun Jaitley had targeted a reduction in the fiscal deficit to 4.1 per cent of the gross domestic product in the current fiscal year, down from 4.5 per cent in the previous year.

•  Prime Minister Modi ordered bureaucrats to stop flying first-class, as part of austerity drive aimed at reducing discretionary spending by 10 per cent in the fiscal year to March, 2015.

•  The fiscal deficit was Rs.4.39 lakh crore ($71.5 billion) during April-September, or 82.6 per cent of the full-year target, government data showed on Friday.

•  The deficit was 76 per cent during the comparable period in the previous fiscal year. Net tax receipts totalled Rs.3.23 lakh crore ($52.60 billion) in six months of the fiscal year.

•  Officials are worried that slow growth in tax collections could force the government to cut capital spending as it has done in the past two years, in order to maintain its credit ratings.

•  The government aims to raise about $9.5 billion from the sale of shares in state-run companies and minority stakes in private companies this fiscal year, but it has still to start the process.

Committee on Economic Affairs hikes MSP for Rabi crops

•  The Cabinet Committee on Economic Affairs has hiked the minimum support price (MSP) for several Rabi crops.

•  These include wheat, barley, gram, Masur lentil, rapeseed or mustard and safflower. The prices are for the 2014-2015 season which will be marketed in next fiscal.

•  The MSP of wheat has been hiked from Rs. 1,400 to Rs. 1,450, barley from Rs. 1,100 to Rs. 1,150, gram from Rs. 3,100 to Rs. 3,175, Masur from Rs. 2,950 to Rs. 3,075, rapeseed from Rs. 3,050 to Rs. 3,100 and safflower from Rs. 3,000 to Rs. 3,050.

•  The prices have been decided by the Commission for Agricultural Costs and Prices.

Finance Ministry cuts non-Plan spending by 10%

•  The Finance Ministry ordered a mandatory 10 per cent cut in the Centre’s non-Plan expenditure for 2014-15.

•  The cut does not cover interest payment, repayment of debt, defence capital, salaries, pension or Finance Commission grants to States, says a circular. Subsidies will face the brunt of the cuts.

•  The UPA government too had in place austerity measures. For 2013-14, former Finance Minister P. Chidambaram rolled out cuts of 15 per cent on average across both Plan and non-Plan expenditures. Union Finance Minister Arun Jaitley has spared Plan expenditure from his 10 per cent spending cut.

•  A Finance Ministry release said the objective of the fiscal prudence and economy measures was the need to rationalise expenditure and optimise available resources.

•  The Ministry revived its standard measures, including curbs on conferences abroad or in five-star hotels, purchase of vehicles and staff cars, travel curbs on flying first class and ban on new posts.

‘Black money could add $30 billion to forex reserves’: BofA-ML

•  The unearthing of capital flight of black money Indians have allegedly stashed away in Swiss banks could add USD 30 billion to the country’s forex reserves, says a Bank of America Merrill Lynch (BofA-ML) report.

•  According to the global financial services major, though there would not be any immediate forex impact given the legal issues involved, it could add USD 30-35 billion to the forex reserves over time.

•  BofA-ML has worked with an estimate of capital flight of about USD 200 billion based on a recent research study.

•  According to the study, Raghbendra Jha and Duc Nguyen Truong, of Australian National University, estimated total capital flight of more than USD 186 billion during 1998-2012.

•  “If even half of this is unearthed, it could add USD 30-35 billion (three to four months of current import cover) to forex reserves over time,” BofA-ML said in a research note.

Reforming India faces an uncertain global situation

•  The linkage between the Indian economy and the global economy, always important for policymakers, has become pronounced recently. As the Modi-led NDA government embarks on some long-pending but overdue reforms in the petroleum and energy sectors, the dynamics of the global environment become particularly evident.

•  The decontrol of diesel prices, for long thought of but not implemented due mainly to political considerations, could be implemented at last as global oil prices took a tumble. What would normally be a controversial move became palatable as decontrol actually made retail diesel prices in India cheaper by more than Rs.3 a litre. With petrol prices having already been deregulated, the government has also rationalised the payment of

LPG subsidies to the really needy.

•  However, the point needs to be made that if the unexpected fall in global prices has given a unique opportunity for reform, the real test for policymakers will come when oil prices move up from their present low levels.

•  Real reform here would require them to stay away during different phases of the petroleum price cycle. Unless of course there are oil shocks that create crisis situations crying out for government interventions.

India world’s 4th largest steel maker in Jan-Sept

•  With 62.41 million tonnes output, India remains the world’s fourth largest steel producer in the first nine months of the current year, preceded by China, Japan and the US.

•  World Steel Association (WSA) data showed India’s steel production grew by 1.8 per cent, the second highest among the top four steel producing nations, during the January-September period from 61.27 MT in the same period last year.

•  India has been the world’s fourth largest steel maker for the last four years. The order is likely to remain unchanged in current year too, an industry expert said.

•  During the first nine months, China produced 618 MT steel which is a little more than half of world’s total production at 1,231 MT.

•  China logged 2.3 per cent growth during the period. But its steel production remained static in September, as per data revealed by WSA, at 67.5 MT when compared with the same month last year.

•  Japan remained the remote second with 83.1 MT production during the nine-month period clocking just 0.8 per cent growth over 82.4 MT production in the same period last year.

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