Manish Koul : Economy : December, 2014

(Hindu)
Date: 06 Dec, 2014

FICCI bats for cigarette companies: Batting for the branded cigarette
industry, the Federation of Indian Chambers of Commerce and Industry
(FICCI) wants the government to reconsider its order to have pictorial
warnings on both sides and covering 85 per cent of the pack.
FICCI has said more prominent pictorial warnings will impact the
domestic cigarette industry as a large percentage of non-cigarette
tobacco products sold in unpackaged and unbranded packs will
escape this regulation. It wants the warnings limited to the current
20 per cent (or 40 per cent of the front panel).
It has argued that in the absence of pictorial warnings on illegal and
loosely sold cigarettes, there is an impression that they are not as
harmful as the packaged ones, thereby misleading consumers.
It also cautioned that there could be a rise in the consumption of
other tobacco products, and illegal cigarettes as they do not carry
any warnings and are cheaper on account of tax evasion.
What the WHO says:
Article 11 of the WHO Framework Convention on Tobacco Control
(WHO FCTC) (India is a signatory to it) requires Parties to the
Convention to implement large, rotating health warnings on all
tobacco product packaging and labelling.
Guidelines for Article 11 of the WHO FCTC recommend that Parties
should mandate full color pictures or pictograms, in their packaging
and labelling requirements.

Date: 09 Dec, 2014

The current account deficit widened to 10.1 billion dollar or 2.1 per cent of
GDP for the September quarter as against 1.2 per cent in the year-ago
period due to higher trade deficit, the Reserve Bank said yesterday.

Date: 10 Dec, 2014

Drug-makers Sun Pharma and Ranbaxy Yesterday got fair trade

watchdog CCIs (Competition Commission of India) approval for their
long- pending USD 4-billion merger, but with a condition that they will have
to modify the deal by divesting seven key products to address monopoly
concerns.

Date: 11 Dec, 2014

Indias largest carmaker Maruti Suzuki has got an order from the
Indian Army to supply 4,141 units of its sports utility vehicle Gypsy.

Date: 12 Dec, 2014

Global economy will grow by more than 3 percent in 2015 and 2016
however the growth will be uneven in some regions, predicts the United
Nations.
The UNs annual economic report said that growth edged up in 2014
at an estimated 2.6 percent.
The UN is forecasting 3.1 percent economic growth in 2015 and 3.3
percent growth in 2016.
Indias economic growth is expected to improve to 6.3 per cent in
2016 with the country leading economic recovery in South Asia.
Concerned over a number of ponzi operators continuing to collect funds
even after being barred to do so, regulator Securities and Exchange
Board of India (SEBI) Yesterday cautioned investors and general public
against dealing with such entities and not be lured by promises of high
returns, makes public a list of 51 banned companies.
The Delhi High Court in an interim order has restrained Xiaomi as well as
online e-commerce site Flipkart from selling in India handsets of the
Chinese mobile maker that run on the technology patented by
Ericsson.

Date: 13 Dec, 2014

IIP shrinks by 4.2%: The factory output, as measured by the Index of

Industrial Production (IIP), contracted by 4.2 per cent in October. Why? : On
account of de-growth in the manufacturing sector and poor demand for
consumer goods.
The factory output had declined by 1.2 per cent in October last year.
IIP:
The Index of Industrial Production (IIP) is an index for India which details
out the growth of various sectors in an economy such as mining,
electricity and manufacturing.
The all India IIP is a composite indicator that measures the short-term
changes in the volume of production of a basket of industrial products
during a given period with respect to that in a chosen base period.
It is compiled and published monthly by the Central Statistical Organization
(CSO) six weeks after the reference month ends. The base year is 2004-2005.
Recent revision of IIP released by CSO with 2004-05 as the base year
comprises 682 items.

Date: 14 Dec, 2014

Indias foreign exchange reserves fell by a massive $1.64 billion to

$314.66 billion for the week ended Dec 5, Reserve Bank of India (RBI) data
showed.
Reserve Bank Governor Raghuram Rajan cautioned the government on
Prime Minister Narendra Modis Make in India mantra, suggesting that
India would have to look for regional and domestic demand for growth to
make in India primarily for India.

Date: 16 Dec, 2014

Govt. proposes 30 per cent local procurement for foreign firms:

The government has released Draft National Offset Policy (NOP). It is
prepared by the Commerce Ministry. The policy is aimed at boosting
manufacturing sector growth.
According to the Policy:
Foreign companies selling goods worth over Rs.300 crore to the
government or public sector undertakings would have to source part of
their supplies from domestic manufacturers. The minimum value of the
offsets obligation will be 30 per cent of the estimated cost of the
import, meaning the company will have to procure this percentage
from local players to boost domestic manufacturing.
For smooth operation of the NOP, a 10-member National Offsets
Authority (NOA) is also proposed. It would be headed by the Cabinet
Secretary and comprise secretaries of commerce, expenditure, foreign,
economic affairs and Directorate General of Foreign Trade.
Sectors which will be covered under the NOP include civil aerospace,
power, fertilizer, railways and other transportation, ports and
shipyards, mining, medical equipment, medicine and telecom.
However sectors including defence, atomic energy and space would
not be covered under the policy
The defence sector has a separate policy while atomic energy and
space would pursue offsets in their contracts independently.
How the policy is expected to help?
It would help in attracting investments;
Transfer and acquisition of new technology;
Acquisition of raw material and assets;
Improving balance of payment;
Increasing capacity for long-term supply pacts;
Enhancing exports.

RBI eases refinancing norms for infrastructure loans: The Reserve

Bank of India (RBI) recently allowed banks to flexibly structure the existing
project loans to infrastructure and core industries with the option to
periodically refinance them. Earlier, this option of periodic refinancing was
available only to new loans in these segments.
Details:

 Only term loans to projects, in which the aggregate exposure of all

institutional lenders exceeds Rs.500 crore, in the infrastructure
sector and in the core industries sector will qualify for such flexible
structuring and refinancing.
The RBI said banks were representing this issue, as it would ensure
long-term viability of existing infrastructure/core industries sector
projects by aligning the debt repayment obligations with cash flows
generated during their economic life.
Banks were asked to fix a fresh loan amortization schedule for the
existing project loans once during the life time of the project, after
the date of commencement of commercial operations (DCCO),
based on the reassessment of the project cash flows, without this
being treated as restructuring.
The RBI said the viability of the project is re-assessed by the bank
and vetted by the Independent Evaluation Committee. RBI said that
banks could refinance the project term loan periodically (say 5 to 7
years) after the project has commenced commercial operations.
The refinance could be taken up by the same lender or a set of new
lenders, or combination of both, or by issue of corporate bond, as
refinancing debt facility, and such refinancing may repeat till the
end of the fresh loan amortization schedule.
It also said that banks could also provide longer loan amortization
as per the flexible structuring of project loans to existing project
loans to infrastructure and core industries projects which are
classified as non-performing assets (NPAs). However, the RBI said,
these loans would be treated as restructuring and the assets
would continue to be treated as non-performing asset.

Date: 17 Dec, 2014

Reserve Bank of India (RBI) has increased the Real Time Gross
Settlement (RTGS) business hours to 12 hours from 8 am to 8 pm on
weekdays which will come into effect from 29 of this month. RTGS system
of online fund transfer will be open on Saturdays from 8 am to 3.30 pm.

Date: 18 Dec, 2014

RBI imposes penalty of Rs 50 lakh on ICICI Bank and Rs 25 lakh on Bank of Baroda for
violation of KYC norms. The RBI said that some fraudsters had managed to open fictitious
accounts in the name of a statutory organisation in these five banks and operated the accounts
mainly for encashing cheques/demand drafts/postal orders, of which they were not the rightful
owners, for periods ranging from one month to two years, without being detected by the banks.

KYC Norms: KYC is an acronym for Know your Customer, a term used for
customer identification process.
It involves making reasonable efforts to determine true identity and
beneficial ownership of accounts, source of funds, the nature of
customers business, reasonableness of operations in the account in

relation to the customers business, etc which in turn helps the

banks to manage their risks prudently.
The objective of the KYC guidelines is to prevent banks being used,
intentionally or unintentionally by criminal elements for money
laundering.
KYC has got a legal backing. Reserve Bank of India has issued
guidelines to banks under the Banking Regulation Act, 1949 and
Prevention of Money-Laundering Rules, 2005. Any contravention
thereof or non-compliance shall attract penalties under Banking
Regulation Act.
KYC has two components Identity and Address. While identity remains the same, the address may
change and hence the banks are required to periodically update their records. Revised Norms:
According to the new norms Customers need to submit only one
documentary proof of address either current or permanent
while opening a bank account or while undergoing periodic
updation.
In case the address mentioned as per proof of address undergoes
a change, fresh proof of address may be submitted to the branch
within six months.
No separate proof for current address required. Now, customers
have to furnish only one address proof (current or permanent) for
opening a bank account.
A small account can be opened by self-attesting a photograph and
giving thumb impression on the application in the presence of a
bank employee. This is probably the best piece of news for students
who live away from home and migrant workers.

Date: 19 Dec, 2014

India has signed a 625 million euro loan agreement with Germany for
financial assistance to Green Energy Corridors (GEC) project under IndoGerman bilateral development cooperation.

Date: 20 Dec, 2014

India ranks 93rd out of 146 in Forbes list of best nations for business.
Denmark topped Forbes 9th annual ranking of the Best Countries for
Business, followed by Hong Kong, New Zealand, Ireland and Sweden.

CBDT signs first bilateral Advance Pricing Agreement: The Central

Board of Direct Taxes (CBDT) recently signed a bilateral Advance Pricing
Agreement (APA) with a Japanese company. The APA is for five years. An
advance pricing agreement (APA) is an ahead of time agreement between
a taxpayer and a taxing authority on an appropriate transfer pricing

methodology (TPM) for some set of transactions at issue over a fixed

period of time.
APAs will improve the investment climate in the country
It is also expected to bring about certainty and uniformity in
transfer pricing matters of multinational companies and reducing
litigation.
In the context of growing economic ties between Japan and India
the APA is expected to generate positive sentiments among
Japanese investors in India.

Date: 22 Dec, 2014

Inmates of Delhis high-security tihar jail will soon get life and accidental
insurance cover as the prison administration, in collaboration with Indian
Bank, has decided to get their accounts opened under Prime Ministers Jan
Dhan Yojna. As per the scheme, the inmates will come under accidental
insurance cover of 1 lakh rupees and a life insurance cover of 30,000
rupees even while serving their sentence.

Date: 23 Dec, 2014

RBI modifies definition for non-cooperative borrower: Defaulting
borrowers, who resort to legal and other means such as denying access to
securities to make it difficult for banks to recover dues, will find it harder
to raise fresh funds. It will become tougher for banks to continue lending
to such entities. A sharp rise in stressed assets over the last few years had
prompted RBI to frame corrective action that lenders can take to stem bad
loans. Under the new norms:
There would be disincentives for lenders in the form of higher
provisions if they give additional loans to such entities.
The framework includes setting up a joint lenders forum for specific
accounts even before these slip into the sub-standard category and
narrowing sources of funds for such borrowers by classifying them
as non-cooperative borrowers if they are found to be deliberately
stonewalling legitimate efforts of lenders to recover their dues.
Any fresh loan given to those classified as non-cooperative
borrowers will attract higher provisions equivalent to that of a substandard asset (where the dues are not paid for 90 days) while the
account can continue to be classified as a standard account. These
provisions are much higher than the 5% prescribed by RBI in its

February notification. Loans classified as substandard attract 15%

provisions.
Banks have to make the higher provision of 15% even for loans
given to any other company that has directors or promoters of
companies that are classified as non-cooperative directors.
RBI has set a loan cut-off limit of Rs 5 crore and said independent
directors and government nominees will be excluded from being
classified as non-cooperative borrowers.
As for business enterprises, noncooperative borrowers would
include persons in charge of and responsible for the management of
the affairs of the enterprise.

Date: 31 Dec, 2014

Excise concessions for auto sector to go: Government is planning to
end the excise duty concessions given in February. The decision could help
the government raise additional revenue of up to Rs. 1,000 crore in the
remaining three months of the current financial year in a bid to achieve
the fiscal deficit target of 4.1 per cent of GDP. But the additional yield will
depend on the auto and white goods sales in those three months.
Why was the concession given?
To give a boost to auto and white goods sectors during the
economic downturn, the previous government had cut excise duty
on cars, SUVs, two-wheelers and consumer durables in the February
interim budget.
In June, the new government extended the excise duty concessions
by 6 months to December 31, which is now not being further
extended.
Excise Duty is an indirect tax levied and collected on the goods
manufactured in India. Generally, manufacturer of goods is responsible to
pay duty to the Government.
SEBI moots new norms for issue of municipal: To help in the
Governments smart cities programme, the Securities and Exchange
Board of India (SEBI) has proposed a new set of norms for listing and
trading of municipal bonds on stock exchanges, while channelizing
household investments for urban infrastructure development.
New norm:

 Issuing authorities would need to contribute at least 20 per cent of

the total project cost for which they wish to raise funds. These
municipal authorities would need to have a strong financial track
record and such bonds should have a minimum tenure of three
years.
The municipal bonds would add to instruments where provident
funds, pension funds and insurance companies can put in their
money.
Municipal authorities having negative net worth and those which
have defaulted on payments to financial institutions would be
barred from issuing the bonds. Corporate municipal entity or its
directors restrained or prohibited by SEBI would also be ineligible.
The minimum subscription limit should not be less than 75 per cent
of the issue size. In the event of non-receipt of minimum
subscription, all application money received in the public issue
should be refunded to the applicants, within 12 days from the date
of the closure of the issue.
When there is a delay by the issuer in making the refund, then it
has to give back the subscription amount along with interest at 10
per cent rate per annum for the delayed period.
The issuers contribution for each project should be at least 20 per
cent of the project costs, which shall be contributed from their
internal resources or grants. An issuer, proposing to issue debt
securities shall maintain 100 per cent asset cover sufficient to
discharge the principal amount at all times for the debt securities
issued.
Conservative Indian investor mainly invests in fixed deposits, small saving
schemes or gold. Bonds issued by municipalities having good financial
track record would be an good alternative investment opportunity for such
conservative investors, as it provides reasonable return with less risk,
which in turn may accelerate the capital markets.
A municipal bond is a bond issued by a local government, or their
agencies.
Muni bonds are very popular among investors in many developed
nations, especially in the U.S., where these have attracted
investments totaling over $500 billion and are among preferred
avenues for household savings.

 The Bangalore Municipal Corporation was the first municipal

corporation to issue a municipal bond of Rs.125 crore with a State
guarantee in 1997. However, the access to capital market
commenced in January 1998, when the Ahmedabad Municipal
Corporation (AMC) issued the first municipal bonds in the country
without State government guarantee for financing infrastructure
projects in the city. AMC raised Rs.100 crore through its public issue.
Among others, Hyderabad, Nashik, Visakhapatnam, Chennai and
Nagpur municipal authorities have issued such bonds, however,
there is no provision as yet for listing and subsequent trading of
muni bonds on stock exchanges in India.
There is massive capital investment need in municipal infrastructure
and funds from programmes such as Jawaharlal Nehru National
Urban Renewal Mission (JNNURM) can only partly meet the
requirement. Therefore, to meet their financing needs, the
municipalities have to seek recourse to other means including
issuance of municipal bonds.