Recently the Parliamentary Standing Committee on Finance complained against the government policy on issuing license. The Committee earlier suggested for giving priority to financial inclusion and other social objectives while issuing addition bank license to the private banking sector. The Standing Committee is headed by the Bharatiya Janata Party leader Yashwant Sinha. It also suggested for evaluation on the basis of the Banking Correspondent Model (BCM) and rationale of levying charges on banking services through the model. The suggestions were given on the basis of Finance Minister Pranab Mukherjee’s announcement in the Budget 2010-11 on extending the geographical coverage of banks and improving access to banking services through issuance of new banking licences to private players and nonbanking finance companies (NBFCs). Despite the measures taken by the government and the RBI to extend the rural reach of banking, there are 375 under banked districts and 89 unbanked blocks in the country. The report prepared by the Committee was submitted to the Parliament in April 2010, where the panel supported the idea of financial inclusion to be included as normative feature while granting fresh license by the Reserve Bank of India (RBI). It suggested for mandating the private players to render specified banking services in rural and semi-urban areas. The government subsequently asked RBI to take action, for which the RBI issued a discussion paper and invited comments on it in September 2010. The paper was based on suggestions made for criteria on minimum capital requirements for banks and promoters’ contribution, minimum and maximum cap on promoter shareholding and other shareholders and foreign shareholding. It also speculated other issues such as allowing the industrial and business houses in promoting the banks and allowing the conversion of the nonbanking finance companies into banks. RBI in order to bring changes in present banking system in India is planning to issue bank licence to some players by March 2011. The decision will facilitate the entry of large corporate houses like Reliance, Tata and Birla in the commercial banking space, which is presently dominated by state-run State Bank of India and private lenders like ICICI Bank and HDFC Bank which are based on public shareholdings between the state, government and other stakeholders. Also for the millions of rural households in India, that was devoid of access to banks RBI suggested for the adoption of BCM which is a good alternative to reach the unbanked. This would give a doorstep service, delivered from a distance using technology, which would be a new window to the banking system. In March 2006, the RBI suggested for adoption of the BCM to reach the unbanked. Under this no-frills savings account, loans and remittance products were provisioned through BCM. This March, it asked all banks, public and private, to submit their ‘financial inclusion plans’ till 2013 — and meet them. Since they wouldn’t go out and set up branches, banks would have to do it largely through the BCM model. Unlike the branch model, in the BCM, the bank and the customer don’t talk to each other directly. A technology partner, with whom the BCMs are attached, is the go-between. The largest technology partner is Financial Information Network and Operations (FINO), which has 8,000 BCMs, who have so far serviced 17 million customers of 14 banks. However the other commercial banks have been hesitant in adoption the model due to low revenue generation potentials as these accounts exceed the cost of servicing them and the complexities in operation, a large part of which is outsourced — and hence, not directly under their control.
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Macro Economic and Monetary Developments India
Reserve Bank’s survey of outside professional forecasters shows anticipation of a modest recovery with growth in 2013-14 at 6% from 5% and average WPI inflation to moderate to 6.5% from 7.3%. Surveys show that inflation expectations have moderated slightly, while business expectations remain subdued. In view of macro-financial risks that stay significant, headline inflation remaining above the threshold and consumer price inflation remaining high, the space for action for 2013-14 remains very limited. If some of the risks come to fore, policy re-calibration may become necessary in either direction. Slow-paced recovery is likely later in 2013-14, contingent on improved governance and concerted action to resolve structural bottlenecks, especially in infrastructure sector. Output gap is likely to reduce, but remain negative. Headline inflation is likely to remain range-bound in 2013-14, with some further moderation in H1 due to subdued producers’ pricing power and falling global commodity prices, before it increases somewhat in H2 largely due to base effects. Summary of macroeconomic and monetary developments in 2012-13 During 2012-13, slowdown persisted as mining and manufacturing activity stalled, agriculture output was affected by temporal and spatial deficiency in rains and services sector witnessed moderation. Growth is likely to have stayed low in Q4 of 2012-13. Growth is hobbled by structural bottlenecks. Shortages of power, coal and natural gas, stoppage of mining activity in some states following legal enforcements on illegal mining have emerged as a major constraining factor for industrial growth. Core industries have underperformed in this backdrop. The Reserve Bank’s Order Books, Inventory and Capacity Utilisation Survey show that the slack in capacity utilisation persisted in Q3 of 2012-13. New orders picked up marginally. Inventory as a ratio of sales, reached its lowest for finished goods, but highest for raw materials in the past five quarters. Aggregate demand remained sluggish with inflation adversely impacting real consumption and cyclical and structural factors impeding investment. Investment decline was accompanied by decline in saving rate as persistence of inflation eroded financial savings of the households. Corporate sales growth moderated in Q3 of 2012-13 to its lowest level since Q3 of 2009-10. Operating profits grew at a positive rate. Planned corporate investment moderated sharply in Q3 of 2012-13, thus continuing with the downturn that began in H2 of 2010-11. There is urgency for addressing bottlenecks in coal, power, road and telecommunication sectors to revive investment and growth. Momentum towards fiscal consolidation since middle of 2012-13 continues. As a result, fiscal risks have been lowered but they have not waned. If growth slows down further, it could result in revenue shortfalls and a resurgence of fiscal risks. Removing structural impediments and public investment stimulus to crowd-in private investment can turn around falling investment. However, this would need to be balanced by offsetting reductions in government’s current expenditures. Modest pick-up in exports in Q4 of 2012-13 and some deceleration in imports are likely to help moderate current account deficit (CAD) in Q4 of 2012-13 after a record high of 6.7% of GDP in Q3. Despite this, the CAD/GDP ratio for the year 2012-13 is expected to be around 5%, twice the sustainable level. High CAD in Q3 of 2012-13 was adequately financed by capital inflows, without any reserves depletion. CAD in 2013-14 is likely to benefit from moderation in global commodity prices. Yet, its sustainability continues to face risk from event shocks that may cause a sudden stop or reversal of capital inflows. External vulnerability indicators worsened further in Q3 of 2012-13. India’s external debt rose, reflecting continued dependence on ECBs and short-term borrowings to meet the widening CAD. Short-term debt on a residual maturity basis increased to 44% of total debt and 56% of the foreign exchange reserves by end-December 2012. Headline inflation and demand-side pressures have moderated, but inflation risks remain reflected in double-digit consumer price inflation, food supply constraints and suppressed inflation in energy segment, including diesel, coal and electricity. Persistent pressures from wages remain a major risk to inflation moderation. Although the pace of increase in rural wages moderated a bit, it remains high. Divergence between WPI and CPI inflation has widened on account of higher food inflation and other factors such as increase in housing rents and transportation costs. Globally, growth turned weaker in 2012 and is expected to stay sluggish in 2013. Fiscal adjustments will drag growth down in advanced economies and delay cyclical recovery in emerging market and developing economies. Outlook for global commodity prices, including metals and oil, remains benign. It should help reduce imported inflation, subject to broadly stable exchange rate. However, some risks remain from the large and continuous doses of quantitative easing. Global financial market conditions have improved as a result of unconventional monetary policy easing and supportive policy actions. However, tail risks remain significant, calling for committed action to reduce balance sheet exposures and prepare adequate buffers against possible contagion risks.
Infrastructure Growth in India
The core infrastructure grows to 2.9% in March 2013 as compared to 3% growth in March 2012. The marginal decline in growth in March, 2013 was on account of negative growth witnessed in the production of Natural Gas and low growth recorded in the production of Coal and Crude Oil.
Sector wise trend in monthly production
(% growth)
|
Sector |
Weight |
February’13 |
March’13 |
| Crude Oil |
5.22 |
(-) |
0.2 |
| Natural Gas |
1.71 |
(-) |
(-) |
| Petroleum Refinery Products |
5.94 |
4.3 |
5.6 |
| Coal |
4.38 |
(-) |
0.3 |
| Fertilizer |
1.25 |
(-) |
3.6 |
| Electricity |
10.32 |
(-) |
3.0 |
| Cement |
2.41 |
3.1 |
6.6 |
| Steel |
6.68 |
0.5 |
6.6 |
| Overall |
37.90 |
(-) |
2.9 |
Source: PHD Research Bureau, compiled from the office of the economic advisor to the Govt. of India
In cumulative terms core infrastructure industries registered a growth of 2.6% during April-March 2012-13 as against 5% during the corresponding period of the previous year.
Sector wise trend in production (%growth)
| Sector |
Weight |
Apr-Mar |
Apr-Mar |
| Crude Oil |
5.22 |
1.0 |
(-) |
| Natural Gas |
1.71 |
(-) |
(-) |
| Petroleum Refinery Products |
5.94 |
3.1 |
6.9 |
| Coal |
4.38 |
1.3 |
3.3 |
| Fertilizer |
1.25 |
0.4 |
(-) |
| Electricity |
10.32 |
8.1 |
4.0 |
| Cement |
2.41 |
6.7 |
5.6 |
| Steel |
6.68 |
10.3 |
2.5 |
| Overall |
37.90 |
5.0 |
2.6 |
Source:
PHD Research Bureau, compiled from the office of the economic advisor to the
Govt. of India
Electricity generation grew by 4% during Apr-Mar 2012-13 as against 8.1% growth during Apr-Mar 2011-12, while steel production grew by 2.5% during Apr-Mar 2012-13 as compared to 10.3% during Apr-Mar 2011-12. The production in crude oil grew by (-) 0.6% during Apr-Mar 2012-13 as compared to its growth at 1% during Apr-Mar 2011-12, whereas petroleum refinery production registered a growth of 6.9% during Apr-Mar 2012-13 as compared to 3.1% growth during Apr-Mar 2011-12. Fertilizer production grew by (-) 3.4% during Apr-Mar 2012-13, compared to its growth at 0.4% during Apr-Mar
2011-12 and cement production grew by 5.6% during Apr-Mar 2012-13 compared to its growth at 6.7% during Apr- Mar 2011-12. Trend in growth of steel, cement, electricity and coal and overall (%)
PHD Research Bureau, compiled from the office of the economic advisor to the
Govt. of India
Posted in News
Tagged Infrastructure Growth in India, Infrastructure law firm India
Investment in Asia
Asian countries are serving as a major engine for global growth by way of increasing its exports as well as attracting foreign direct investments. The economic success has translated to social reforms as well, poverty rates have fallen, life expectancy has risen, and the quality of life has improved significantly over the past half century. IMF has estimated developing Asia’s average growth at 7.1% for 2013 and 7.3% for 2014 as compared to world at 3.3% in 2013 and 4% in 2014 and advanced economies at 1.2% in 2013 and 2.2% in 2014. Asia has been the fastest growing region of the world for several decades, comprising more than 60% of the global population and it accounts for almost a quarter of global output (22%). The speed and extent of Asia’s economic and social progress has been inspiring and these emerging economies are now advancing at an impressive pace as a major global economic power. Asian region is emerging with strong demographics and making it lucrative for investment and trade. In the recent years, due to export diversification efforts, the share of developing economies in India’s total exports witnessed a gradual increase. Increased diversification in trade destinations from the advanced economies to the emerging economies might open up fresh avenues for progress in this area, going forward.
Posted in Investment law
Tagged Emerging market asia, investment in Asia, Law Firm Asia, Lawyer Asia
South Asia drives World Economic Growth
The combined output of the three leading South economies—China, India, Brazil—will surpass the aggregate production of the United States, Germany, United Kingdom, France, Italy and Canada by 2020. According to United Nations Human Development Report 2013, the rise of the South is radically reshaping the world of the 21st century, with developing nations driving economic growth, lifting hundreds of millions of people from poverty, and propelling billions more into a new global middle class. The Report shows that more than 40 developing countries have made greater human development gains in recent decades than would have been predicted. These achievements, it says, are largely attributable to sustained investment in education, health care and social programmes, and open engagement with an increasingly interconnected world. Further, report reveals that this historic progress is creating opportunities for the South and the North to collaborate in new ways to advance human development and confront shared challenges such as climate change. Report pointed that the South as a whole is driving global economic growth and societal change for the first time in centuries, thereby providing a detailed look at fast-changing world. Some of the snapshots of report are: China and India doubled per capita economic output in less than 20 years—a rate twice as fast as that during the Industrial Revolution in Europe and North America. The Report projects that by 2020, the combined output of the three leading South economies—China, India, Brazil—will surpass the aggregate production of the United States, Germany, United Kingdom, France, Italy and Canada. With living standards rising in much of the South, the proportion of people living in extreme income poverty worldwide plunged from 43 percent in 1990 to 22 percent in 2008. Report notes that developing countries nearly doubled their share of world merchandise trade from 25% to 47% between 1980 and 2010. Trade within the South was the biggest factor in that expansion, climbing from less than 10% to more than 25% of all world trade in the past 30 years, while trade between developed countries fell from 46% to less than 30%. However, report projects that trade between countries in the South will overtake that between developed nations. The South is increasingly interdependent and interconnected. Brazil, China, India, Indonesia and Mexico now have more daily social media traffic than any country except the United States. The South’s growing global interconnections are personal as well virtual: migration between developing countries recently surpassed net migration from South to North. The world is witnessing an epochal “global rebalancing.” The tectonic shift has put developing countries on an upward curve. The Report predicts that the so-called “Rise of the South” should continue and could even accelerate as the 21st century unfolds. Global institutions have not yet caught up to this historic change. China, with the world’s second largest economy and biggest foreign exchange reserves, has but a 3.3 percent share in the World Bank, less than France’s 4.3 percent. India, which will soon surpass China as the world’s most populous country, does not have a permanent seat on the UN Security Council. And Africa, with a billion people in 54 sovereign nations, is under-represented in almost all international institutions. The report suggests that south itself has both the expertise and the resources to be a more powerful force in global development. Developing countries now hold two-thirds of the world’s total $10.2 trillion in foreign exchange reserves, including more than $3 trillion in China alone, and about three-quarters of the $4.3 trillion in assets controlled by sovereign wealth funds worldwide. The rise of the South is challenging existing global institutions to change and showing new ways that countries and regions can work together to confront shared challenges. As older international institutions fail to adapt, new mechanisms are emerging. Further, the South needs greater representation in global governance, which also requires assuming greater responsibility. It urges the convening of a new “South Commission” where developing countries can take the lead in suggesting constructive new approaches to effective global governance. Hence, the report lays emphasis on
the rise of the South and its potential for accelerating progress for future generations should be seen as beneficial for all countries and regions, as living standards improve and the world as whole becomes ever more deeply interdependent.
Posted in Uncategorized
Tagged Atotrney, Brazil, China, India, Law Firm, lawyer, South Asia drives World Economic Growth
