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RBI announces a slew of measures to curb forex
outflows
As a part of its fight to prop up the
battered rupee, the Reserve Bank of India (RBI), on 14 August 2013,
unveiled a slew of measures aimed at curbing forex outflows. While the
measures are aimed at moderating outflows, the RBI added that genuine
requirement beyond these limits will continue to be considered under the
approval route.
The central bank has reduced the limit for overseas direct investment
(ODI) by domestic companies under automatic route from 400 per cent of
the net worth to 100 per cent. This reduced limit will also apply to
remittances made under the ODI scheme by domestic companies for setting
up unincorporated entities overseas in the energy and natural resources
sectors.
The reduction will not apply to ODIs by Navratna PSUs, ONGC Videsh and
Oil India in overseas unincorporated entities and incorporated entities.
The RBI also reduced the limit for remittances made by resident
individuals under the liberalised remittances scheme (LRS) from $2 lakh
to $75,000 a year.
Resident individuals are, however, allowed to set up joint ventures/
wholly-owned subsidiaries outside under the ODI route within the revised
LRS limit.
The RBI also said while the new curbs on the use of LRS for prohibited
transactions like margin trading and lottery will continue, use of LRS
for acquisition of immovable property outside directly or indirectly
will, henceforth, not be allowed.
More curbs on FX outflow to check rupee
decline
Government of India imposed restrictions on foreign exchange outflows and
gold imports on 14 August 2013, in a new attempt to prop up the rupee, as
a spike in inflation added pressure on policymakers to curb a crippling
external deficit.
Finance Minister P. Chidambaram also reiterated his pledge to narrow the
current account deficit—the main source of the rupee’s weakness— to 3.8
percent of gross domestic product in 2013-14 and said the currency would
not be allowed to slide into “free fall”.
The Reserve Bank of India’s steps to support the currency included
cutting the amount of overseas direct investments allowed by Indians.
Those investments reached $3.2 billion in July, according to the central
bank data.
Separately, the central bank banned imports of gold coins and bars, which
constituted about 36 percent of total billion demand in India in 2012,
and will require domestic buyers to pay cash for the yellow metal, among
other measures.
The steps came as data showed the headline inflation rate jumped above
the central bank’s target range of 4 to 5 percent in July for the first
time since March, making it even harder for the bank to refocus on
supporting India’s slowing economy.
The Indian authorities fear continued falls in the rupee will exacerbate
the current account deficit in the short term, deter investment and
further curb growth in Asia’s third-largest economy.
Use forex reserves to curb Re volatility:
WB economist
World Bank Chief Economist Kaushik Basu has said that India should use
forex reserves to curb volatility in the currency market and not to look
to IMF for funds.
Basu, who was Chief Economic Adviser in the Finance Ministry before
taking over his assignment with the World Bank, added that the government
should not “overreact” to depreciation of rupee.
On the possibility of India approaching the International Monetary Fund
(IMF) for money, Basu said: “I don’t think we are in a situation where
there is any need for that. India has enough foreign exchange reserve.
So, the question of having to turn to IMF is not there.”
India has a foreign exchange reserve of about $280 billion.
Meanwhile, he said India’s present economic woes are not comparable to
the problems the country faced in 1991. "That is completely a
non-question because if you just look at a couple of numbers, then you
say there is absolutely no comparison. Foreign exchange reserves in 1991
were down to $3 billion; India now sits on $280 billion foreign exchange
reserves,” he said.
On measures taken by RBI to arrest the fall of rupee, he said:
“Supporting the currency is a typical matter. Typically, what RBI has
done is what central banks with floating exchange rates do.” RBI has
announced stern measures, including curbs on Indian firms investing
abroad and a reduction of outward remittances, to restrict the outflow of
foreign currency and stabilise rupee. Widening CAD, which touched to a
record high of 4.8 per cent in 2012-13, was also seen to be putting
pressure on rupee.
Effects of falling Rupee
Moving from bad to worse, the Indian rupee hit new all-time low of 64.13
against the dollar on 19 August 2013, on sluggish local stocks and
continued dollar demand from importers. The continuous depreciation of
the Indian currency will affect:
Importers/Exporters: Importers will strongly feel the pinch of falling
rupee as they will be forced to pay more rupees on importing products.
Conversely, a feeble rupee will bring delight to the exporters as goods
exported abroad will fetch dollars which in return will translate into
more rupees. Also, a weak rupee will make Indian produce more competitive
in global markets which will be fruitful for India's exports. Buying
imported stuff will become a very costly affair. You will have to shell
out extra on imported goods.
Fuel price: A weak rupee will increase the burden of Oil Marketing
Companies (OMCs) and this will surely be passed on to the consumers as
the companies are allowed to do so following deregulation of petrol and
partial deregulation of diesel. If the OMCs increase fuel prices, there
will be a substantial increase in overall cost of transportation which
will stoke up inflation.
RBI’s monetary policy: If the depreciation in rupee continues, it will
further increase inflation. In such a situation RBI will have very less
room to cut policy rates. No cut in policy rate will add to the
borrower’s woes.
Students studying abroad: Students who are studying abroad will bear the
brunt most owing to depreciating rupee. Expenses incurred towards the
university/college fee as well as that of living will shoot up, thereby
spelling a huge burden on the students.
Tourism: The depreciating rupee will is a big dampener if you are
planning your holiday abroad. Your travel charges as well as hotel
charges will escalate drastically, let alone shopping and other
miscellaneous spending activity.
Overseas Indians: Money saved is money earned. Depreciation of rupee is
certainly good news for the overseas Indians. Those working abroad can
gain more on remitting money to their homeland.
Country’s fiscal health: A frail rupee will add fuel to the rising import
bill of the country and thereby increasing its current account deficit
(CAD). A widening CAD is bound to pose a threat to the growth of overall
economy.
New Company Law enacted
On 8 August 2013, the Parliament cleared the long-awaited Companies Bill
2012, with the Rajya Sabha passing sweeping measures to replace a
57-year-old predecessor.
The new law will empower small shareholders, smoothen corporate
governance and compel large companies to spend more on social welfare
under the broad head of corporate social responsibility (CSR).
It also imposes checks and balances to prevent frauds, make corporate
board room decisions transparent and hold auditors and directors more
accountable.
The legislation, which had been in the works for several years and was
passed by the Lok Sabha in December 2012, will allow the creation of
special courts for speedy trials—an assurance to investors that cases
will not linger.
At least a third of a company’s board should comprise of independent
directors and at least one of the board members should be a woman,
according to the new law.
All companies will have to move to a uniform financial year ending March
31. Only companie, which are holding or subsidiary arms of a foreign
entity requiring consolidation outside India, can have a different
financial year, but with the approval of Tribunal.
The new law will allow shareholders’ associations to take legal action
against companies’ promoters and management through ‘Class Action
Suits’—a form of lawsuit where a large group of people collectively bring
a claim to court. This acts as a deterrent to carry out a fraud by
tailoring and influencing board decisions only to suit promoter and
management interests.
It also makes it mandatory for firms to rotate auditors within a
stipulated time-frame—a practice which public sector enterprises and
banks currently adopt.
Besides, the legislation also contains provisions defining rules for
inter-corporate loans and norms for creation of a web of step-down sister
companies or subsidiaries.
The Serious Fraud Investigation Office (SFIO), an agency mandated to
investigate corporate scams, will be empowered with a statutory status,
armed with the authority to impose punitive measures, and in specific
instances, even arrest persons found guilty of corporate crimes.
Land Acquisition Bill gets Lok Sabha’s nod
On 29 August 2013, the Lok Sabha okayed a new farmer-friendly land
acquisition Bill that promises to address landowners’ concerns as regards
relief and rehabilitation. A last-minute division of votes forced by the
Trinamool Congress saw 216 members voting in its favour and 19 against
it.
The Bill will replace the archaic Act of 1894 that is silent on the issue
of resettlement and rehabilitation of those displaced by land
acquisition. It bans forcible acquisition of land and makes it mandatory
to seek farmers’ consent before acquisition. The “urgency clause” in the
existing Act, used by district collectors to acquire land, will now apply
only in case of national security and defence-related projects.
Landowners will also get spin-off benefits by way of small portions of
developed land adjoining the upcoming projects, for commercial use.
The Bill defines the term “public purpose” for land acquisition. This
will include agro-based industry and similar activities. The Bill says
when land is to be acquired by the State for a private entity or a PPP
project, it will have to conduct social and environment-impact
assessments of the area besides identifying the families that would be
affected if the land was acquired.
The private entity seeking land must then obtain the consent of 80 per
cent of the affected families before it gets the government to acquire
land for it. In the case of PPPs, the entity will have to secure the
consent of 70 per cent of the affected families.
Payment of compensation and fulfilling relief and rehabilitation
requirements as mentioned in the Bill will be the third condition for
getting possession of the land acquired through State intervention.
The Bill proposes payment of compensation which is up to four times the
market value in rural areas and twice the market value in urban areas.
The Bill also provides for compensation to those dependent on the land
for their livelihood. The definition of “affected family” includes farm
labourers, tenants and workers in the area for three years prior to
acquisition.
A Land Acquisition and Rehabilitation and Resettlement Authority will be
established for settling disputes relating to the process of acquisition,
compensation, and relief and rehabilitation.
The Bill will apply retrospectively. It means, in case of the previously
acquired land for which no compensation has been paid so far, the
provisions of the new Bill will apply. The Bill also provides for a
consultation process with gram sabhas.
Food Security Bill passed by Lok Sabha
On 26 August 2013, Lok Sabha cleared the National Food Security Bill with
near-unanimity.The Bill provides for food subsidy to two-thirds of the
population and cost the exchequer Rs 1.24 lakh crore during 2-13-14. It
will now go to the Rajya Sabha for final ratification before the
President gives his ascent.
The ambitious Bill was adopted by the House through a voice vote, after
an 11-hour non-stop discussion on the measure and a statutory resolution
seeking to disapprove the ordinance promulgated on July 5. Over 300
amendments moved by the Opposition were rejected.
Touted as an election “game-changer”, the Bill will enable crores of
eligible families to get rice at Rs 3 per kg and wheat at Rs 2 per kg.
The Bill provides immunity against whimsical political masters, as it
provides for food security allowance to the beneficiaries if the
food-grain is not supplied to them.
A special focus has been put on nutritional support to women and children
in the Bill. Women will get a Rs 6,000 maternity allowance besides
nutritional food. Children in the age group of six months to 14 years will
be entitled to take home ration or hot cooked food under the prescribed
nutritional norms.
The original Bill was introduced in the Lok Sabha on 22 December 2011 to
addresses the issue of food security. It was referred to a Standing
Committee on Food, Consumer Affairs and Public Distribution, which
interacted with other Central ministries, organisations and individuals,
and visited States before submitting its report to the Speaker on 17
January 2013.
India-China dialogue on Central Asia
On 14 August 2013, India and China held their first-ever dialogue on
Central Asia, discussing the similarity of their respective interests in
the resource-rich region. They had a conversation on specific issues like
regional security and counter-terrorism, Shanghai Cooperation
Organisation (SCO), energy security, development partnerships and
people-to-people contacts with the countries of the region.
The Indian side at the dialogue held in Beijing was led by Ajay Bisaria,
Joint Secretary (Eurasia) in the External Affairs Ministry while the
Chinese delegation was headed by Zhang Hanhui, Director General of the
Department of European-Central Asian Affairs in the Chinese Foreign
Ministry.
The two sides discussed the situation in Central Asia, focusing on the
very similar India and Chinese approaches and economic relationships with
the countries of the region.
The Chinese side briefed the Indian delegation on China’s vision of its
relations with Central Asia while the Indian side explained the details
of New Delhi’s ‘Connect Central Asia’ policy.
Both India and China are in the neighbourhood of Central Asia and have
established close political and economic ties with the countries of the
region. Both the delegations stated that strong relations with the
countries of the Central Asian region were an important priority in their
foreign policy.
The dialogue reflected the growing engagement between the Foreign Offices
of India and China and comes after similar comprehensive dialogues on
Africa, West Asia, Afghanistan and counter-terrorism issues.
India inks pacts with energy-rich Iraq
On 23 August 2013, India and Iraq signed four MoUs, including those for
cooperation in the field of energy and water resources management. The
agreements were signed during the visit of Iraqi Prime Minister Nouri
al-Maliki, after wide-ranging talks between Prime Minister Manmohan Singh
and his Iraqi counterpart.
This was the first Head of Government-level visit between the two
countries since 1975. The agreement on energy cooperation is significant
considering the fact that Iraq has emerged as the second largest exporter
of oil to India after Saudi Arabia, displacing Iran.
The pact envisages cooperation in the areas of upstream and downstream
oil and gas activities and related infrastructure. The agreement marks a
significant upgrading of energy relationship from a buyer-seller one to a
strategic engagement.
Under the water resources development and management agreement, Iraq has
sought India’s assistance so that the country can again become the cradle
of civilisation. Iraq has two great rivers—Tigris and Euphrates. But
years of uncertainty, wars, have destroyed the entire water
infrastructure in the country. It is now obliged to import a lot of food
items from abroad, including Turkey, Syria and India. Baghdad would like
India to cooperate in the water resource management so that its fertile
land could again be used for food production.
Aware of the role Iraq is expected to play in the coming years in meeting
India’s energy needs, New Delhi pulled out all the stops to accord a warm
welcome to the Iraqi Premier. President Pranab Mukherjee told him that
India was committed to assisting Iraq in the process of rebuilding its
infrastructure and institutions.
Visit of Prime Minister of Bhutan
During the visit of Prime Minister of Bhutan, Tshering Tobgay ,India
announced Rs 5,000-crore financial package for Bhutan as the two
countries agreed to closely coordinate and cooperate with each other on
issues relating to their security interests.
New Delhi would contribute Rs 4,500 crore towards Bhutan’s 11th plan,
apart from extending Rs 500-crore economic stimulus package, said a joint
statement issued by the two countries after talks between Prime Minister
Manmohan Singh and his Bhutanese counterpart Tsheing Tobgay.
The meeting was significant in the backdrop of the recent acrimony in the
relationship when India withdrew oil and gas subsidies to the Himalayan
nation on the eve of elections. It clearly indicated that India has not
taken kindly to the friendly overtures being made by Bhutan towards China
without taking New Delhi into confidence. However, Tobgay is understood
to have assured New Delhi that Bhutan would do nothing that would hurt
India’s strategic security interests.
Objective
Two of India’s five proposed specialised cancer treatment hospitals will
come up at Jhajjar and Karnal in Haryana. The first National Cancer
Institute (NCI) will come up on the premises of Phase II of the All India
Institute of Medical Science (AIIMS) at Bhadsa in Jhajjar. Karnal will
get the North Zone Hospital for treatment up to tertiary level among the
four National Zonal Cancer Hospitals to be set up.
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