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Business & Economy

RBI modifies rules yet again on deposit of banned notes

Two days after specifying that deposits exceeding Rs. 5000 in demonetised Rs. 500 and Rs. 1000 bank notes can only be made once before December 30, 2016, the Reserve Bank of India on Wednesday modified the rules once again, saying that the restrictions would not apply to those with KYC-compliant accounts.

RBI logo
Two days after specifying that deposits exceeding Rs. 5000 in demonetised Rs. 500 and Rs. 1000 bank notes can only be made once before December 30, 2016, the Reserve Bank of India (RBI) today modified the rules once again, rsaying that the restrictions would not apply to those with KYC-compliant accounts.
 
In a notification sent to all banks on December 19, the RBI had said that, on a review of the provisions dealing with credit of the value of specified bank notes (SBNs) into bank accounts, it had been decided to place certain restrictions on deposits of SBNs into bank accounts while encouraging the deposits of the same under the Taxation and Investment Regime for the Pradhan Mantri Garib Kalyan Yojana, 2016.
 
"Tenders of SBNs in excess of Rs. 5000 into a bank account will be received for credit only once during the remaining period till December 30, 2016. The credit in such cases shall be afforded only after questioning tenderer, on record, in the presence of at least two officials of the bank, as to why this could not be deposited earlier and receiving a satisfactory explanation. The explanation should be kept on record to facilitate an audit trail at a later stage. An appropriate flag also should be raised in CBS to that effect so that no more tenders are allowed.
 
"Tenders of SBNs up to Rs. 5000 in value received across the counter will allowed to be credited to bank accounts in the normal course until December 30, 2016. Even when tenders smaller than Rs. 5000 are made in an account and such tenders taken together on cumulative basis exceed Rs. 5000 they may be subject to the procedure to be followed in case of tenders above Rs. 5000, with no more tenders being allowed thereafter until December 30, 2016," the earlier notification had said.
 
In the latest notification sent today to all banks, these provisions would not apply to fully KYC compliant accounts.
 
"Please refer to our circular DCM (Plg) No. 1859/10.27.00/2016-17 dated December 19, 2016. On a review of the above, we advise that the provisions of the above circular at sub para (i) and (ii) will not apply to fully KYC compliant accounts," the notification said.
 
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The Ministry of Finance had, explaining the December 19 decision, said on that date that more than five weeks had elapsed since the November 8 announcement on demonetisation. 
 
"It is expected that, by now, most of the people would have deposited such old notes in their possession," it had said.
 
"Further, an opportunity has been given to the public to make the payments towards tax, penalty, cess/surcharge and deposit under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) 2016 with the old bank notes of Rs.500 and Rs.1000 denomination upto 30th December, 2016," it had said.
 
The decision had attracted a lot of criticism from Opposition parties as well as people at large in view of the fact that Prime Minister Narendra Modi and Finance Minister Arun Jaitley had said that there was no reason for people to rush to the banks to deposit their old notes because they had time till December 30 to do so.
 
The demonetisation has led to a huge shortage of cash in hand for people across the country and has severely affected businesses. There continue to be long queues outside banks and ATM kiosks all over the country, which have been running out of cash every day.
 
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Swamy writes to Modi seeking removal of Raghuram Rajan as RBI Governor

Senior BJP leader and nominted Rajya Sabha member Subramanian Swamy wrote to Prime Minister Narendra Modi on Tuesday seeking the immediate removal of Reserve Bank of India Governor Raghuram Rajan from his position for various reasons, including that he was "mentally not fully Indian".

Raghuram G. Rajan
Raghuram G. Rajan
Senior Bharatiya Janata Party (BJP) leader and nominted Rajya Sabha member Subramanian Swamy wrote to Prime Minister Narendra Modi on Tuesday seeking the immediate removal of Reserve Bank of India (RBI) Governor Raghuram Rajan from his position for various reasons, including that he was "mentally not fully Indian".
 
"I write this letter to strongly recommend that you consider terminating the appointment of the Governor, Reserve Bank of India, Dr. Raghuram Rajan, effective immediately or in any case when his term ends in September, 2016," Dr. Swamy said in his letter, dated May 16.
 
"The reason why I recommend this is that I am shocked by the wilful and apparently deliberate attempt by Dr. Rajan to wreck the Indian economy. For example, the concept of containing inflation by rising interest rates is disastrous. When the Wholesale Price Index (WPI) started to decline due to induced recession in the small and medium industry, he shifted the target from WPI to the Consumer Price Index (CPI) which has not however declined because of retail prices. On the contrary it has risen. Had Dr. Raghuram Rajan stuck to WPI, interest rates would have been much lower today, and given huge relief to small and medium industries. Instead they are squeezed futher and consequent increasing unemployment," he wrote.
 
Dr. Swamy said that, as a result, the estimated non-performing assets (NPA) in public sector banks had doubled to Rs. 3.5 lakh crore.
 
"These actions of Dr. Rajan lead me to believe that he is acting more as a disrupter of the Indian economy than the person who wants the Indian economy to improve. Moreover, he is in this country on a Green Card provided by the US Government and therefore mentally not fully Indian. Otherwise, why would he renew his Green Card as RBI Governor by making the mandatory annual visit to the US to keep the Green Card current?" he asked.
 
Subramanian Swamy
Subramanian Swamy
Dr. Swamy said the BJP had come to power under Mr. Modi's "inspiring leadership" in which thousands and thousands of educated persons contributed.
 
"I cannot see why someone appointed by the UPA Government who is apparently working against Indian economic interests should be kept in this post when we have so many nationalist minded experts available in this country for the RBI Governorship.
 
"I therefore urge you to terminate the appointment of Dr. Raghuram Rajan in the national interest," he added.
 
Dr. Rajan, 53, a well-known economist, was appointed on August 22, 2013 as the Governor of RBI for a three-year term. He assumed office on September 4, 2013, succeeding Dr. D. Subbarao on his retirement.
 
He had earlier served as Chief Economic Adviser in the Ministry of Finance and as Honorary Economic Adviser to the Prime Minister with the rank and status of Secretary to the Government of India.
 
Dr Rajan had earlier served as the Eric J. Gleacher Distinguished Service Professor of Finance at the University of Chicago’s Booth School of Business. Before that, between 2003 and 2007, Dr. Rajan was the Economic Counselor and Director of Research at the International Monetary Fund (IMF). 
 
Later, he chaired the Indian government’s Committee on Financial Sector Reforms, which submitted its report in September 2008.
 
His papers have been published in all the top economics and finance journals, and he has served on the editorial boards of the American Economic Review and the Journal of Finance. 
 
Dr Rajan had earlier served as a senior advisor to BDT Capital, Booz and Co, and on the international advisory board of Bank Itau-Unibanco. 
 
In January 2003, the American Finance Association awarded Dr. Rajan the inaugural Fischer Black Prize, given every two years to the financial economist under age 40 who has made the most significant contribution to the theory and practice of finance.
 
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Modi urges global business community to invest in India's maritime sector

Prime Minister Narendra Modi said on Thursday that it was his Government's endeavour to revive and restore India's position of eminence in the maritime sector in the world and called upon the global business community to partner with it to give shape to its process of port-led development.

Prime Minister Narendra Modi addressing at the Maritime India Summit, in Mumbai on April 14, 2016.
Prime Minister Narendra Modi addressing at the Maritime India Summit, in Mumbai on April 14, 2016.
Prime Minister Narendra Modi today said it was his Government's endeavour to revive and restore India's position of eminence in the maritime sector in the world and called upon the global business community to partner with it to give shape to its process of port-led development. 
 
"Building upon our glorious maritime tradition, we are working hard to achieve new heights in this area," he said in his inaugural address at the Maritime India Summit, 2016 here.
 
Mr. Modi said that, since his Government took over, among other things, it had laid emphasis on building futuristic infrastructure. This included building next generation infrastructure in many sectors with ports, shipping and maritime infrastructure being prominent among them, he said.
 
"In the very early days of our Government, we announced the Sagarmala programme. This is aimed at leveraging our long coastline and natural maritime advantages. It also focuses on promoting port-led development, energizing the coastal economy and infrastructure development in these areas. We particularly want to modernize our ports and integrate them with Special Economic Zones, Port based Smart Cities, Industrial Parks, Warehouses, Logistics Parks and Transport Corridors," he said.
 
Mr. Modi told the gathering that India's vast coastline of 7500 kilometres offered a huge investment opportunity.
 
"Apart from the length of the coastline, India's maritime potential also lies in its strategic location on all major shipping highways. In addition, we have an expansive and productive hinterland, through which flows a network of mighty rivers. Our maritime agenda will complement this ambitious infrastructure plan for the hinterland which is going on in parallel," he said.
 
"I am sure, the long coastline of India along with diverse coastal regions and hard working coastal communities can become an engine of growth of India," he said.
 
Mr. Modi listed the various initiatives taken by the Government to enable the growth of the port and related sectors, including steps to make India a global manufacturing hub and improve the ease of doing business.
 
"We have greatly liberalized the licensing regimes. This also includes the defence sector and ship building therein. We have taken almost sixty per cent of the defence items out of the licensing process. Most of the FDI sectors are now put on automatic approval route," he said.
 
Mr. Modi said shipyards were being given infrastructure status, at par with the ports. Rebate of service tax on coastal shipping has been increased to seventy per cent and customs duty and central excise exemption has been granted on inputs used in shipbuilding, he said.
 
He said a scheme of financial assistance to promote ship building had been approved; customs and central excise duties had been exempted on bunker fuel for Indian flagged container ships; and tax issues of sea farers had been resolved.
 
He said a new company by the name of Indian Port Rail Corporation had been established to focus on the last mile connectivity to ports. The Government had enacted a legislation for declaring 111 waterways as National Waterways. It had also taken up skill development activities aggressively.
 
"The results of our initial efforts are clearly visible: FDI inflows have gone up by 44 per cent since this government took over. In fact, the year 2015-16 has seen the highest ever FDI inflow into India. India’s highest ever quantity of cargo handled by major ports was in 2015. The port efficiency parameters have shown very good improvement. India’s fastest average turnaround time in ports was in 2015," he said.
 
Mr. Modi said that, in the last two years, India's major ports had  added 165 million tonne capacity with record additions each year. He said 94 million tonne capacity was added by these ports in 2015-16 alone which is the highest ever. The traffic in major ports had shown a healthy growth of more than four per cent in the last two years, despite global slowdown, he said.
 
He said the performance of the major ports in the last two years had been remarkable. Operating profit margins, which were declining, have increased, he said.
 
"In 2015-16 alone, the operating profit of the twelve major ports has increased by nearly 6.7 billion rupees. During 2015-16, Kandla Port in Gujarat breached the one hundred million traffic landmark and displayed twenty per cent improvement in efficiency.        Jawaharlal Nehru Port Trust registered a net profit of ten billion rupees helped by a twelve per cent increase in efficiency. 
 
"Our flagship companies like the Shipping Corporation, Dredging Corporation and the Cochin Shipyard have registered higher profits as compared to the previous year. However, this is just the beginning. We want to do more. We are enhancing our own capacities of execution and implementation. The National Perspective Plan of the Sagarmala Programme has been released today.  
 
"During the last two years, major ports have awarded 56 new projects involving an investment of more than 250 billion rupees. This will create an additional port capacity of 317 million tonnes per annum.  Our vision is to increase port capacity from 1400 million tonnes to 3000 million tonnes by 2025. We want to mobilize an investment of one lakh crore, or one trillion rupees, in the port sector to enable this growth. Five new ports are planned to meet the increasing demand of the Exim trade which will rise in proportion with the fast-growing Indian economy. New ports are also being developed by several coastal States of India," he said.
 
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Mr. Modi said the multiple measures to promote coastal shipping, coupled with the anticipated rise in domestic production of coal, were expected to enhance coastal transportation of coal by at least four fold by 2025. 
 
"We are engaging with our immediate and regional neighbours to promote shipping and maritime security. Recently India has signed a Coastal Shipping Agreement with Bangladesh which will be mutually beneficial. India is also engaged in the development of Chahbahar Port in Iran. A special purpose vehicle by the name India Ports Global Limited has been established to take up Maritime Projects overseas," he said.
 
He noed that the Ministry of Shipping was showcasing about 250 projects with investment opportunity in the Maritime Sector. These projects include various infrastructure development opportunities in 12 major ports, projects in eight maritime states and other agencies. Of these, over 100 projects have been identified under the Sagarmala Programme. 
 
"With more than 14,000 kilometers of navigable inland waterways in the country, there is tremendous potential for development in this sector. My Government is committed to integration in infrastructure. We are also committed to creating an enabling environment for investors and to facilitate investments with an open mind," he said.
 
The Prime Minister said all this was being done to benefit the common man and provide employment to the youth. This was particularly being done to empower coastal communities, he said.
 
"Approximately eighteen percent of India’s population lives in 72 coastal districts. It comprises twelve percent of India’s landmass. Therefore, there is a need for holistic and sustainable development of coastal regions and communities. Development of coastal communities especially fishermen requires an integrated approach. As part of the Sagarmala programme, we will adopt a comprehensive approach with focus on capacity building and training, upgrading of technology and for improving physical and social infrastructure. This will be done in collaboration with the coastal states," he said.
 
Mr. Modi said these initiatives would create employment opportunities of approximately ten million jobs over the next ten years. This includes four million direct and six million indirect jobs. 
 
"To broaden livelihood opportunities further, we are planning to deploy modern and sophisticated fishing vessels. This would enable them to harness resources in India’s Exclusive Economic Zone. In addition, we are also focusing on value addition in fisheries, aquaculture and cold chain development.
 
"The Port Sector in India is a good mix of Private and Public Ports, with both contributing to the growth of the sector. The PPP model of development has been quite successful in this sector and has helped in bringing latest technology and best practices. Private Ports have been growing at a very healthy pace and have nearly doubled their capacity in the last 5 years. They handle around 45 per cent of the total cargo. Most of these ports are new, with modern facilities and can match the best international ports in terms of performance and infrastructure," he said.
 
"India has had a glorious maritime history. We are on the path of shaping an even better maritime future. The maritime sector not only creates and facilitates economic activities; it also connects countries and civilizations. Moreover, it is the cleanest and cheapest carrier of global trade. Investing in maritime sector is not only investing in one’s own future; but in the future of the planet and that of coming generations. However, in this sector, no country can achieve the desired results in isolation. Nations have to collaborate to realize this potential and to overcome challenges in this sector. The objective of this Summit is to provide a platform and forum for such cooperation.
 
"To conclude, I would like to say that: This is the right time to come to India. It is even better to come through the sea route. The Indian ship is well equipped for a long haul. Don’t miss it. Missing it means missing a pleasant journey and a great destination.
 
"Once you are here, I assure you that I will personally hold your hands to see that your berthing is safe, secure and satisfactory,"he added.
 
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India is haven of macro-economic stability, beacon of hope: Modi

Prime Minister Narendra Modi said on Saturday that India was a haven of macro-economic stability and a beacon of hope, dynamism and opportunity and asserted that it could contribute to Asian prosperity and development by being economically strong.

 
Asia a ray of hope for global economic recovery: Modi
 
Prime Minister Narendra Modi today said that India was a haven of macro-economic stability and a beacon of hope, dynamism and opportunity and asserted that it could contribute to Asian prosperity and development by being economically strong.
 
"We all want Asia to succeed," he said in his inaugural address at the conference on "Advancing Asia: Investing for the Future" organised here by the Ministry of Finance and the International Monetary Fund (IMF) here.
 
He noted that IMF Managing Director Christine Lagarde had referred to India as the "bright spot" in the global economy and said he viewed this as a great privilege and, at the same time, a major responsibility.
 
Outlining India's achievements in the last few months and its priorities for the period ahead, Mr. Modi said the country had recorded major gains in macro-economic stability. "A durable reduction in inflation, steady fiscal consolidation, a comfortable balance of payments position and build-up of foreign exchange reserves are the highlights," he said.
 
The Prime Minister said that, in a difficult external environment and despite a second successive year of weak rainfall, India had increased its growth rate to 7.6 per cent, the highest among major economies in the world. 
 
"We have improved our economic governance. Corruption and interference in the decisions of banks and regulators are now behind us," he said.
 
He said the Government had undertaken a highly successful financial inclusion programme, bringing over two hundred million unbanked people into the banking system within a span of a few months. Thanks to this, it now had the world’s largest and most successful programme of direct benefit transfers, in cooking gas. The Government planned to extend it to other sectors such as food, kerosene, and fertilizers. This has improved targeting and the quality of public expenditure, he said.
 
Mr. Modi said the Government had opened up nearly all sectors of the economy to foreign direct investment (FDI). He said India achieved the highest ever rank in the World Bank Doing Business indicators and reached an all-time high in many physical indicators in 2015, including the production of coal, electricity, urea, fertilizer and motor vehicles. He said these indicators also included cargo handled at major ports and the fastest turnaround time in ports; and award of new highway kilometers; software export.
 
He said entrepreneurship is booming, following a series of steps we have taken. India is now fourth in the world in the number of technical start-ups, after USA, Britain and Israel. The Economist magazine has called India the new frontier for E-Commerce, he said.
 
Mr. Modi said the Government did not intend to rest on these  achievements because his agenda of “reform-to-transform” still needsed to be finished. 
 
"Our recent budget provides a roadmap for our future plans and ambitions. Our underlying philosophy is clear: To create the climate for wealth generation and for that wealth to be spread to all Indians, especially the poor, vulnerable, farmers, and disadvantaged communities," he said.
 
He said the Government had increased investment in the rural and agriculture sector, because that was where a majority of India still lived. 
 
"But our help to the farmers is not based on giving hand-outs. We aim to double farmer incomes by increasing irrigation, better water management, creating rural assets, boosting productivity, improving marketing, reducing margins of middlemen, and avoiding income shocks. 
 
"We are introducing reforms in agricultural marketing and have launched a major crop insurance programme," he said.
 
Mr. Modi said that, in addition to agriculture, the Government had increased public investment in roads and railways, which would improve the productivity of the economy and the connectivity of  people. Public investment is also essential at a time when private investment remains weak, he said.
 
He said the Government had also made other reforms that would help create wealth and economic opportunity. "Given the enormous entrepreneurial potential in the country, my motto is Start Up India and Stand Up India. The budget has provided a further boost to the ecosystem for start-ups,' he said.
 
He said ensuring employability of the youth was essential for the success of the Government's Make-in-India campaign. 
 
"The Government of India has an ambitious agenda for skilling our labour force. Skill creation of the magnitude that we have envisaged, involves institution building, which we have undertaken. Now, we have a skill development programme that cuts across twenty-nine sectors and with a nation-wide coverage," he said.
 
Mr. Modi also provided details of India's plans to reduce the emission intensity of its GDP by 33 percent between now and 2030.
 
"India has moved from a regime of significant carbon subsidy to one of carbon taxes. India is one of the few countries to have a carbon tax in the form of a cess on coal. The coal cess has been doubled in the Budget of 2016-17," he said.
 
Mr. Modi expressed happiness that the long pending quota revisions agreed in 2010 have finally come into effect in the IMF. 
 
"The quotas of emerging countries will now better reflect their weight in the world economy. This will give them more say in collective decisions in the IMF," he said.
 
"I am sure, the IMF will be able to build on this success. Reform of global institutions has to be an on-going process. It must reflect changes in the global economy, and the rising share of emerging economies. Even now, IMF quotas do not reflect the global economic realities. Change in quotas is not an issue of increasing the ‘power’ of certain countries. It is an issue of fairness and legitimacy. The belief that quotas can be changed, is essential for the fairness of the system. For poor nations to respect the legitimacy of such institutions, they must be able to aspire and to hope. I am, therefore, very happy that the IMF has decided to finalize the next round of quota changes by October 2017," he said.
 
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Mr. Modi stressed that India had always had great faith in multilateralism and that it believe that, as the world became more complex, the role of multilateral institutions would increase.
 
He recalled that India was represented at the Bretton Woods Conference in 1944, which gave birth to the IMF. India’s delegate was Mr. R.K. Shanmukham Chetty, who later became independent India’s first Finance Minister. 
 
"Our ties, therefore, are more than seventy years old. We are a Founding Member of the Asian Infrastructure Investment Bank and the New Development Bank. We are confident that these banks will play an important role in the development of Asia. The Fund has built up an immense stock of economic expertise. All its members should take advantage of this. All of us need to pursue policies that provide a stable macro economy, enhance growth and further inclusion. The Fund can be of great assistance in this," he said.
 
He said that, apart from advice, the IMF could help in building capacity for policy making.
 
"I am happy to announce a new partnership with Bangladesh, Bhutan, Maldives, Nepal, Sri Lanka, India and the IMF. We have agreed to set up the South Asia Regional Training and Technical Assistance Centre. The centre will provide training to government and public sector employees. It will enhance their skills and improve the quality of their policy inputs. It will also provide technical assistance to governments and public institutions," he said.
 
On the theme of the conference, Mr. Modi touched on two issues:  firstly, “Why Asia?” And secondly, “How India”? 
 
"Why is Asia so important, and how can India contribute?" he asked.
 
Mr. Modi pointed out that three out of every five people in the world lived in Asia and its share in global output and trade was now close to one-third. Its share in global foreign direct investment is about forty percent. It has also been one of the world’s most dynamic regions. 
 
"Although Asia has slowed down, it is still growing at a rate three times greater than that of the advanced countries. It is, therefore, the ray of hope for global economic recovery," he said.
 
He said many Asian countries had relied more on developmental financial institutions and banks than on capital markets. This provides an alternative model for the financial sector, he said.
 
"Social stability built on strong family values is another feature of Asia’s development. Asians tend to leave things behind for the next generation," he pointed out.
 
Mr. Modi spoke of India's special place in Asia and underlined that it had dispelled the myth that democracy and rapid economic growth could not go together. 
 
"India has also shown that a large, diverse country can be managed in a way that can promote economic growth and maintain social stability. One way in which we are doing this is through cooperative and competitive federalism. The states and the Centre come together to pursue common objectives. States which pursue good policies and deliver essential services for the poor, induce others to follow. 
 
"Our rapid economic growth is also very distinct in Asia. We have never tried to gain in trade at the expense of our partners. We do not follow 'beggar thy neighbour' macro-economic policies. We have never undervalued our exchange rate. We add to world and Asian demand by running current account deficits. We are therefore good Asian and good global economic citizens, and a source of demand to our trading partners," he said.
 
Mr. Modi listed the various cooperative initiatives taken by India in Asia and dwelt at length on its "Act East Policy".
 
"Our approach to cooperation is based on flexible geometry. We have integrated in different ways and at different speeds with our neighbours in South Asia, our partners in ASEAN, and our partners in Singapore, Japan, and Korea. We intend to continue doing so. 
 
"My dream is of a Transformed India. I lay this dream alongside our common dream of an Advanced Asia – an Asia where more than half of the global population can live with happiness and fulfillment. Our joint heritage and mutual respect, our common goals and similar policies, can and must create sustainable growth and shared prosperity," he added.
 
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RBI cuts repo rate by 25 bps to 7.25%, keeps CRR unchanged at 4%

The Reserve Bank of India on Tuesday reduced its policy repo rate by 25 basis points from 7.5 per cent to 7.25 per cent with immediate effect and kept the cash reserve ratio of scheduled banks unchanged at 4.0 per cent, saying there was a case for a cut in the rate.

 
RBI cuts repo rate by 25 bps to 7.25%
The Reserve Bank of India (RBI) today reduced its policy repo rate by 25 basis points (bps) from 7.5 per cent to 7.25 per cent with immediate effect and kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent, saying there was a case for a cut in the key rate.
 
"With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate today," RBI Governor Raghuram G. Rajan said in his Second Bi-Monthly Monetary Policy Statement 2015-16 here.
 
He also said that banks should pass through the sequence of rate cuts into lending rates.
 
Dr Rajan said the central bank would continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions.
 
It would also continue with overnight/term variable rate repos and reverse repos to smooth liquidity, he said.
 
Consequently, the reverse repo rate under the LAF stood adjusted to 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 8.25 per cent.
 
Dr Rajan noted that banks had started passing through some of the past rate cuts into their lending rates, headline inflation had evolved along the projected path, the impact of unseasonal rains had been moderate so far, administered price increases remained muted, and the timing of normalisation of US monetary policy seemed to have been pushed back. 
 
"With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate today," he said.
 
"Yet, of the risks to inflation identified in April, three still cloud the picture. First, some forecasters, notably the IMD, predict a below-normal southwest monsoon. Astute food management is needed to mitigate possible inflationary effects. 
 
"Second, crude prices have been firming amidst considerable volatility, and geo-political risks are ever present. Third, volatility in the external environment could impact inflation. 
 
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"Therefore, a conservative strategy would be to wait, especially for more certainty on both the monsoon outturn as well as the effects of government responses if it turns out to be weak. With still weak investment and the need to reduce supply constraints over the medium term to stay on the proposed disinflationary path (to 4 per cent in early 2018), however, a more appropriate stance is to front-load a rate cut today and then wait for data that clarify uncertainty," he said.
 
"Assuming reasonable food management, inflation is expected to be pulled down by base effects till August but to start rising thereafter to about 6.0 per cent by January 2016 – slightly higher than the projections in April. Putting more weight on the IMD’s monsoon projections than the more optimistic projections of private forecasters as well as accounting for the possible inflationary effects of the increases in the service tax rate to 14 per cent, the risks to the central trajectory are tilted to the upside," he said.
 
"Reflecting the balance of risks and the downward revision to GVA estimates for 2014-15, the projection for output growth for 2015-16 has been marked down from 7.8 per cent in April to 7.6 per cent with a downward bias to reflect the uncertainties surrounding these various risks," he noted.
 
Dr Rajan said strong food policy and management would be important to help keep inflation and inflationary expectations contained over the near term. 
 
"Furthermore, monetary easing can only create the enabling conditions for a fuller government policy thrust that hinges around a step up in public investment in several areas that can also crowd in private investment. This will be important to relieve supply constraints and aid disinflation over the medium term. A targeted infusion of bank capital into scheduled public sector commercial banks, especially those that implement concerted strategies to clean up stressed assets, is also warranted so that adequate credit flows to the productive sectors as investment picks up," he said.
 
The statement said that, since the first bi-monthly monetary policy statement of 2015-16 issued in April 2015, incoming data suggested that the global recovery was still slow and getting increasingly differentiated across regions. 
 
It said global financial markets had also been volatile, with risk-on risk-off shifts induced by changing perceptions of monetary policies in the advanced economies. Global currency markets continue to be dominated by the strength of the US dollar, with the G3 currencies reflecting the asynchronicity of their monetary policy stances. 
 
The statement noted that, as anticipated, the Central Statistics Office had revised downwards its estimate of India’s gross value added (GVA) at basic prices for 2014-15 by 30 bps from the advance estimates. 
 
"Domestic economic activity remains moderate in Q1 of 2015-16. Agricultural activity was adversely affected by unseasonal rains and hailstorms in north India during March 2015, impinging on an estimated 94 lakh hectares of area sown under the rabi crop. Reflecting this, the third advance estimates of the Ministry of Agriculture indicate a contraction in foodgrains production by more than 5 per cent in relation to the preceding year’s level," it said.
 
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The statement said successive estimates have been pointing to a worsening of the situation, with the damage to crops like pulses and oilseeds – where buffer foodstocks are not available in the central pool – posing an upside risk to food inflation. 
 
It said that, for the kharif season, the outlook is clouded by the first estimates of the India Meteorological Department (IMD), predicting that the southwest monsoon will be 7 per cent below the long period average. This has been exacerbated by the confirmation of the onset of El Nino by the Australian Bureau of Meteorology, it said.
 
"What is clear is that contingency plans for food management, including storage of adequate quantity of seeds and fertilisers for timely supply, crop insurance schemes, credit facilities, timely release of food stocks and the repair of disruptions in food supply chains, including through imports and de-hoarding, need to be in place to manage the impact of low production on inflation. Inflation control will also be helped by limiting the increase in agricultural support prices," it said.
 
The statement said industrial production had been recovering, albeit unevenly. The sustained weakness of consumption spending, especially in rural areas as indicated in the slowdown in sales of two-wheelers and tractors, continued to operate as a drag. Corporate sales have contracted. 
 
"The disappointing earnings performance could have been worse if not for the decline in input costs. Capacity utilisation has been falling in several industries, indicative of the slack in the economy. While an upturn in capital goods production seems underway, clear evidence of a revival in investment demand will need to build on the tentative indications of unclogging of stalled investment projects, stabilising of private new investment intentions and improving sales of commercial vehicles," it said.
 
The statement said that, in April, output from core industries constituting 38 per cent of the index of industrial production declined across the board, barring coal production. 
 
"The sustained revival of coal output augurs well for electricity generation and mining and quarrying, going forward. There is some optimism on gas pricing and availability. The resolution of power purchase processes has to be expedited and power distribution companies’ financial stress has to be addressed on a priority basis. Some public sector banks will need more capital to clean up their balance sheets and support lending as investment revives," it said.
 
The RBI said leading indicators of services sector activity were emitting mixed signals. 
 
"A pick-up in service tax collections, sales of trucks, railway freight, domestic air passenger and air freight traffic could augur well for transport and communication and trade. On the other hand, the slowdown in tourist arrivals, railway traffic and international air passenger and freight traffic could affect hotels, restaurants and some constituents of transportation services adversely. The services PMI declined in April 2015, mainly on account of slowdown in new business orders. Community and personal services are likely to be held back by the ongoing fiscal consolidation," it said.
 
In April, retail inflation measured by the consumer price index (CPI) decelerated for the second month in a row, supported by favourable base effects [of about (-) 0.8 per cent] that moderated the rise in the price index for the fourth successive month. 
 
"Food inflation softened to a contra-seasonal four-month low, with the impact of unseasonal rains yet to show up. Vegetables inflation continued to ease, along with that of other sub-groups such as cereals, oil, sugar and spices. On the other hand, protein items, especially milk and pulses, continued to impart upward inflationary pressures," it said.
 
It also said fuel inflation rose for the fourth successive month to a twelve-month high, driven by prices of electricity and firewood. 
 
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"Inflation in these components was accentuated by base effects – the recent price uptick coming on top of muted increases a year ago. Inflation excluding food and fuel rose marginally. House rent, education, medical and transport expenses were among the major drivers of inflation in this category. Rural wage growth, although still moderate, picked up. Inflation expectations remain in high single digits, although they may adapt further to current low inflation. Yet, both input and output price pressures remain muted as reflected in the Reserve Bank’s industrial outlook survey," it said.
 
The statement said merchandise export growth had weakened steadily since July 2014 and entered into contraction from January 2015 through April, with a recent shrinking of even volumes exported. 
 
"The deterioration in export performance affected economies across Asia as global demand fell and the fall in commodity prices impacted terms of trade for commodity exporters. From December 2014 onwards, merchandise import growth also turned negative, led by a sharp decline in the volume of oil imports as inventory build-up by refineries subsided. 
 
"Gold imports spiked in the month of March and remained elevated in April owing to festival demand and regulatory relaxations. Notably, the volume of imports has been recording increases, despite the value decline. Given these developments, the reduction in the current account deficit resulting from the sharp decline in oil prices has begun to reverse, though the size of the deficit is expected to be contained to about 1.5 per cent of GDP this year. 
 
"Net exports are, therefore, unlikely to contribute as much to growth going forward as they did in the past financial year. Consequently growth will depend more on a strengthening of domestic final demand. While portfolio and direct foreign investment flows were buoyant during 2014-15, with net foreign direct investment to India at US$ 36.6 billion and net portfolio inflows at US$ 41 billion, the year 2015-16 has begun with net portfolio outflows in the wake of a reduction in global portfolio allocations to India. Foreign exchange reserves are around US$ 350 billion, providing a strong second line of defence to good macroeconomic policies if external markets turn significantly volatile," the statement added.
 
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Modi urges RBI to set targets for financial inclusion for banks, FIs

Prime Minister Narendra Modi on Thursday urged the Reserve Bank of India to take the lead in encouraging financial institutions to set concrete targets for financial inclusion over the next 20 years, to help transform the quality of life of the poor.

Prime Minister Narendra Modi addressing the Financial Inclusion Conference organised by the Reserve Bank of India, in Mumbai on April 2, 2015.
Prime Minister Narendra Modi addressing the Financial Inclusion Conference organised by the Reserve Bank of India, in Mumbai on April 2, 2015.
Prime Minister Narendra Modi today urged the Reserve Bank of India (RBI) to take the lead in encouraging financial institutions to set concrete targets for financial inclusion over the next 20 years, to help transform the quality of life of the poor. 
 
"I come as a representative of the poor, underprivileged, marginalized and tribals; I am one among them; I seek on their behalf and trust you will not disappoint me," he said at the RBI Conference on Financial Inclusion here, which also marked the completion of 80 years of the central bank.
 
Mr Modi encouraged RBI to set goals on intermediate targets: of 2019, when the country will celebrate the 150th birth anniversary of Mahatma Gandhi; 2022, 75 years of independence; 2025, 90 years of RBI, and 2035, 100 years of RBI. 
 
He said the success of the Pradhan Mantri Jan Dhan Yojana (PMJDY) and the Direct Benefit Transfer of LPG subsidy (DBTL), had shown the potential of the enormous role that the banking sector can play in ensuring financial inclusion. 
 
Calling for making financial inclusion a "habit", Mr Modi asked banks to take inspiration from the success of women self-help groups. He asked banks to keep in mind the requirement of youth who needed either knowledge or skills. He also gave the example of the soon-to-be-launched Micro Units Development Refinance Agency (MUDRA) Bank in this regard and urged banks to come up with creative financial inclusion instruments to help prevent farmer suicides. 
 
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The Prime Minister said that, along with economic and social parameters, there was need to think of a geographical parameter as well for financial inclusion. He said eastern India had immense economic potential, and the banking sector should recognize and plan for this. 
 
Appreciating the role played by RBI over the last 80 years, the Prime Minister complimented the RBI Governor Raghuram Rajan for his grasp and clarity on economic issues. 
 
As part of the Make in India initiative, the Prime Minister urged RBI to take the lead in ensuring that India starts to manufacture the paper and ink that are used to print currency notes. 
 
Apart from Dr Rajan, Maharashtra Governor C. Vidyasagar Rao, Chief Minister Devendra Fadnavis and Union Finance Minister Arun Jaitley were amongst those present on the occasion.
 
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RBI cuts repo rate by 25 bps to 7.5%, keeps CRR unchanged at 4%

Acting for the second time within two months outside the policy review cycle, the Reserve Bank of India on Wednesday, in a surprise move, reduced the key policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.75 per cent to 7.5 per cent with immediate effect.

 
Acting for the second time within two months outside the policy review cycle, the Reserve Bank of India (RBI) today, in a surprise move, reduced the key policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points (bps) from 7.75 per cent to 7.5 per cent with immediate effect.
 
RBI Governor Raghuram Rajan said in a statement on monetary policy that the central bank had also decided to keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL).
 
He said the RBI would continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions.
 
He said it would continue with daily variable rate repos and reverse repos to smooth liquidity.
 
Consequently, the reverse repo rate under the LAF stood adjusted to 6.5 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 8.5 per cent with immediate effect, he said.
 
The RBI had, on January 15 this year, reduced the repo rate by 25 basis points to 7.75 per cent, stating then that the momentum of inflation had significantly reduced.
 
However, in its Sixth Bi-Monthly Monetary Policy Statement 2014-15 on February 3, the RBI decided to keep the repo rate unchanged at 7.75 per cent, saying there had been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15.
 
Today's decision has come just four days after Finance Minister Arun Jaitley presented his General Budget for 2015-16 to Parliament on February 28.
 
On February 20, the Central Government and the Reserve Bank of India (RBI) had signed a landmark agreement on Monetary Policy Framework under which the RBI will aim to bring inflation below 6 per cent by January 2016.
 
The target for financial year 2016-17 and all subsequent years shall be 4 per cent, with a band of +/- 2 per cent.
 
The agreement, made public on March 2, is a shift towards inflation targeting that Dr Rajan had been advocating for some time.
 
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Dr Rajan said in his statement today that the need to act outside the policy review cycle was prompted by two factors.
 
"First, while the next bi-monthly policy statement will be issued on April 7, 2015 the still weak state of certain sectors of the economy as well as the global trend towards easing suggests that any policy action should be anticipatory once sufficient data support the policy stance. Second, with the release of the agreement on the monetary policy framework, it is appropriate for the Reserve Bank to offer guidance on how it will implement the mandate," he said.
 
He said that, going forward, the RBI would seek to bring the inflation rate to the mid-point of the band of 4 +/- 2 per cent provided for in the agreement with the Governmnt, that is, to 4 per cent by the end of a two-year period starting fiscal year 2016-17.
 
He said the guidance on policy action given in the fifth-bi-monthly monetary policy statement of December 2014 was largely unchanged. 
 
"Further monetary actions will be conditioned by incoming data, especially on the easing of supply constraints, improved availability of key inputs such as power, land, minerals and infrastructure, continuing progress on high-quality fiscal consolidation, the pass through of past rate cuts into lending rates, the monsoon outturn and developments in the international environment," he said.
 
Dr Rajan recalled that, in its statement on monetary policy of January 15, 2015, the RBI had reduced the policy repo rate by 25 basis points and indicated that “Key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation…”.
 
"While maintaining the interest rate stance in its sixth bi-monthly monetary policy statement of February 3 in the absence of new developments on inflation or on the fiscal outlook till then, the Reserve Bank indicated that it will keenly monitor the revision in the consumer price index (CPI) with regard to the path of inflation in 2015-16 as well as the Union Budget for 2015-16," he said.
 
The statement said the new CPI, rebased to 2012, was released on February 12. Inflation in January 2015 at 5.1 per cent as measured by the new index was well within the target of 8 per cent for January 2015. 
 
"Prices of vegetables declined and, hearteningly, inflation excluding food and fuel moderated in a broad-based manner to a new low. Thus, disinflation is evolving along the path set out by the Reserve Bank in January 2014 and, in fact, at a faster pace than earlier envisaged," it said.
 
"The uncertainties surrounding any inflation projection are, however, not insignificant. Oil prices have firmed up in recent weeks, and significant further strengthening, perhaps as a result of unanticipated geo-political events, will alter the inflation outlook. Other international commodity prices are expected to remain benign, given still-sluggish global demand conditions. Food prices will be affected by the seasonal upturn that typically occurs ahead of the south-west monsoon and, therefore, steps the government takes on food management will be critical in determining the inflation outlook. Finally, the possible spill over of volatility from international financial markets through exchange rate and asset prices channels is also still a significant risk," it said.
 
The RBI said that, perhaps, the most significant influences on near-term inflation would be the strength of aggregate demand relative to available capacity. Two recent developments pertaining to the demand-supply balance are the recently-released GDP estimates and the Union Budget for 2015-16.
 
"The Central Statistical Organisation is to be commended on the changes it has made to the methodology of estimating GDP, bringing India up to international best practice. Yet the picture it presents of a robust economy, with growth having picked up significantly over the last three years, is at odds with still-low direct measures of growth of production, credit, imports and capacity utilisation as well as with anecdotal evidence on the state of the economic cycle. Nevertheless, the picture of a steadily recovering economy appears right," Dr Rajan said.
 
"The fiscal impulses in the Union Budget then assume importance. There are many important and valuable structural reforms embedded in this Budget, which will help improve supply over the medium term. In the short run, however, the postponement of fiscal consolidation to the 3 per cent target by one year will add to aggregate demand. At a time of accelerating economic recovery, this is, prima facie, a source for concern from the standpoint of aggregate demand management, especially with large borrowings intended for public sector enterprises," he said.
 
"Some factors mitigate the concern. The government has emphasized its desire to clean up legacy issues which gave a misleading picture of the true extent of fiscal rectitude, and has also moderated the optimism in its projections. To this extent, the true quantum of fiscal consolidation may be higher than in the headline numbers. Also, the government is transferring a significantly larger amount to the states, without entirely devolving responsibility for funding central programmes. To the extent that state budget deficits narrow, the general fiscal deficit will be lower. 
 
"Furthermore, supported by lower international energy prices, there is a welcome intent to shift from spending on subsidies to spending on infrastructure, and to better target and further reduce subsidies through direct transfers. Finally, the central government has signed a memorandum with the Reserve Bank setting out clear inflation objectives for the latter. This makes explicit what was implicit before – that the government and the Reserve Bank have common objectives and that fiscal and monetary policy will work in a complementary way. In sum, then, the government intends to compensate for the delay in fiscal consolidation with a commitment to an improvement in the quality of adjustment," he said.
 
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Dr Rajan noted that all these mitigating factors had a fair component of intent. The realised net fiscal impulse will depend on both central and state government actions going forward, he said.
 
"Finally, the rupee has remained strong relative to peer countries. While an excessively strong rupee is undesirable, it too creates disinflationary impulses. It bears repeating here that the Reserve Bank does not target a level for the exchange rate, nor does it have an overall target for foreign exchange reserves. It does intervene on occasion, in both directions, to reduce avoidable volatility in the exchange rate. Any reserve build-up is a residual consequence of such actions rather than a direct objective," he said.
 
The RBI said that softer readings on inflation are expected to come in through the first half of 2015-16 before firming up to below 6 per cent in the second half. 
 
"The fiscal consolidation programme, while delayed, may compensate in quality, especially if state governments are cooperative. Given low capacity utilisation and still-weak indicators of production and credit off-take, it is appropriate for the Reserve Bank to be pre-emptive in its policy action to utilise available space for monetary accommodation," it added.
 
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Govt., RBI sign agreement on Monetary Policy Framework in shift to inflation targeting

The Central Government and the Reserve Bank of India have signed a landmark agreement on Monetary Policy Framework under which the RBI will aim to bring inflation below 6 per cent by January 2016.

The Central Government and the Reserve Bank of India (RBI) have signed a landmark agreement on Monetary Policy Framework under which the RBI will aim to bring inflation below 6 per cent by January 2016.
 
The target for financial year 2016-17 and all subsequent years shall be 4 per cent, with a band of +/- 2 per cent.
 
The agreeent, signed on February 20 and made public yesterday, is a shift towards inflation targeting that RBI Governor Raghuram Rajan has been advocating for some time.
 
Signed by Dr Rajan and Finance Secretary Rajiv Mehrishi, the agreement stressed it was essential to have a monetary police framework to meet the challenge of an increasingly complex economy.
 
"The objective of monetary policy is to primarily maintain price stability, while keeping in mind the objective of growth," it said.
 
The agreement said the monetary policy framework shall be operated by the RBI. The Governor, and in his absence the Deputy Governor in charge of monetary policy, shall determine the Policy Rate, as well as any other monetary measures, to achieve the target.
 
The Reserve Bank shall publish the operating target(s) and establish an Operating Procedure of Monetary Policy through which the Operating Target will be achieved. Any change in the operating target(s) and the operating procedure  in response to evolving macro-financial conditions shall also be published.
 
Once every six months, the Reserve Bank shall publish a document explaining the souces of inflation and forecasts of inflation for the period between six to 18 months from the date of the  publication of the document.
 
According to the agreement, the RBI shall be seen to have failed to meet the target if inflation is more than 6 per cent for three consecutive quarters for the financial 2015-16 and all subsequent years or less than 2 per cent for three consecutive quarters in 2016-17 and all subsequent years.
 
If the Reserve Bank fails to meet the target it shall set out in a report to the Central Government the reasons for its failure to achieve the target, the remedial actions proposed to be taken by it, and an estimate of the time period within which the target would be achieved pursuant to timely implementation of proposed remedial actions.
 
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Personal tax rates unchanged, wealth tax abolished, corporate tax to come down to 25%

Finance Minister Arun Jaitley kept personal income tax rates unchanged while offering individual tax payers several concessions, proposed to reduce corporate tax from 30% to 25% over the next four years and abolished wealth tax in his General Budget for 2015-16 presented to the Lok Sabha on Saturday.

Union Minister for Finance Arun Jaitley arriving at Parliament House to present the General Budget 2015-16, in New Delhi on February 28, 2015.
Union Minister for Finance Arun Jaitley arriving at Parliament House to present the General Budget 2015-16, in New Delhi on February 28, 2015.
Finance Minister Arun Jaitley kept personal income tax rates unchanged while offering individual tax payers several concessions, proposed to reduce corporate tax from 30% to 25% over the next four years beginning next year and abolished wealth tax in his General Budget for 2015-16 presented to the Lok Sabha today.
 
Mr Jaitley also proposed several measures aimed at fostering "cooperative federalism", empowering the States and meeting five major challenges faced by the economy: agricultural income under stress, weak private sector investment in infrastructure, decline in manufacturing, resource crunch in view of higher devolution in taxes to states and maintaining fiscal discipline.
 
He declared that the fight against the scourge of black money would continue and announced that a new law would be put in place to tackle the evil. 
 
He also said taxation was an instrument of social and economic engineering and listed steps aimed at fostering a stable taxation policy and non-adversarial tax administration.
 
Mr Jaitley said the Goods and Services Tax (GST) introduced in the last session of Parliament would play a transformative role in the way the economy functioned and felt this transformative piece of legislation in indirect taxation needed to be matched with transformative measures in direct taxation.  
 
In this regard, he proposed the reduction in corporate tax from 30% to 25% over the next four years and said this would lead to higher level of investment, higher growth and more jobs. 
 
He said the broad principles adopted in finalizing the tax proposals included measures to curb black money; job creation through revival of growth and investment and promotion of domestic manufacturing and ‘Make in India’; minimum government and maximum governance to improve the ease of doing business; benefits to middle class taxpayers; improving the quality of life and public health through Swachch Bharat initiatives; and stand alone proposals to maximize benefits to the economy.
 
He said the proposed new law on black money would specifically deal with illegal wealth stashed abroad and that the Bill in this regard would be introduced in the current session of Parliament.
 
The key features of the Bill will include punishment of rigorous imprisonment upto ten years for concealment of income and assets and evasion of tax in relation to foreign assets.  This offence will be made non-compoundable and offenders will not be permitted to approach the Settlement Commission.  Penalty for such concealment of income and assets at the rate of 300 per cent of tax shall be levied.  Non-filing of return or filing of return with inadequate disclosure of foreign assets will be punishable with rigorous imprisonment up to seven years, he said.
 
Mr Jaitley said that, to curb domestic black money, a new and more comprehensive Benami Transactions (Prohibition) Bill would be introduced in the current session of Parliament.  He said this law would enable confiscation of benami property and provide for prosecution, thus, blocking a major avenue for generation and holding of black money in the form of benami property, especially in real estate.  
 
Quoting of PAN will be made mandatory for any purchase or sale exceeding the value of Rs.1 lakh.  To improve enforcement, the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) would leverage technology and have access to information in each other’s data-base, he said.
 
He said job creation would be encouraged through revival of growth and investment and promotion of domestic manufacturing and "Make in India".
 
The tax "pass through" is proposed to be allowed to both Category-1 and Category-2 alternative investment fund so that tax is levied on the investors in these funds and not on the funds per se. 
 
To rationalize the capital gain regime for the sponsors  exiting at the time of listing of the units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) subject to payment of Securities Transaction Tax (STT) is proposed, he said. 
 
He said the Permanent Establishment (PE) norm will be modified to encourage fund managers to relocate to India. 
 
He said the General Anti Avoidance Rule (GAAR) would be deferred by two years. It will apply to investments made on or after 01-04-2017, when implemented.  
 
 
Corporate tax to be cut to 25% in four years:Budget
In order to facilitate young entrepreneurs, the rate of income tax on royalty and fees for technical services will be reduced from 25 per cent to 10 per cent. To generate greater employment opportunities the benefit of deduction for employment of new regular workman to all business entities will be extended. The eligibility threshold of minimum 100 regular workmen will be reduced to 50.
 
Recognizing the importance of indirect taxes in the context of promotion of domestic manufacturing and Make in India, the Finance Minister said basic custom duty on certain inputs, raw materials, intermediates and components in 22 items was proposed to be reduced to minimize the impact of duty evasion. All goods, except populated printed circuit boards for use in manufacture of ITA bound items are proposed to be exempted from SAD.  Subject to actual user condition, SAD will be reduced on import of certain other imports and raw materials. 
 
Mr Jaitley the wealth tax would be replaced with an additional surcharge of 2 per cent on the "super rich" with taxable income of more than Rs 1 crore. This is expected to yield Rs 9000 crore against the Rs 1008 crore generated currently by wealth tax.
 
To eliminate the scope for discretionary exercise of power and provide a hassle-free structure to the tax payers, he proposed to increase the threshold limit for domestic transfer pricing from Rs.5 crore to Rs. 20 crore.
 
In order to rationalize the minimum advance tax (MAT) provisions for foreign institutional investors (FIIs), profits corresponding to their income from capital gains on transactions in securities which are liable to tax at a lower rate, shall not be subject to MAT, he said.
 
The education cess and the secondary and higher education cess is proposed to be subsumed in central excise duty.  The general rate of central excise duty of 12.36 per cent, including the cesses will be rounded off to 12.5 per cent.  
 
The ad-valorem rates of excise duty lower than 12 per cent and those higher than 12 per cent with a few exceptions are not proposed to be increased. Excise duty on footwears with leather uppers and having retail price of more than Rs.1,000 per pair is proposed to be reduced to 6 per cent.  
 
Mr Jaitley said online central excise and service tax registration will be done in two working days.  As a measure of business facilitation, the time limit for CENVAT credit on inputs and input services will be increased from 6 months to one year.  Service tax plus education cess is proposed to be increased from 12.36 per cent to 14 per cent to facilitate transaction to GST. 
 
He proposed 100 percent deduction for contributions made, other than by way of corporate social responsibility (CSR) contributions, to the Swachh Bharat Kosh. Similar tax treatment has been proposed for the Clean Ganga Fund.
 
He proposed an increase in clean energy cess from Rs.100 to Rs.200 per metric tonne of coal, etc. to finance clean environment initiatives.   
 
He said excise duty on sacks and bags of polymers of ethylene other than for industrial use is proposed to be increased from 12 per cent to 15 per cent.  He also mentioned an enabling provision to levy Swachh Bharat Cess at the rate of 2 per cent or less on all or certain services, if the need arises. 
 
Mr Jaitley said that services by common effluent treatment plant will be exempt from service tax.  He also proposed the extension of concessions on customs and excise duty available to electrically operated vehicles and hybrid vehicles upto 31-03-2016.
 
He proposed no change in the rate of personal income tax and rate of tax for companies in respect of income earned in the finance year 2015-16, assessable in Assessment Year 2016-17. 
 
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Mr Jaitley proposed to levy a surcharge @ 12 per cent on individuals, HUFs, AOPs, BOIs, artificial juridical persons, firms, cooperative societies and local authorities having income exceeding Rs.1 crore.  
 
Surcharge in the case of domestic companies having income exceeding Rs.1 crore and up to Rs.10 Crore is proposed to be levied @ 7 per cent and surcharge @ 12 per cent is proposed to be levied on domestic companies having income exceeding Rs.10 crore.
 
He  proposed that in the case of foreign companies the surcharge will continue to be levied @ 2 per cent if the income exceeds Rs.1 crore and is up to Rs. 10 Crore, and @ 5 per cent if the income exceeds Rs.10 crore.
 
He also proposed to levy a surcharge @ 12 per cent as against current rate of 10 per cent on additional income tax payable by companies on distribution of dividends and buyback of shares, or by mutual funds and securitization trusts on distribution of income.
 
The education cess on income tax @ 2 per cent for fulfilment of the commitment of the Government to provide and finance universalized quality based education and 1 per cent of additional surcharge called ‘Secondary and Higher Education Cess’ on tax and surcharge is proposed to be continued for the financial year 2015-16 for all taxpayers, he said.
 
Describing the extension of benefits to middle class tax payers as the priority of the government, Mr Jaitley proposed the following concessions for them:
 
A.     Increase in the limit of deduction in respect of health insurance premium from Rs.15,000 to Rs.25,000.
(1)   For senior citizens the limit will stand increased to Rs.30,000 from the existing Rs.20,000.
(2)   For very senior citizens of the age of 80 years or more, who are not covered by health insurance, deduction of Rs.30,000 towards expenditure incurred on the treatment will allowed.
 
B.     The deduction limit of Rs.60,000 towards expenditure on account of specified diseases of serious nature is proposed to be enhanced to Rs.80,000 in case of very senior citizens.
 
C.     Additional deduction of Rs.25,000 will be allowed for differently abled persons under Section 80DD and Section 80U of the Income Tax Act.
 
D.     The limit on deduction on account of contribution to a pension fund and the New Pension Scheme is proposed to be increased from Rs.1 lakh to Rs.1.5 lakh.
 
E.      To provide social safety net and the facility of pension to individuals and additional deduction of Rs. 50,000 is proposed to be provided for contribution to the New Pension Scheme under Section 80 CCD.  This will enable India to become a pensioned society instead of a pensionless society.
 
F.      Investments in Sukanya Samriddhi Scheme are already eligible for deduction under Section 80C.  All payments to the beneficiaries including interest payment on deposit will also be fully exempt.
 
G.     Transport allowance exemption is being increased from Rs. 800 to Rs. 1,600 per month.
 
H.     For the benefit of senior citizens, service tax exemption will be provided on Varishta Bima Yojana.
 
Mr Jaitley said these concessions had been given to individual taxpayers despite inadequae fiscal space.
 
"After taking into account the tax concession given to middle class tax payers in my last Budget and this Budget, today an individual tax payer will get tax benefit of Rs 4,44,200. As and when my fiscal capacity improves, individual taxpayers will have a lot to look forward to," he said.
 
Other taxation proposals include conversion of existing excise duty on petrol and diesel to the extent of Rs 4 per litre into Road Cess to fund investment in roads and other infrastructure.  An additional sum of Rs 40,000 crore will be made available through this measure for these sectors. 
 
In service tax, exemption is being extended to certain pre- cold storage services in relation to fruits and vegetables so as to incentivise value addition in this crucial sector.  The Negative List under service tax is being slightly pruned and certain other exemptions are being withdrawn to widen the tax base. 
 
Yoga wil be included within the ambit of charitable purpose under Section 2(15) of the Income-tax Act.  
 
Further, to mitigate the problem being faced by many genuine charitable institutions, the Budget proposed to modify the ceiling on receipts from activities in the nature of trade, commerce or business to 20% of the total receipts from the existing ceiling of Rs25 lakh.  A national database of non profit organisations is also being developed, he said.
 
Mr Jaitley said most of the provisions of the proposed Direct Taxes Code (DTC) had already been included in the Income-tax Act.  Among the very few aspects of DTC which were left out, some issues had been addressed in today's Budget.
 
"Further, the jurisprudence under the Income-tax Act is well evolved. Considering all these aspects, there is no great merit in going ahead with the Direct Tax Code as it exists today," he said.
 
Mr Jaitley said his direct tax proposals would result in revenue loss of Rs 8,315 crore, whereas the proposals in indirect taxes are expected to yield Rs 23,383 crore.  Thus, the net impact of all tax proposals would be a revenue gain of Rs15,068 crore, he said.
 
Mr Jaitley began his Budget Speech by saying that the economy had turned aorund dramatically in the last nine months, since the Narendra Modi took over on May 26, 2014, with the real gross domestic product (GDP) growth expected to accelerate to 7.4 per cent, making India the fastest growing large economy in the world.
 
He said macro-economic stability had been restored and conditions had been created for sustainable poverty elimination, job creation and durable double digit economic growth.
 
He listed the Jan Dhan Yojana, which brought over 12.5 crore families into the financial mainstream in just 100 days, transparent coal block auctions to augment resources of the States and ‘Swachh Bharat’, the cleanliness mission, as the key achievements of the government.
 
He said India had now embarked on two more game-changing reforms -- the GST and the JAM Trinity - Jan Dhan, Aadhar and Mobile -- to implement direct transfer of benefits. 
 
He said GST would put in place a state-of-the art indirect tax system by 1st April 2016 while the JAM Trinity would allow transfer benefits in a leakage-proof, targetted and cashless manner.
 
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Mr Jaitley said the declining inflation rate was one of the major achievements of the Government and said this represented a structural shift. He said consumer price index (CPI) inflation was expected to remain at close to 5% by the end of the year, which would allow further easing of monetary policy. 
 
He said a Monetary Policy Framework Agreement had been concluded with the Reserve Bank of India (RBI) to keep inflation below 6%.
 
He said that, based on the new series, the estimated GDP growth for 2014-15 is 7.4%, which is expected to go up to between 8 and 8.5 per cent in the next financial year, making double-digit growth seem feasible very soon.
 
He mentioned the Government's plan for Housing for All by 2022, and said this would require the construction of two crore houses in urban areas and four crore in rural areas. He said the vision included power supply for each house and means of livelihood for at least one member of each family, substantial reduction in poverty, electrification of the remaining 20,000 villages, including off-grid solar power by 2020, connecting each of the 1,78,000 unconnected habitation, providing medical services in each village and city, and ensuring a Senior Secondary School within 5 km of every child.
 
He said this also involved strengthening rural economy, increasing irrigated area, ensuring communication connectivity to all villages, to make India, the manufacturing hub of the world through Skill India and the Make in India Programmes, encouraging and growing the spirit of entrepreneurship and development of Eastern and North Eastern regions on par with the rest of the country.
 
Mr Jaitley assured the House that the country would meet the challenging fiscal deficit target of 4.1% of GDP set by the previous government. He said the Government was firm on achieving a fiscal deficit target of 3% within three years.
 
He stressed the need for a well targeted system of subsidy delivery and reduction in leakages. He said the Government was committed to the rationalization of subsidies. He said the direct transfer of benefits (DBT), started mostly in scholarship schemes, would be further expanded to increase the number of beneficiaries from the present 1 crore to 10.3 crore.
 
He proposed to fully support the Agriculture Ministry’s organic farming scheme – “Paramparagat Krishi Vikas Yojana”. He also proposed an allocation of Rs 5,300 crore for the Pradhan Mantri Gram Sinchai Yojana, an irrigation scheme.
 
In order to support the agriculture sector with the help of effective agriculture credit and focus on small and marginal farmers, he proposed to allocate Rs. 25,000 crore to the corpus of the Rural Infrastructure Development fund (RIDF) set up in NABARD, Rs. 15,000 crore for Long Term Rural Credit Fund; Rs. 45,000 crore for Short Term Cooperative Rural Credit Refinance Fund; and Rs. 15,000 crore for Short Term RRB Refinance Fund. 
 
He said that the Government had set an ambitious target of Rs. 8.5 lakh crore of agricultural credit. Stating the Government’s commitment to supporting employment through the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA), he proposed an initial allocation of Rs. 34,699 crore for the programme.
 
Mr Jaitley proposed to create a Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs. 20,000 crore, and credit guarantee corpus of 3,000 crore, which will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana,. He added that priority would be given to Scheduled Castes (SC) and Scheduled Tribes (ST) enterprises in lending.
 
Expressing concern over the large proportion of India’s population that is without any kind of insurance, he said that the soon-to-be- launched Pradhan Mantri Suraksha Bima Yojana would cover accidental death risk of Rs. 2 lakh for a premium of just Rs. 12 per year. 
 
Similarly, the Government will launch the Atal Pension Yojana, which will provide a defined pension, depending on the contribution, and its period. To encourage people to join this scheme, the Government will contribute 50% of the beneficiaries’ premium limited to Rs. 1,000 each year, for five years, in the new accounts opened before 31st December, 2015. 
 
He also announced the Pradhan Mantri Jeevan Jyoti Bima Yojana which covers both natural and accidental death risk of Rs. 2 lakhs. The premium will be Rs. 330 per year, or less than one rupee per day, for the age group 18-50, he said.
 
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Referring to the unclaimed deposits of about Rs. 3,000 crore in the Public Provident Fund (PPF) and approximately Rs. 6,000 crore in the Employees Provident Fund (EPF) corpus, the Minister said that the amounts would be appropriated to a corpus, which will be used to subsidize the premia on these social security schemes through creation of a Senior Citizen Welfare fund in the Finance Bill. 
 
He reiterated the Government’s commitment to the ongoing schemes for the welfare of SCs, STs and women.
 
Underlining the need to increase public investment in infrastructure, Mr Jaitley proposed increased outlays for roads and the gross budgetary support to the railways, by Rs. 14,031 crore and Rs. 10,050 crore, respectively. 
 
He said the capital expenditure of the public sector undertakings (PSUs) was expected to be Rs. 3,17,889 crore, an increase of approximately Rs. 80,844 crore over the Revised Estimates (RE) 2014-15. 
 
He also proposed to establish a National Investment and Infrastructure Fund (NIIF) with an annual flow of Rs. 20,000 crore.  
 
He said that he also intended to permit tax free infrastructure bonds for the projects in the rail, road and irrigation sector. He said the public private partnership (PPP) mode of infrastructure development had to be revisited and revitalized.
 
Mr Jaitley proposed to establish the Atal Innovation Mission (AIM) in the NITI Aayog, which will provide an Innovation Promotion Platform involving academiciansand draw upon national and international experiences. A sum of Rs. 150 crore is proposed to be earmarked for the mission.
 
He said the Government establishing a mechanism, to be known as SETU (Self-Employment and Talent Utilisation), which will support all aspects of start-up businesses, and other self-employment activities, particularly in technology-driven areas. An amount of Rs. 1,000 crore has been initially earmarked in NITI Aayog, the body which has replaced the Planning Commission, for the purpose.
 
Mr Jaitley said the Government also proposed to set up five new Ultra Mega Power Projects (UMPPs), each of 4000 MW, in the plug-and-play mode.
 
To promote investment in the country, he proposed to set up a Public Debt Management Agency (PDMA) which will bring both India’s external borrowings and domestic debt under one roof. 
 
He also proposed to merge the Forwards Markets Commission with the Securities and Exchange Board of India (SEBI) to strengthen regulation of commodity forward markets and reduce wild speculation. He said enabling legislation, amending the Government Securities Act and the RBI Act was proposed in the Finance Bill, 2015.
 
Regarding the Employees Provident Fund (EPF), the Minister said the employees need to be provided two options, EPF or the New Pension Scheme (NPS). He said, for employees below a certain threshold of monthly income, contribution to EPF should be optional, without affecting or reducing the employer’s contribution.
 
Noting that India is one of the largest consumers of gold in the world, Mr Jaitley proposed to introduce a Gold Monetisation Scheme, which will replace both the present Gold Deposit and Gold Metal Loan Schemes. The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account.  Banks/other dealers would also be able to monetize this gold. He also proposed a Sovereign Gold Bond, as an alternative to purchasing metal gold. 
 
He also announced commencement of work on developing Indian Gold Coin, which will carry the Ashok Chakra on its face.
 
Highlighting need for increasing investments from all sources, the Finance Minister proposed to allow foreign investments in Alternate Investment Funds. He said that, in order to catalyze investments from the Indian private sector  in South East Asia, a Project Development Company will set up manufacturing hubs  in Cambodia, Myanmar, Laos and Vietnam.
 
In order to support programmes for women's security, advocacy and awareness, the Minister proposed to provide another Rs. 1,000 crore to the Nirbhaya Fund.
 
He said resources would be provided to start work on landscape restoration, signage and interpretation centres, parking, access for the differently abled, visitors’ amenities, including security and toilets, illumination and plans for benefiting communities around them at various heritage sites in the country.
 
Expressing concern over environmental degradation, Mr Jaitley said that the target of renewable energy capacity had been revised to 1,75,000 MW till 2022. He said the Government was also launching a scheme for Faster Adoption and manufacturing of Electric Vehicles (FAME) with an initial outlay of Rs. 75 crore.
 
He said the Government would soon launch a National Skills Mission which will consolidate skill initiatives spread across several Ministries. He said Rs. 1,500 crore has been set apart for the Deen Dayal Upadhyay Gramin Kaushal Yojana, a skills programme for rural youth.
 
He proposed to set up a fully IT based Student Financial Aid Authority to administer and monitor scholarships and educational loan schemes, through the Pradhan Mantri Vidya Lakshmi Karyakram.
 
Mr Jaitley said a new Indian Institute of Technology (IIT) would be set up in Karnataka and the Indian School of Mines, Dhanbad would be upgraded into a full-fledged IIT.
 
New All India Institutes of Medical Sciences (AIIMS) will be set up in Jammu & Kashmir (J&K), Punjab, Tamil Nadu, Himachal Pradesh and Assam. Another AIIMS-like institution will be set up in Bihar.
 
A Post-Graduate Institute of Horticulture Research & Education will be set up in Amritsar, Punjab, three new National Institutes of Pharmaceutical Education and Research (NIPERs) will be set up in Maharashtra, Rajasthan and Chattisgarh and one Institute of Science and Education Research will be set up in Nagaland and Odisha each. 
 
Two Indian Institutes of Management (IIMs) will be set up in J&K and Andhra Pradesh, he said.
 
Mr Jaitley said the National Optical Fibre Network Programme (NOFNP) of 7.5 lakh kms networking 2.5 lakh villages would be  further speeded up by allowing willing States to undertake its execution.
 
He said that, inspite of the large increase in the devolution to states, adequate provision was being made for the schemes for the poor with allocation of Rs. 68,968 crore to the education sector including mid-day meals, Rs. 33,152 crore to the health sector and Rs. 79,526 crore for rural development activities including MGNREGA, Rs. 22,407 crore for housing and urban development, Rs. 10,351 crore for women and child development, and Rs. 4,173 crore for Water Resources and Namami Gange. 
 
The Minister said that adequate funds had been provided for the needs of the armed forces. As against likely expenditure in this year of Rs. 2,22,370 crore, the budget allocation for 2015-16 is Rs. 2,46,727 crore, he said.
 
He said the Non-Plan expenditure for 2015-16 was estimated at Rs  13,12,220 crore. Plan expenditure is estimated to be Rs. 4,65,277 crore, which is very near to the R.E. of 2014-15. 
 
The total expenditure has accordingly been estimated at Rs. 17,77,477 crore. Gross tax receipts are estimated to be Rs. 14,49,490 crore. Devolution to the States is estimated to at Rs. 5,23,958 crore. Share of Central Government will be Rs. 9,19,842 crore. 
 
Non-tax revenues for the next fiscal are estimated to be Rs. 2,21,733 crore. 
 
He said that, with these estimates, the fiscal deficit would be 3.9 percent of GDP and the revenue deficit would be 2.8 percent of GDP.
 
Mr Jaitley said the Government was committed to change, growth, jobs and genuine effective upliftment of the poor and the under-privileged. He also reaffirmed its commitment to the Constitutional principles of equality and justice for all without concern for caste, creed or religion.
 
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Economic Survey predicts 8.1-8.5% growth in 2015-16, says double digit trajectory possible

The Economic Survey 2014-15 presented by Finance Minister Arun Jaitley to the Lok Sabha on Friday, a day ahead of his Budget for the coming fiscal year, said that the economy was poised for a growth of 8.1 to 8.5 percent at market prices in 2015-16.

 
The Economic Survey 2014-15 presented by Finance Minister Arun Jaitley to the Lok Sabha today, a day ahead of his Budget for the coming fiscal year, said that the economy was poised for a growth of 8.1 to 8.5 percent at market prices in 2015-16.
 
Asserting that the economy was looking up, with brighter prospects amongst the world's major economies today, the survey said that the clear political mandate for reform and a benign external environment now was expected to propel India onto a double digit trajectory.
 
It said that the economy appeared to have now gone past the economic slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances and oscillating value of the rupee.
 
The survey took into consideration of the recent change of base year  by the Central Statistics Office of the National Accounts series from 2004-05 to 2011-12 while projecting its growth estimate for 2015-16.
 
It said the growth rate in GDP at constant (2011-12) market prices in 2012-13 was 5.1 per cent, which increased to 6.9 percent in 2013-14 and it is expected to further increase to 7.4 per cent in 2014-15 (according to advanced estimates). 
 
The change in methodology by the Central Statistics Office has also introduced the concept of Gross Value Added (GVA) at the aggregate and various sectoral levels, it noted.
 
According to the survey, the expectation for such a growth rate is also due to a number of reforms that have already been undertaken and more that are being planned for.  
 
It mentioned some of these reform measures such as deregulation of diesel price, taxing energy products, replacing cooking gas subsidy by direct transfer on national scale, issuance of an ordinance to reform the coal sector via auctions and increasing the foreign direct investment (FDI) caps in defence.
 
The document also commended the far-reaching changes brought about on the issue of sharing of revenues between the Centre and States as recommended by the 14th Finance Commission.
 
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The report said the decline in inflation by over 6 percentage points since late 2013 and the reduction of the current account deficit (CAD) from a peak of 6.7 per cent of GDP in the third quarter of 2012-13 to about one per cent in the coming fiscal year had made India an attractive investment destination well above most other countries.
 
The expected high growth rate in the coming year in the favourable economic environment has created a historic moment of opportunity to propel India onto a double-digit growth trajectory to attain the fundamental objective of  “wiping every tear from every eye” of the vulnerable and  poor people of the country, it said.
 
The survey said this also provided an opportunity to the increasingly young, middle-class and aspirational India to realize its full potential. As the new Government is to present its first full year budget, the Economic Survey said that it appeared that India had reached a "sweet spot" and that there was a scope for "big bang reforms" now.
 
The report said the growth estimates of over 8 per cent for the coming year was based on expectations that the monsoon would be favourable,  as it was forecast to be normal, compared to last year. 
 
However the growth rate in Gross Value Added (GVA) at basic prices in agriculture is projected to decline from 3.7 per cent in 2013-14, an exceptionally good previous year from the point of view of rainfall, to 1.1 per cent in 2014-15, the current year with not-so-favourable monsoon.   
 
The survey drew attention to certain other "stagnating or declining elements" of the economy in the recent past.
 
It said that the growth in 2014-15 was largely driven by domestic demand. "There is hardly any external support to growth in 2014-15, as the growth in exports is projected to be only 0.9 per cent and the growth rate of imports, around (-) 0.5 per cent. The deceleration in imports owe substantially to the sharp decline in international oil prices in the current year that compressed the oil import bill," it said.
 
The survey also said that there had been a decline in the rate of gross domestic saving, from 33.9 per cent of the GDP in 2011-12 to 31.8 per cent in 2012-13 and further to 30.6 per cent in 2013-14, caused majorly by the sharp decline in the rate of household physical savings.
 
It said that the investment rate over the past years, as measured by gross capital formation (GCF) as a percentage of GDP, declined from 38.2 per cent in 2011-12 to 36.6 per cent in 2012-13 and further to 32.3 per cent in 2013-14.
 
On investments, the document said that, while private investment must remain the primary engine of long-run growth, the public investment, especially in the railways, would have to play an important role, at least in the interim, to revive growth and to deepen physical connectivity.
 
The report prescribed what it called a golden rule of fiscal policy, saying that governments are expected to borrow over the cycle only to finance investment and not to fund current expenditures. It urged the government to aim at bringing down the centre’s fiscal deficit down to 3 per cent of GDP.
 
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The survey said price subsidies did not appear to have had a transformative effect on the living standards of the poor, though they have helped poor households to weather inflation and price volatility.   
 
It said that a close look at price subsidies, which are estimated to be about Rs 3,78,000 crore, about 4.24 per cent of GDP, revealed that they may not be the government’s best weapon for fighting poverty.  
 
Dwelling upon various subsidies to the poor, the survey stated that price subsidies were often regressive. It said an analysis of the current subsidy scheme indicated that rich households benefit more from the subsidy than poor households. 
 
Among various examples, it said that the subsidy on electricity, for example, could only benefit the relatively rich.
 
At the same time, it said that eliminating or phasing out subsidies was neither feasible nor desirable.
 
It said that adoption of the "JAM Number Trinity" -- Jan Dhan Yojana, Aadhaar and Mobile numbers --- would allow the State to deliver the subsidies to the poor in a targeted and less distorted manner.
 
The document expressed serious concern that several projects had been stalled and that this tendency had increased over the past years. It, however, expressed happiness that such stalling of projects seemed to have plateaued.  It suggested revitalizing public private partnership model of investment.
 
On the manufacturing vs services debate, the survey said both were equally important for the growth of the economy in the Indian context.
 
Similarly, “Skilling India” is no less important and deserved an equal attention as the other important goal of “Make in India “, it said
 
In a chapter on a Common National Market for Agricultural Commodities, the survey, without drawing any conclusions, suggested that there may be a Constitutional provision used to regulate trading in specified agricultural commodities to create a National Common Market.
 
In an exclusive chapter on the Fourteenth Finance Commission (FFC), the survey quoted both Jawahar Lal Nehru, the first Prime Minister of the country and current Prime Minister Narendra Modi and said that adoption of the recommendations of the FFC and the creation of Niti Aayog earlier would further take forward the Government’s vision of cooperative and competitive federalism.
 
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Modi writes to CMs, says Govt. has accepted recommendations of 14th Finance Commission

Prime Minister Narendra Modi has written to Chief Ministers of all States, informing them of the Government`s decision to wholeheartedly accept the recommendations of the 14th Finance Commission (FC), although it would put a tremendous strain on the Centre's finances.

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Prime Minister Narendra Modi has written to Chief Ministers of all States, informing them of the Government`s decision to wholeheartedly accept the recommendations of the 14th Finance Commission (FC), although it would put a tremendous strain on the Centre's finances.
 
The 14th FC has recommended a record increase of 10% in the devolution of the divisible pool of resources to states. This compares with the marginal increases made by previous Finance Commissions, he said.
 
"The total devolution to states in 2015-16 will be significantly higher than in 2014-15. This naturally leaves far less money with the Central Government. However, we have taken the recommendations of the 14th FC in a positive spirit as they strengthen your hand in designing and implementing schemes as per your priorities and needs," he said.
 
Mr Modi said that, in making its recommendations, the 14th FC had made a fundamental shift in the pattern of financing revenue expenditures. It has assumed all central assistance to State Plan Revenue expenditure to be part of the states’s revenue burden and determined devolution on this basis. 
 
"Para 7.43 of its report explains this. The dominant view of states too has been that a majority of the resources should flow as tax devolution and the number of CSS should be reduced as the 14th FC states in Paras 8.6 & 8.7," he said.
 
"Therefore, there is a shift from scheme and grant based support from the Central Government to a devolution based support. Hence, the devolution of 42% of divisible resources," he said.
 
Mr Modi said that, therefore, as per the 14th FC, all State Plan Revenue expenditure had to be met from the resources being devolved to states. In spite of this large devolution, the Centre had decided to continue with some support to topmost areas of national priority such as poverty elimination, MNREGA, education, health, rural development, agriculture and a few other areas. 
 
"You will appreciate that, following the acceptance of the 14th FC recommendations, we are moving away from rigid centralised planning, forcing a ‘One size fits all’ approach on states. States have always been voicing their opposition to this philosophy for years. Accepting these long standing concerns and long-felt lacunae in the country’s planning process, our Government has decided to devolve maximum money to states and allow them the required freedom to plan the course of states’ development. The additional 10% of resources being devolved will give you this freedom," he said.
 
"In this overall context when you are flush with resources, I would like you to have a fresh look at some of the erstwhile schemes and programmes supported by the centre. States are free to continue or change these schemes and programmes as per their discretion and requirement. In all these, the Union Government, particularly the NITI Aayog, will support states in developing a strategy and in its execution through ideas, knowledge and technology," he said.
 
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Mr Modi said this was all towards the fulfilment of his promise of co-operative federalism. 
 
"As you have already seen, we have decided to involve states in discussing and planning national priorities. This is being done so as to maximise the outcome from every rupee spent either at the centre or the state. It was with this spirit of Team India that all Chief Ministers have been made equal partners in the Governing Council of NITI Aayog. This is our strategy to take the country to a faster and yet inclusive growth trajectory through co-operative federalism which is real and true federalism," he said.
 
"We are happy with our decision and that resources are going to the right place. Resources are going to states to ensure that poverty is eliminated, jobs are created; houses, drinking water, roads, schools, hospitals and electricity are provided. This has never happened in this country before," he said.
 
Mr Modi said that, in addition, the Government had recently revised the rates of royalty on minerals which benefits many states. The ongoing transparent auction of coal and other minerals will result in flow of over Rs 1 lakh crore of additional funds to mineral and coal bearing states. 
 
"Eastern India, which is less developed in spite of having immense mineral resources, is an important gainer and this is an opportunity for this part to catch up with the rest of the country," he said.
 
"Resources, thus, are not and will not be a problem. The issue is the direction and intent of our policies and our capacity to implement. You will agree that money, either at the central or the state level, should be spent to address the key challenges before the Nation. The focus should be the poor, farmers and common men and women, the youth and children. The challenge is to address the factors which inhibit the realisation of their full potential," he said.
 
Mr Modi pointed that, ever since his Government came into office, he had been working to strengthen the country's federal polity and promote cooperative federalism. 
 
"The people of the country have high expectations from their governments and do not want to wait. Therefore, since the very beginning, we have been committed to a rapid and inclusive process of growth. Looking to the diversity of the country, we understand that real and functional Federal Governance is the only vehicle to achieve this objective quickly and holistically," he said.
 
"I sincerely believe that strong states are the foundation of a strong India. Even as Chief Minister, I had been saying that the progress of the country depends on the progress of states. This Government is, therefore, committed to the idea of empowering states in all possible ways. We also believe that states should be allowed to chalk out their programmes and schemes with greater financial strength and autonomy, while observing financial prudence and discipline. We are clear that without this, local development needs cannot be met and marginalised communities and backward regions cannot be brought into the mainstream. 
 
"With this in mind, we have replaced the Planning Commission with the NITI Aayog with the explicit intent of ensuring that this becomes a common forum for forging a national vision on development. Such a vision and the concrete steps that all of us take will help in realising the development aspirations of our people," he said.
 
The Prime Minister said this was a golden opportunity in the nation’s economic development process. He said his recent visits across the world had shown that there was a lot of optimism about India and interest in investing in this country. "Everyone wants to partner with India in its growth story. This is not an opportunity for the central government, but an opportunity for India as a whole," he said.
 
"Let us aim at a quantum leap in the process of our nation’s development. I am writing this to you in order to seek your co-operation and involvement in defining key challenges facing your state and the country and to devote the time, energy and resources to address these. I expect that every state will come up with a plan for its key priorities and deploy resources for this purpose. We should also adopt a rigorous system of evaluation of schemes and projects. I will work with you in this effort. Together, we have to establish benchmarks in terms of quality of works and their speedy execution. 
 
"Let us work together in this direction. I will be available for any consultation in this regard at any time," he added.
 
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Modi says defence public sector companies have to perform better

Prime Minister Narendra Modi said on Wednesday that it would no longer be enough for India to buy defence equipment from abroad and simply assemble them in the country and made it clear that the public sector needed to improve its performance in this sector.

 
Modi inaugurates Aero India-2015, says India reforming defence policies
Prime Minister Narendra Modi today said it would no longer be enough for India to buy defence equipment from abroad and simply assemble them in the country and made it clear that the public sector needed to improve its performance in this sector.
 
"We have been doing this in the past, without absorbing any technology or developing our own capabilities. In some areas, we are where we were three decades ago," he said in his inaugural address at the 10th edition of Aero India, the international air show here.
 
"Frankly, our public sector needs to do much better than they are doing now. We have to exploit their huge assets and a vast potential. At the same time, we have to make them accountable," he said.
 
Mr Modi said his government was focusing on developing the defence industry with a sense of mission in view of the impact it could have on the creation of jobs directly and in the related sectors and of the possible spin-off benefits on other sectors in terms of advanced materials and technologies.
 
"This is why it is at the heart of our Make in India programme," he said.
 
"We are reforming our defence procurement policies and procedures. There would be a clear preference for equipment manufactured in India. Our procurement procedures will ensure simplicity, accountability and speedy decision making," he said.
 
Mr Modi said the government had raised the permitted level of foreign direct investment (FDI) to 49%. This could go higher, if the project brought state-of-the art technology, he said.
 
He also said the government had permitted investments upto 24% by foreign institutional investors (FIIs) and there was no longer a need to have a single Indian investor with at least a 51% stake. 
 
"Industrial licensing requirements have been eliminated for a number of items. Where it is needed, the process has been simplified. We are expanding the role of private sector, even for major platforms. Our goal is to provide a level playing field for all. We speak in terms of national capacity, not public sector or private sector," he said.
 
More than 250 Indian companies and more than 300 foreign firms are participating in Aero India. Defence ministers, senior officials and hundreds of business leaders from around the world are attending the event.
 
"This is the largest ever Aero India. This reflects a new level of confidence within our country and global interest in India. To many of you, India is a major business opportunity. 
 
"We have the reputation as the largest importer of defence equipment in the world. That may be music to the ears of some of you here. But, this is one area where we would not like to be Number One!" Mr Modi said.
 
"Our security challenges are well known. Our international responsibilities are evident. We do need to increase our defence preparedness. We do have to modernize our defence forces. 
 
"We have to equip ourselves for the needs of the future, where technology will play a major role. As a nation of one billion people, we also have huge requirements for managing internal security. We are increasingly integrating technology and systems into it.  These opportunities make Aero India an important international event," he said.
 
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Mr Modi said Aero India was not just a trade fair for defence equipment but a mega meeting of one of the largest global supply chains, with the most advanced technology and complex equipment  
 
He said it was a platform to launch India's defence manufacturing sector, stressing that a nation with a strong defence industry would not only be more secure but also reap rich economic benefits. 
 
"It can boost investment, expand manufacturing, support enterprise, raise the technology level and increase economic growth in the country," he said.
 
He said that, in India, the defence industry in the government sector alone employed nearly 200,000 workers and thousands of engineers and scientists. They produce an output of nearly 7 billion dollars annually. It also supports a very large pool of small and medium enterprises. 
 
He said the country's defence industry in private sector wass still small but it already employs thousands of people.
 
"This is despite the fact that nearly 60% of our defence equipment continues to be imported. And, we are spending tens of billions of dollars on acquisitions from abroad. There are studies that show that even a 20 to 25% reduction in imports could directly create an additional 100,000 to 120,000 highly skilled jobs in India. 
 
"If we could raise the percentage of domestic procurement from 40% to 70% in the next five years, we would double the output in our defence industry. Imagine the impact in terms of jobs created directly and in the related manufacturing and services sector! Think of the spin off benefits on other sectors in terms of advanced materials and technologies!" he said.
 
Mr Modi said the offsets system was a crucial instrument to develop and upgrade our defence industry. 
 
"We have introduced significant reforms in our offsets policy. I am acutely aware that it still needs a lot of improvements. We will pursue them in consultation with domestic industry and our foreign partners. I want our offsets policy not as a means to export low-end products, but to acquire state-of-the art technology and skills in core areas of priority," he said.
 
He pointed out that government's support for research and development was essential for defence sector. And, it should also be accompanied by a degree of assurance on purchase. 
 
"We are introducing a scheme to provide up to 80% of funding from the government for development of a prototype in India. And, we are also launching a Technology Development Fund. 
 
"For too long, our research and development has been confined to government laboratories. We must involve our scientists, soldiers, academia, industry and independent experts more closely in research and development," he said.
 
Mr Modi said that, while it had made its export policies clearer, simpler and predictable, the government would also abide by the highest standards of export controls and international responsibility. 
 
"We will expand our exports, but we will ensure that our equipment and technology do not fall into the wrong hands. India's record in this area has been impeccable and it will remain so," he said.
 
The Prime Minister said he was pleased with the positive impact of the government's policies and noted that the Indian private corporations had responded with enthusiasm.
 
"There is new excitement in our small and medium scale sector. Many of the biggest global firms are forming strategic partnerships in India. Some of them have already begun using India as part of their global supply chains or engineering services." he said.
 
He also expressed happiness that the first set of parts from the joint venture set up in September last year by Dynamatic Technologies and its collaborator Boeing, to manufacture critical parts for a Boeing helicopter that is sold globally, was ready for shipment today.
 
"But, we still need to do more. We have to further reform our acquisition and approval processes. We must indicate a clear roadmap of our future needs. 
This must take into account not only new technology trends, but also the nature of future challenges," he said.
 
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Mr Modi said there was need to pay attention to developing supply chains, with emphasis on innovation and bridge the gap between prototype development and quality of production. 
 
"We must develop a financing system suited to the special needs of this industry. It is a market where buyers are mainly governments, the capital investments are large and the risks are high. We must ensure that our tax system does not discriminate against domestic manufacture in comparison to imports," he said.
 
Mr Modi said that, more broadly, the defence industry would succeed more if the manufacturing sector were transformed in India.
 
"We need great infrastructure, sound business climate, clear investment policies, ease of doing business, stable and predictable tax regime, and easy access to inputs. We need a national industry that produces advanced materials, the most sophisticated electronics and the best engineering products. Over the last eight months, we have worked hard to create that environment for you. 
 
"Above all, we need a vast pool of highly skilled and qualified human resources for the defence industry. Our aerospace industry alone would need about 200,000 people in another ten years," he said.
 
He said the government would set up special universities and skill development centres to cater to the defence industry, just as it had done in atomic energy and space. "I have especially invited the State Governments to come here with package of facilities to attract investments in defence manufacturing," he said.
 
"We want to develop an industry is dynamic. It should constantly stay at the cutting edge of the global industry. I am confident that India will emerge as a major global centre for defence industry. We have the basic building blocks for it in India; and, a large nation requirement. We will build an industry that will have room for everyone – public sector, private sector and foreign firms. 
From sellers, foreign firms must turn into strategic partners," he said.
 
"We need their technology, skills, systems integration and manufacturing strength. The nature of industry is such that imports will always be there. In turn, they can use India as part of their global supply chain," he said.
 
He said defence budgets around the world were becoming tighter and India's frugal but sophisticated manufacturing and engineering services sectors could help reduce costs. 
 
"India can also be a base for export to third countries, especially because of India's growing defence partnerships in Asia and beyond. 
 
"A strong Indian defence industry will not only make India more secure. It will also make India more prosperous. 
 
"Aero India can be a catalyst in realizing our goals. That is why I am here today. So, as we look at these wonderful aircraft and enjoy the amazing fly pasts, I also hope we can get some business done. And, sow the seeds of successful new ventures and partnerships – to give our people new opportunities, to make our nations safer, and the world more stable and peaceful," he added.
 
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Black money: Govt. initiates concealment penalty proceedings in 128 cases

The Government said on Monday it had initiated concealment penalty proceedings, under section 271 (1) (c) of the Income Tax Act, 1961, in almost all 128 cases in which it had completed assessments as part of its investigations into illegal foreign bank accounts held by Indians.

 
Need evidence to take action against black money account holders: Jaitley
The Government today said it had initiated concealment penalty proceedings, under section 271 (1) (c) of the Income Tax Act, 1961, in almost all 128 cases in which it had completed assessments as part of its investigations into illegal foreign bank accounts held by Indians.
 
In a statement here, the Ministry of Finance said that information about accounts in HSBC Bank was received from the French authorities in respect of 628 Indian persons/entities.
 
Out of these 628 cases, 200 were either non-residents or non-traceable, leaving 428 cases of residents which were found actionable, it said.
 
For these 428 actionable cases the net amount of peak balance was about Rs.4500 crore, it said.
 
"The Government of India has taken expeditious action in these cases as per law. Upto 31st December 2014, assessments were completed in 128 cases, involving more than 350 assessments. In the remaining cases, assessment proceedings are at advance stage.  Undisclosed income of about Rs.3150 crore was brought to tax on account of deposits made in unreported foreign bank accounts," the statement said.
 
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According to it, about 60 prosecutions have so far been launched for wilful attempt to evade taxes [S/276C(1)] and failure to furnish accounts and documents etc [S/276D]. Show Cause Notices before launching prosecutions have been issued in a large number of other cases wherein further action is underway, it said.
 
Referring to media reports which today spoke about foreign bank accounts held by 1195 Indians, of which the top 100 names were published by a newspaper, the statement said some of these names already figured in the earlier list availabe with the government. 
 
"Necessary investigation as per the provisions of law will be taken up in all the new cases, expeditiously," it said.
 
"Income Tax Department is already in touch with the whistle blower who apparently brought out the names of persons holding undisclosed bank accounts in HSBC, Switzerland.  He has been requested to share information available with him in regard to undisclosed bank accounts of Indians in HSBC, Switzerland and other destinations.  His response is awaited," it said.
 
The Government said that, during the last six months, it had taken vigorous and pro-active measures to expedite investigations in the cases of Indians holding undisclosed foreign accounts/assets abroad. 
 
"Useful contacts have been established with foreign governments who might have some further information in this regard.  Based upon credible information of undisclosed foreign bank accounts, fresh references for obtaining further information in more than 600 cases have been made to foreign jurisdictions, under available treaties/agreements. The same are being pursued," it added.
 
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Rangarajan panel on PSCs says cost recovery system should be dispensed with

The Committee on the Production Sharing Contract Mechanism in Petroleum Industry has proposed that the cost recovery system be dispensed with in favour of sharing of the overall revenues of the contractor with the Government, without setting off any costs.

File photo of Dr C Rangarajan
File photo of Dr C Rangarajan

The Committee on the Production Sharing Contract (PSC) Mechanism in Petroleum Industry has proposed that the cost recovery system be dispensed with in favour of sharing of the overall revenues of the contractor with the Government, without setting off any costs.

The committee, headed by Dr C Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, had been appointed to look into the PSC mechanism. It submitted its report to Prime Minister Manmohan Singh recently.
 
The existing PSC allows the contractor to recover his cost, before giving the Government its share in the contractor's revenues, in case there is commercial discovery leading to production.
 
A certain proportion of the balance revenues of the contractor are shared with the Government, based on the value of an investment multiple for each year. These are biddable parameters. This investment multiple is the ratio of cumulative net cash income to cumulative exploration & development cost. Government's share increases as the multiple increases, which happens when cumulative income increases at a rate higher than the rate of increase for cumulative cost.
 
The committee noted that, under this system, a close scrutiny of costs becomes critical for the Government since there is incentive for contractors to book as costs expenses that do not reflect the true economic cost to the contractor (for example, through transfer pricing). 
 
"This is perceived by contractors as interference in commercial decision-making, whereas the Government and CAG view it as legitimate and necessary. Since decisions are taken in a joint committee, called Management Committee, having government and private party representatives, decisions get delayed and execution under the contract is hampered," the report said.
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"Since cost recovery is at the root of the problems experienced, it is proposed to dispense with it, in favour of sharing of the overall revenues of the contractor, without setting off any costs. The share will be determined through a competitive bid process for future PSCs. The bids will be made in a bid matrix, in which the bidder will offer different percentage revenue shares for different levels of production and price levels. The bids will have to be progressive with respect to both volume of production and price level," the committee said.
 
It said that this would ensure that, as the contractor earns more, Government gets progressively higher revenue, and will also safeguard government interest in case of a windfall arising from a price surge or a surprise geological find. 
 
Further, the underlying cause of the Management Committee and audit related problems will be removed, and the Management Committee will no longer go into issues relating to approval of budget or procurement issues. Investor interests should remain unaffected, since investors will be free to bid the Government share, and they will also have a more hassle-free operational environment, the report said.
 
The committee has also recommended that an extended tax holiday of 10 years, as against 7 years already available for all blocks, be granted for blocks having a substantial portion involving drilling offshore at a depth of more than 1,500 metres, since cost of a single well can be as high as $ 150 million.
 
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Further, the committee has recommended extending the timeframe for exploration in future PSCs for frontier, deep-water (offshore, at more than 400 m depth) and ultra-deep-water (offshore, at more than 1,500 m depth) blocks from eight years currently, to ten years.
 
Apart from Dr Rangarajan, the other members of the committee were Mr Jagannadha Rao, former Cabinet Secretary B.K. Chaturvedi, Prof. Ramprasad Sengupta, Mr J. M. Mauskar and Mr Joemon Thomas; Dr. K. P. Krishnan was convener, and Mr Giridhar Aramane was secretary to the committee. 
 
Apart from resolution of problems currently experienced in contract management through the proposed fiscal regime under new PSCs, the committee has suggested two mechanisms for improving progress of exploration and development under existing PSCs.
 
For policy related issues, it has suggested the setting up of a Secretary-level inter-ministerial committee to suggest policy solutions. 
 
For issues involving condonation of delay on the part of the contractor in preparing for and seeking approvals, and for minor technical issues, the mandate of the existing Empowered Committee of Secretaries (ECS) can be expanded. The ECS has earlier been empowered, with CCEA approval, to condone delays in the exploration phase only.
 
Issues currently being raised in audit would no longer arise under the proposed fiscal regime for new PSCs. Apart from this, after consulting the Comptroller and Auditor General (CAG), it has been recommended that the list of blocks be periodically made available to the CAG for selecting those that it would directly audit. CAG would select blocks on the basis of financial materiality, and would focus on blocks in the exploration and development phase, when costs incurred are higher. 
 
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Other blocks would be ordinarily audited by CAG-empanelled auditors, although CAG would continue to have its statutory freedom to directly audit even these. Further, it has been recommended that CAG perform the audit within two years of the financial year under audit, as prescribed under the PSC. Also, for PSCs beyond a high financial threshold, a concurrent audit mechanism may be considered.
 
On gas price mechanism, the committee noted that, at present, there is administered price mechanism (APM) gas and non-APM gas.
 
"The difficulty in gas valuation for determining Government's share is that there is no single gas price. India has long-term supply import contracts as well as spot market imports, and the range of prices has significant spread. However, the re-gasification infrastructure limits imports. The domestic gas too does not have adequate transportation infrastructure to enable creation of a domestic market.
 
"Internationally, gas hubs and balancing points exist in major regional markets, of which US's Henry Hub and UK's National Balancing Point / NBP (which is connected to continental Europe) are the largest. For the Asia-Pacific, Japan's Custom Cleared rate for crude oil is a benchmark rate, although unlike the US and Europe, it represents an import price rather than a producer price," it said.
 
The committee said the PSC provides for arm's length pricing and prior Government approval of the formula or basis for gas pricing, subject to policy on natural gas pricing. 
 
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"Since no market-determined arm's length price currently obtains domestically and nor is this likely to happen for several more years, a policy on pricing of natural gas has been proposed. The proposed policy would provide for estimation of an unbiased arm's length price based on an average of two prices, which can be interpreted as alternative estimates of an arm's length price for the Indian producer. The relevant price in this context would be the price producers receive in other gas-producing destinations. 
 
"One price would be derived from the volume-weighted net-back price to producers at the exporting country well-head for Indian imports for the trailing 12 months. The other would be the volume-weighted price of US's Henry Hub, UK's NBP and Japan Custom Cleared (on net-back basis, since it is an importer) prices for the trailing 12 months. The arm's length price thus computed as the average of the two price estimates would apply equally to all sectors, regardless of their prioritisation for supply under the Gas Utilisation Policy," it said.
 
The report said the suggested formula will apply to pricing decisions made in future, and can be reviewed after five years when the possibility of pricing based on direct gas-on-gas competition may be assessed.
 
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PM stresses need to revive investor sentiment, address exchange rate, capital flow issues

Prime Minister Manmohan Singh on Wednesday stressed the need to work towards reviving investor sentiment, both domestic and international, and address issues related to the slide in the exchange rate of the rupee and drying up of capital flows

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Prime Minister Manmohan Singh today stressed the need to work towards reviving investor sentiment, both domestic and international, and address issues related to the slide in the exchange rate of the rupee and drying up of capital flows

At a meeting with officials of the Ministry of Finance after taking over the portfolio, Dr Singh said the country was passing through challenging times economically.
 
"The growth rate has taken a dip; the industrial performance is not satisfactory; things are not rosy on the investment front; inflation continues to be a problem," he said.
 
"On the external front, I am concerned about the way the exchange rate is going. Investor sentiment is down and capital flows are drying up," he said.
 
"There are some external reasons and we need to work towards making our country resilient in meeting these external challenges. However, there are many domestic reasons as well. We need to address these quickly. We need to work to get the economy going again and restart the India growth story. 
 
"In the short run, we need to revive investor sentiment, both domestic and international," he said.
 
Dr Singh has decided to keep the Finance portfolio with himself after Mr Pranab Mukherjee resigned as Finance Minister yesterday to contest the July 19 election for the office of the President as a candidate of the ruling Congress-led United Progressive Alliance (UPA) and several other parties.
 
He said there have been many factors that have contributed to the general negative mood in the country.
 
"There are problems on the tax front which need to be addressed. On the financial sector side, we need to see how we can improve matters. There are issues about the mutual funds industry which need to be resolved. The insurance sector has seen a slowing down which is not normal in a country with large unmet insurance needs. This needs to be looked into. I would like you all to work as a team on all these matters. There are some issues we must address in the short run and some in the long run. I am sure you will be able to work on both fronts," he said.
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Dr Singh, who had served as Finance Minister during 1991-96, when he had launched the economic reforms, told the officials that, apart from a brief spell in 2008, he had been away from the details and nitty-gritty of Finance for a long time.
 
"Therefore, I depend on all of you to give me sound advice on not just matters relating to the Finance Ministry but all aspects of the government and the economy as a whole," he said.
 
He pointed out that the Finance Ministry is an all-encompassing Ministry whose reach extends to every corner of the government and the nation. 
 
"The way it functions is critical for the future of millions of our countrymen who look up to the government to throw open channels for their progress, prosperity and welfare. Therefore, the Finance Ministry has a vital role in evolving economic policies which are conducive to economic growth and the overall welfare of the nation," he said.
 
"The Finance Ministry has had a glorious tradition of doing excellent work. I expect the same from you," he added.
 
Those present at the meeting included Dr Kaushik Basu, Chief Economic Adviser, Mr Pulok Chatterjee, Principal Secretary to the Prime Minister, Finance Secretary R S Gujral and Secretaries in the Finance Ministry R Gopalan, Sumit Bose, D K Mittal and Mohammed Haleem Khan and other senior officials.
 
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PM expects 7 % growth in 2010-11, 9 % in medium term

Prime Minister Manmohan Singh said on Sunday there were clear signs of an upturn in the Indian economy and the country hoped to achieve a growth rate of over 7 per cent next year.

Prime Minister Manmohan Singh today said there were clear signs of an upturn in the Indian economy and, with a normal monsoon next year, the country hoped to achieve a growth rate of over 7 per cent.

"I am happy to say that India has been able to face the global economic downturn better than most other countries in the world," he told the India Economic Summit organised by the World Economic Forum here.

He said the Indian economy grew at a "respectable" rate of 6.7 per cent in 2008-09 despite the global economic and financial crisis. In the current financial year, it had also faced the adverse impact of an inadequate monsoon and the resultant slowdown in the agricultural economy. Still, growth is expected to be around 6.5 per cent, he said.

"This performance in highly adverse circumstances indicates the resilience of our economy. It also vindicates to a large extent, the corrective action taken by our government to manage the downturn- like other countries we resorted to a significant stimulus and we will take appropriate action next year to wind this down," he said.

Dr Singh said the Government's medium term objective continued to achieve a growth rate of 9 per cent per annum.

According to him, taking into account the fact that the country's domestic savings rate is now as high as 35 per cent of the Gross Domestic Product (GDP), this is eminently a feasible target.

He said a return to high growth required work in many directions, with world demand expected to pick up but probably only slowly.

He said India's strategy must, therefore, aim at sustaining a high rate of growth on the strength of strong domestic demand. He said the Government was seeking to achieve this through a large increase in investment in infrastructure.

The Prime Minister said the development of high quality infrastructure was an essential requirement to fulfil India’s ability and capability of rapid growth.

"We have an ambitious programme of investment in all the key infrastructure sectors: Power, roads, ports, airports, telecommunications, irrigation and urban infrastructure. Some of this investment will be through the public sector. However private investment has a large and growing role to play in achieving our target. In many areas we are following a strategy of private-public partnership," he said.

He said that, to fulfil its commitment of achieving inclusive growth, the Government would also have to expand its expenditure in critical key social sectors, especially health and education, including skill upgradation of workforce on a massive scale.

Dr Singh said environmental sustainability was also an important objective and one that had gained significance in the context of climate change. He said the Government had prepared a National Action Plan on climate change outlining its response in this critical area focusing on increased energy efficiency and greater use of clean energy technology including solar energy. Special attention would have to be paid to prevent degradation of the country's scarce land and water resources, he said.

He urged foreign investors to participate in all these efforts, saying the Government's foreign direct investment (FDI) policy had been greatly liberalised. He said FDI had been freely allowed in more and more areas under the automatic route and now covered a number of sectors in agro-processing, nearly all areas of industry and also services.

He said that the accumulation of FDI inflow amounted to over $ 120 billion since 2001-02. He admitted this was not a large enough number, given the scale of India's economy, but in recent years the country had been listed as among the most attractive locations for FDI. In addition to FDI, India also welcomed portfolio investment in equity in Indian companies by qualified institutional investors, he said.

"Our policy will be guided by the desire to make India even more attractive for foreign direct investment. We are particularly keen to rationalize and simplify procedures so as to create an investor friendly environment," he said.

The Prime Minister also mentioned that the Cabinet had recently decided the criteria on which public sector enterprises would qualify for disinvestment. He said the Government now hoped to see faster progress in sale of a portion of its shareholding in the domestic market and issue of fresh equities in respect of the selected companies in the public sector.

He said that though the global financial crisis did not affect Indian banks or financial market directly, it drew attention to the need to strengthen the country's financial system in various ways. He said there was need to ensure that the financial system can provide the finance needed for the country's development, and especially for infrastructure development. This, he said, would open up a broad agenda for reform.

He said there was need to develop long-term debt markets and to deepen corporate bond markets. This. in turn, called for a strong insurance and pension sub-sectors and some of the reforms needed, especially in insurance, involved legislative changes, he said.

Dr Singh pointed out that the Government had taken initiatives in this area and would strive to build the political consensus needed for these legislative actions to be completed. He said there was need to improve futures markets for better price discovery and regulation. He also felt there was need to remove institutional hurdles to facilitate better intermediation.

"All these issues will be addressed through gradual but steady progress in financial sector reforms to make the sector more competitive while ensuring an efficient regulatory and oversight system," he said.

"India looks to the future with confidence and with hope. We are confident of meeting the domestic and international challenges to fast and inclusive growth. We are also better placed than any time in the recent past to push the reform process forward. I believe we have a bright future if we make use of our well known strengths and the opportunities that lie ahead. In the coming months and years, I hope to see a decisive change in the pace of our progress to becoming a leading economy in the world," he said.

Dr Singh noted that today's event marked the 25th anniversary of the first India Economic Summit in 1985, which was inaugurated by then Prime Minister Rajiv Gandhi.

He recalled that Mr Gandhi had, on that occasion, outlined the vision of India as a rapidly growing dynamic and modern economy, breaking free of the shackles of persistent poverty, hunger and disease. He said the Government had delivered substantially on that promise though the task was, by no means, finished.

He said India's growth rate had accelerated from 5.6 percent in the 1980s to an average of nearly 9 percent in the 5-year period preceding the global financial crisis.

He said India was today a more open economy, open to both trade and investment and integrating successfully with the world at large. It had also seen substantial progress in reduction of persistent hunger, poverty and disease, though more needed to be done in this area.

"Our strategy today is not just to deliver rapid growth, but to deliver rapid and inclusive growth, a growth that will provide productive employment to our young population and raise living standards in rural areas across the length and breadth of our vast country," he added.

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Public sector here to stay: PM

Prime Minister Manmohan Singh said on Thursday his Government was committed to giving public sector enterprises flexibility and autonomy to help them operate effectively in a competitive environment.

Prime Minister Manmohan Singh at the presentation ceremony of the MOU Excellence Awards and SCOPE Awards in New Delhi on October15, 2009.
Prime Minister Manmohan Singh at the presentation ceremony of the MOU Excellence Awards and SCOPE Awards in New Delhi on October15, 2009.

Prime Minister Manmohan Singh today said the public sector enterprises (PSEs) were there to stay in the Indian economy and declared that his Government was committed to giving them the flexibility and autonomy they required to operate effectively in a competitive environment.

Speaking after presenting the MOU Excellence Awards and SCOPE Awards for Excellence and Outstanding Contribution to Public Sector Management here, Dr Singh said the PSEs had done quite well in recent times and were poised to grow even faster in the years to come.

He recalled that when the Government had begun the process of liberalising the economy in the early nineties, many experts were of the view that the PSEs would not be able to face local and increased global competition.

"Many years down the line, these fears and apprehensions have proved to be unfounded," he said, pointing out that in the post-reform period, 1990-91 to 2007-08, their turnover had increased nine times and their cumulative net profit had grown more than 35 times.

He said that, despite the fact that some PSEs did not do so well in this period, on the whole the Government had reasons to be confident about the ability of India's public sector to operate in an increasingly open environment and thereby face the challenge of increased competition both domestically and globally.

"There is no denying the fact that public sector enterprises are here to stay in the Indian economy. Some of them have shown sustained profitability and good consistent performance. The listed ones on the Stock Exchanges account for more than 24 per cent of the total market capitalization of the Bombay Stock Exchange (BSE). In terms of market capitalization, of the top 10 listed companies on the BSE, five are public sector enterprises," he said.

Dr Singh said more and more PSEs were entering the capital markets and striving to become active global players. Over the years, the number of PSEs making profits had steadily increased while the number of those making losses had been on the decline, he observed.

He said India had weathered the ongoing global slowdown better than most countries and India was today the second fastest growing economy in the world. He said this was a reflection, in large measure, of the strengths of the economy, one of which was a robust and reliable public sector.

Prime Minister Manmohan Singh with awardees of the MoU Excellence Awards and SCOPE Awards in New Delhi on October 15, 2009. Union Minister of Heavy Industries and 

Public Enterprises Vilasrao Deshmukh is also seen.
Prime Minister Manmohan Singh with awardees of the MoU Excellence Awards and SCOPE Awards in New Delhi on October 15, 2009. Union Minister of Heavy Industries and Public Enterprises Vilasrao Deshmukh is also seen.

He said India had become one of the few countries whic had implemented a Code of Corporate Governance for its PSEs.

He said several PSEs had got their shares listed on the stock markets and many more were eager to do so.

"This is a measure of the increased vitality of our public sector. This also shows that they are not shying away from the processes of market scrutiny and that they are ready to face new challenges in an increasingly competitive world," he remarked.

The Prime Minister said that if India were to regain its place in the comity of nations, there had to be sustained efforts on its part to improve productivity, to pay increasing attention to research and development and to operate on the frontiers of modern scientific and technological knowledge.

He said the Government had delegated more powers to the Boards of "Navratna" and "Miniratna" companies to help them improve their performance. The Government had also
implemented revised salaries for executives of PSEs and introduced innovative measures such as performance-related pay. The incentives for the employees have been linked to individual, group as well as company performance, he said.

He said the Government expected all this to lead to sound practices for the development of human resources, which are of critical importance in today’s competitive environment.

Dr Singh said the Government was encouraging the listing of PSEs on the stock exchanges as it would unlock the true value of a company, improves its corporate governance standards and also help it in raising resources for funding future expansion plans.

As far as sick and loss making organisations are concerned, he said the Government had made efforts to restructure and revive them, wherever it was possible.

He said an amount of Rs. 15250 crore had been provided by the Government in the last five years or so as cash and non-cash support to 36 such enterprises.

"We will continue to take steps to strengthen the public sector to enable it to play the role expected of it in a modern, fast growing economy," he added.

The award winners for 2006-07 were Bharat Heavy Electricals Ltd. (BHEL), Bharat Petroleum Corporation Ltd. (BPCL), Hindustan Aeronautics Ltd. (HAL), Mineral Exploration Corporation Ltd. (MECL), Manganese Ore India Ltd (MOIL), National Building Corporation of India (NBCC), National Backward Classes Finance & Development Corporation (NBCFDC) and State Trading Corporation of India Ltd (STC).

The SCOPE Excellence Awards for the year 2007-08 were presented to the Steel Authority of India (Individual Category); Coal India Limited (Institutional Category); Heavy Engineering Corporation (Special Institutional category); Electronic Corporation of India Limited (Medium PSE Category; WAPCOS (Smaller PSE Category) and NSKFDC (Commendation Certificate in Smaller PSE Category).

For the year 2006-07, the SCOPE Excellence Awards were received by the Indian Oil Corporation (Individual Category); Steel Authority of India (Institutional Category); Mazagaon Dock Limited (Special Institutional Category); Bharat Earth Movers Limited and National Building Corporation Limited (Medium PSE Category) and Rajasthan Electronics and Instruments Limited (Smaller PSE Category).

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Inflation rate moves back into positive territory at 0.12 %

The headline annual rate of inflation moved back into positive territory at 0.12 per cent for the week ended September 5 after staying negative for 14 straight weeks.

The headline annual rate of inflation moved back into positive territory at 0.12 per cent for the week ended September 5 after staying negative for 14 straight weeks.

The inflation rate was -0.12 per cent in the previous week. It was 12.42 per cent during the corresponding week, ended September 6, 2008, of the previous year.

The inflation rate had turned negative for the first time in more than three decades when it touched -1.61 per cent for the week ended June 6 this year.

The official Wholesale Price Index (WPI) for All Commodities (Base 1993-94=100) for the week ended September 5 rose by 0.4 per cent to 242.0 (Provisional) from 241.1 (Provisional) for the previous week.

An official statement, quoting provisional data, said the build-up of inflation in the financial year 2009-10 so far was 5.86 per cent as compared to a build-up of 6.62 per cent in the corresponding period of the previous year.

The 52-week average inflation for the week ended September 5 was 3.43 per cent, the statement said.

According to the statement, the index for Primary Articles, a major category with a weight of 22.02 per cent in the WPI, rose by 1.3 per cent to 274.7 from 271.2 for the previous week.

Within this category, the index for Food Articles rose by 2.2 per cent to 279.9 from 273.8 for the previous week due to higher prices of poultry chicken (16%), fruits & vegetables (8%), pork (5%), condiments & spices (3%), bajra (2%) and rice and moong (1% each). However, the prices of jowar (2%) and maize and tea (1% each) declined.

The index for Non-Food Articles declined by 1.1 per cent to 238.7 from 241.4 for the previous week due to lower prices of logs & timber (19%) and soyabean (5%). However, the prices of raw silk, cotton seed and raw rubber (3% each), copra (2%) and sunflower, castor seed and groundnut seed (1% each) moved up.

The index for Fuel, Power, Light & Lubricants, a category that has a weight of 14.23 per cent in the WPI, rose marginally to 343.4 from 343.3 for the previous week due to higher prices of bitumen (9%), furnace oil and light diesel oil (4% each) and aviation turbine fuel (2%). However, the prices of naphtha (7%) declined.

In the case of Manufactured Products, a major category with a weight of 63.75 per cent in the WPI, the index rose by 0.1 per cent to 208.1 from 207.9 for the previous week.

Within this category, the index for Food Products rose by 0.4 per cent to 241.9 from 240.9 for the previous week due to higher prices of sugar and sooji (rawa) (4% each), khandsari and bran (all kinds) (2% each) and maida, atta and gingelly oil (1% each). However, the prices of oil cakes (4%), coconut oil (3%), rice bran oil and imported edible oil (2% each) and butter (1%) declined.

The index for Textiles rose by 0.3 per cent to 143.7 from 143.2 for the previous week due to higher prices of polyester staple fibre (5%) and hessian cloth and hessian & sacking bags (2% each).

The index for Rubber & Plastic Products declined by 0.1 per cent to 169.4 from 169.6 for the previous week due to lower prices of plastic containers (6%).

The index for Chemicals & Chemical Products declined marginally to 229.3 from 229.4 for the previous week due to lower prices of enamels (4%) and caustic soda and thinners (2% each). However, the prices of acid (all kinds) (1%) moved up.

The index for Basic Metals Alloys & Metal Products declined by 0.1 per cent to 255.2 from 255.4 for the previous week due to lower prices of basic pig iron and foundry pig iron (2% each) and steel ingots (1%). However, the prices of lead ingots (4%) and other iron steel and zinc ingots (1% each) moved up.

The index for Machinery & Machine Tools rose by 0.1 per cent to 172.4 from 172.2 for the previous week due to higher prices of material handling equipment (6%) and electrical relays (3%).

The statement said that the final WPI for the week ended July 11 stood at 238.0 as compared to 236.7 that was provisionally reported on July 23.

Accordingly, the annual rate of inflation based on the final index for the week ended July 11 stood at -0.63 per cent as compared to -1.17 per cent provisionally reported on July 23, the statement added.

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Planning Commission highlights need to revive investment, contain fiscal deficit

The full Planning Commission, which met in Delhi on Tuesday, highlighted the need to revive investment in the country, especially in infrastructure, and contain fiscal deficit within limits of prudence.

Prime Minister Manmohan Singh arrives to preside over the Full Planning Commission meeting. Planning Commission Deputy Chairman Montek Singh Ahluwalia, Finance Minister Pranab Mukherjee, Railways Minister Mamata Banerjee and Power Minister Sushilkumar Shinde are also seen.
Prime Minister Manmohan Singh arrives to preside over the Full Planning Commission meeting. Planning Commission Deputy Chairman Montek Singh Ahluwalia, Finance Minister Pranab Mukherjee, Railways Minister Mamata Banerjee and Power Minister Sushilkumar Shinde are also seen.
The full Planning Commission, which met here today with Prime Minister Manmohan Singh in the chair, highlighted the need to revive investment in the country, especially in infrastructure, and contain fiscal deficit within limits of prudence.

The discussions also established the challenge of resource mobilisation for the last two years of the XIth Five Year Plan (2007-12).

"We will have to give careful thought to the various suggestions made for raising additional resources and try to ensure that the momentum of planned development is maintained in the next two years and that our flagship programmes are adequately funded," Dr Singh said in his concluding remarks at the meeting.

The Prime Minister, who is the Chairman of the Commission, noted that today's discussions emphasised that, while expanding resources was important, achieving efficiency in the use of resources was equally important.

He hoped the Commission would use the Mid-Term Appraisal of the XIth Plan to give concrete suggestions for improving both the design of the system and the efficiency of implementation.

"One consequence of scarce resources is that we should fully explore the scope for Private Public Partnership (PPP). This has been attempted in the infrastructure sectors where we have had some success, although progress has been less than what we would have wanted. We are taking steps to streamline the process so that PPP projects can move faster," he said.

This was the first meeting of the full Planning Commission since the United Progressive Alliance (UPA) Government began its second five-year term in May.

The meeting had two subjects on the agenda---an assessment of the economic situation in the country and a review of the status of implementation of the Integrated Energy Policy.

"We have had a very useful discussion on the state of the economy and the pending issues in energy policy. I thank my Cabinet colleagues for their remarks. The Planning Commission will take these into account in finalising the Mid Term Appraisal," Dr Singh said in his closing remarks.

He said he was happy to note that Minister Members had broadly endorsed the assessment of the current economic situation presented by the Commission.

"The economic picture at present can be characterized by a combination of strengths built up over several years, the lingering effect of the global slowdown and the temporary effect of the drought in the current year, particularly on agricultural output and food inflation. We must build on the strengths and tackle the new challenges. We have to pay careful attention to the management of the food economy and the overall macro economy," he said.

Dr Singh said he agreed with the general approach at the meeting that while the Government must do everything necessary to tackle the drought, it should not be over-pessimistic.

"We are in a very strong position to manage the consequences of the drought. Our food stocks in particular are very high. The government is giving focussed attention to all aspects of drought management including both relief measures and efforts to protect the Kharif crop as much as possible and to ensure a normal Rabi season," he said.

According to the Prime Minister, the National Rural Employment Guarantee Scheme (NREGS) gave the Government a very important instrument for supporting incomes of those most in need.

"We must make all efforts to converge NREGS and other agricultural and rural schemes to minimise the impact of drought in 2009-10," he said.

Dr Singh said the underlying strength of the economy, which had been brought out in the paper by the Planning Commission and endorsed in the discussion, would stand the country in good stead as it sought to return to its high growth target over the next two years.

He said the integrated energy policy approved by the Union Cabinet in December last year presented a very large policy agenda.

"It is clear from the discussion that there has been some progress in important areas, but the pending policy agenda is very large. Pursuit of these issues is the responsibility of different ministries. There was a suggestion to convene a meeting of the National Development Council (NDC) to discuss issues related to climate change and energy management," he said.

Prime Minister Manmohan Singh addressing the Full Planning Commission meeting.
Prime Minister Manmohan Singh addressing the Full Planning Commission meeting.

The Prime Minister directed the Planning Commission to pursue these issues with the Ministries concerned and present a detailed assessment of progress on these areas at the time of the Mid Term Appraisal so that the record of achievement is much better.

"Difficult areas should be brought back to my attention," he said.

He said that a rational energy policy, with appropriate policies for renewable and non-conventional energy sources, was also important for climate change. "We need to dovetail our strategy for energy with our national action plan for climate change," he stressed.

Dr Singh asked Planning Commission Deputy Chairman Montek Singh Ahluwalia to arrange meetings of the full Planning Commission more frequently so that there was an opportunity to discuss various issues in a more holistic manner.

Earlier, in the morning, in his opening remarks, Dr Singh said an assessment of the economic situation was relevant, not only because the Government was at the start of its second term but also because the country was at exactly the mid-point of the XIth Plan.

"We have been through a difficult year because of the global economic downturn which is only now coming to an end with a slow return to normalcy in the months that lie ahead. The country has also seen a poor monsoon. I felt it would be useful for the Planning Commission to present its assessment of the overall economic situation to the Minister Members of the Commission," he said.

The Prime Minister said energy was vital for the country's economic growth and this was the area where India was a deficit economy.

He said India imported more than 70 per cent of its petroleum energy needs and was also moving to a deficit position in coal.

According to him, rational energy policies are also critical for rational responses to the threat of climate change.

"This is a new compulsion and we need to assess whether we are on track in critical aspects of our energy policy. In our situation each energy sub-sector is the domain of a different Ministry. This has often meant a non-symmetric policy stance – the principles being adopted to determine policy in one sector are not the same as in another.

"The Integrated Energy Policy document that was approved by the Cabinet in December 2008 contained a number of recommendations covering different sub-sectors. I thought it would be useful for the Planning Commission to present an assessment of how these recommendations have been implemented," he said.

Apart from Dr Ahluwalia and other full-time Members, the meeting was also attended by, among others, Finance Minister Pranab Mukherjee, Home Minister P Chidambaram, Human Resource Development Minister Kapil Sibal, New and Renewable Energy Minister Farooq Abdullah, Health Minister Ghulam Nabi Azad, Power Minister Sushil Kumar Shinde, Railway Minister Mamata Banerjee and Dr C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council.

The full-time Members of the Commission are B K Chaturvedi, Saumitra Chaudhuri, Syeda Hameed, Narendra Jadhav, Abhijit Sen, K Kasturirangan, Arun Maira and Mihir Shah.

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Govt unveils Foreign Trade Policy for 2009-14

The Government on Thursday unveiled the Foreign Trade Policy for 2009-14 that is designed, in the immediate term, to arrest and reverse the declining trend of exports due to the global economic slowdown.

Commerce and Industry Minister Anand Sharma and Minister of State for Commerce and Industry Jyotiraditya Scindia at a press conference to announce the Foreign Trade Policy.
Commerce and Industry Minister Anand Sharma and Minister of State for Commerce and Industry Jyotiraditya Scindia at a press conference to announce the Foreign Trade Policy.
Union Commerce and Industry Minister Anand Sharma today unveiled the Foreign Trade Policy for 2009-14 that is designed, in the immediate term, to arrest and reverse the declining trend of exports and to provide additional support, especially to those sectors which have been hit badly by recession in the developed world.

However, given the current economic climate, the policy measures outlined today are only for a two-year period, after which the government will take stock of the situation and make mid-course corrections.

The Government is hoping to achieve an annual export growth of 15 per cent over 2010-11 with an annual export target of $ 200 billion by March 2011.

"In the remaining three years of this Foreign Trade Policy, the country should be able to come back on the high export growth path of around 25 per cent per annum," Mr Sharma said.

He said the Government expected to double India's exports of goods and services by 2014. "The long-term policy objective for the Government is to double India's share in global trade by 2020."

The minister said that, in order to meet these objectives, the Government would provide a policy environment through a mix of measures, including fiscal incentives, institutional changes, procedural rationalisation, and efforts for enhanced market access across the world and diversification of export markets.

"The three pillars which would support us to achieve the targets are improvement in export-related infrastructure, lowering of transaction costs and providing full refund of all indirect taxes and levies," he said.

"We would reassure our exporters and provide them adequate confidence to maintain their market presence even in a period of stress. In this policy, we have given a special thrust to the employment-oriented sectors which have witnessed job losses in the wake of recession, especially in the field of textiles, leather, handicrafts, etc.," he said.

Mr Sharma said the Government would ensure that dollar credit needs of exporters were met in a timely manner, and a committee had been constituted with Finance Secretary, Commerce Secretary and the Chairman of the Indian Banks Association (IBA), which would meet periodically for this purpose.

He said the Government had taken a conscious decision to continue with the Duty Entitlement Passbook (DEPB) scheme upto December 2010. Also, the income tax benefits under Section 10 (A) for the Information Technology (IT) industry and under section 10 (B) for 100 % export-oriented units would continue for one additional year till March 31, 2011, he said.

The enhanced insurance coverage and exposure for exports through Export Credit Guarantee Corporation (ECGC) schemes has been ensured till March 31, 2010. The Government has also decided to continue with the interest subvention scheme for this purpose.

The minister said that, through the new policy, the Government would encourage value-addition in manufactured exports and, towards this end, it has stipulated a minimum 15 % value addition norm on imported inputs for the advance authorisation scheme.

In view of the fact that the developed countries have shown a negative growth trend in the present economic climate, the Government has taken a conscious decision to expand and diversify the country's export markets, especially in the emerging markets of Africa, Latin America, Oceania and the CIS countries.

"Therefore, we would like to offset the inherent disadvantages which our exporters face in these markets, such as credit risks and higher trade costs, through appropriate policy instruments," he said.

He said the Government had rationalised the incentive schemes, including the enhancement of incentive rates, which are based on perceived long-term competitive advantage of specified Indian products and markets. He said new emerging markets had been given a special thrust to allow competitve exports.

Mr Sharma said the Government would like to encourage production and export of "green products" through measures such as phased manufacturing programme for green vehicles, zero duty Export Promotion Capital Goods (EPCG) scheme and incentives for exports.

Similarly, exports from the North-East region will also be promoted, he said.

The Government has earmarked additional resources under the Market Development Assistance Scheme and Market Access Initiative Schemes, and leading products have been identified which would catalyse the next phase of export growth.

The minister said the Comprehensive Economic Partnership Agreement (CEPA) signed with South Korea earlier this month would enable Indian products to secure enhanced market access to the growing Korean market.

The Trade in Goods Agreement with ASEAN, which will come into force from January 1, 2010, will give enhanced market access to several items of Indian exports in this vibrant economic grouping, he said.

These agreements are also in line with India's "Look East" Policy, he pointed out.

He said the Mercosur Preferential Trade Agreement had been concluded and it would be the Government's endeavour to deepen its trade engagement with other major economic groupings in the world.

Mr Sharma said India remained committed to the successful conclusion of the Doha Development Round. "We are in favour of establishing a rule-based, fair and equitable global multilateral trading regime which has development as its core objective. However, it must respond to the aspirations of millions of people of the developing world," he said.

He said the Government would promote Brand India through at least six "Made in India" shows to be organized across the world every year.

The minister said that, in the era of global competitiveness, there was an imperative need for Indian exporters to upgrade their technology and reduce their costs, which the policy seeks to achieve.

Technological upgradation of exports is sought to be achieved by promoting imports of capital goods for certain sectors under EPCG at zero per cent duty.

Under the present Foreign Trade Policy, the Government recognizes exporters based on their export performance and they are called "status holders". For technological upgradation of the export sector, these status holders will be permitted to import capital goods duty free (through additional Duty Credit Scrips equivalent to 1% of their FOB value of export in the previous year, of specified product groups).

This will help them to upgrade their technology and reduce cost of production. These two schemes would be valid upto March 31, 2011.

For upgradation of export sector infrastructure, "Towns of Export Excellence" and units located therein would be granted additional focused support and incentives.

To enable support to Indian industry and exporters, especially the Micro, Small and Medium Enterprises (MSMEs), in availing their rights through trade remedy instruments under the WTO framework, the Government is planning to set up a Directorate of Trade Remedy Measures.

Mr Sharma said the Government would endeavour to make India an international diamond trading hub, and plans to establish more diamond bourses in the coming years.

In order to reduce the transaction cost and institutional bottlenecks, the e-trade project would be implemented in a time bound manner to bring all stake holders on a common platform. Additional ports/locations would be enabled on the Electronic Data Interchange (EDI) over the next few years.

An Inter-Ministerial Committee has been established to serve as a single window mechanism for resolution of trade-related grievances.

An updated compilation of standard input and output norms and ITC (HS) classification of export and import was also released today after five years. It is expected to bring greater transparency and facilitate easy transactions by exporters and importers.

"These are difficult times and we have set an ambitious goal for ourselves. I am sure that the industry and Government, working in tandem will be able to ensure that the Indian exports become globally competitive and that we are able to achieve the target which we have set for ourselves," the minister said.

At the outset, Mr Sharma pointed out that the new Foreign Trade Policy was being unveiled at a challenging time when the entire world was facing an unprecedented economic slowdown.

"This year we are witnessing one of the most severe global recessions in the post-war period and countries across the world have been affected in varying degrees. Major economic indicators of industrial production, trade capital flows, unemployment, per capita investment and consumption have taken a hit," he said.

He said the World Trade Organisation (WTO) estimates projected a grim forecast that the global trade this year was likely to decline by 9% in volume terms while the International Monetary Fund (IMF) had projected a decline of over 11%.

"This recessionary trend has huge social implications. A World Bank estimate suggests that 53 million more people would fall into the poverty net this year and over a billion people would go chronically hungry. Fortunately India has not been affected to the same extent as other economies of the world, but our exports have suffered a decline in the last 10 months due to contraction in demand in the traditional export markets. In this economic climate, some countries have resorted to protectionist measures posing barrier to free trade, which has aggravated the problem. Even though economists are talking of emergence of ‘green shoots’, I remain hesitant to hazard a guess on the nature and extent of this recovery and whether it is a V shape recovery or a U shape recovery," he said.

Mr Sharma said the Foreign Trade Policy at this juncture would need to take cognizance of the declining demand in the developed world.

He recalled the series of measures announced by the Finance Minister which had resulted in some signs of recovery. He cited the Index of Industrial Production for the month of July and the figures for the core sectors in this regard.

The minister said the Government had in 2004 set two objectives--to double India's percentage share of global merchandise trade within five years and use trade expansion as an effective instrument of economic growth and employment generation.

He said that in the last five years exports had witnessed a robust growth to reach a level of $ 168 billion in 2008-09 from $ 63 billion in 2003-04.

India's share of global merchandise trade was 0.83% in the year 2003 which rose to 1.45% in the year 2008 as per WTO estimates. Its share of global commercial services export was 1.4% in 2003 which rose to 2.8% in 2008. India’s total share in goods and services was 0.92% in 2003; it increased to 1.64% in 2008.

Mr Sharma said studies had suggested that nearly 14 million jobs were created directly or indirectly as a result of augmented exports in the last five years.

He said the policy of Special Economic Zones (SEZ) , which was launched in 2005, had given encouraging results. He said the Government had granted approval for setting up 577 SEZs, of which 325 had been notified. After the enactment of the SEZ Act, nearly three lakh people have gained employment in the SEZs, he said.

Of the 98 Special Economic Zones which have started operations, physical exports have increased from a level of nearly Rs. 66,000 crores in 2007-08 to Rs. 99,689 crores in 2008-09, registering a growth of 50% in a year, he said.

In the last 5 years, exports from SEZs have grown by 620%, and have attracted foreign direct investment of US$ 2.43 billion, he added.

Factbox: Highlights of Foreign Trade Policy 2009-14

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PM discusses economic situation with industrialists

Prime Minister Manmohan Singh said on Saturday that, given the ample liquidity and low inflation, there was scope for banks to further moderate interest rates.

Prime Minister Manmohan Singh today said that, given the ample liquidity and low inflation, there was scope for banks to further moderate interest rates.
Prime Minister Dr. Manmohan Singh at the meeting with the Captains of Industry. The Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, Ratan Tata, Chairman of the Tata Group and Sunil Mittal, of Bharti Airtel can also be seen.
Prime Minister Dr. Manmohan Singh at the meeting with the Captains of Industry. The Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, Ratan Tata, Chairman of the Tata Group and Sunil Mittal, of Bharti Airtel can also be seen.

"Domestic credit flow for productive needs has to be definitely maintained at reasonable cost," he said at a meeting at his 7, Race Course Road residence with captains of industry to discuss short- and medium-term steps needed to tackle the effects of the global economic crisis.

The meeting took place just days ahead of the Prime Minister's visit to London to attend the G-20 Summit that will discuss an action plan to cope with the crisis.

Dr Singh said India was in a situation where, on the one hand, it was decidedly better placed than most countries in the world and, on the other, there seemed to be uncertainty on how developments abroad, positive and negative, would affect the country.

"To tackle a regime of low inflation and demand uncertainties across sub-sectors of the real economy, to ensure that the financial sector remains healthy and supportive, to husband foreign exchange reserves responsibly, to sustain a high level of expenditure bearing in mind the need for fiscal discipline, and to act continuously to improve general sentiment are challenges that we confront as a nation," he said.

He said the government and industry needed to be particularly sensitive to the impact of the slowdown on the weakest in the organized as well as the unorganized sectors.

"We must meet the challenge of job losses caused by the slowdown. These are challenges which can be understood and met only if all the stake-holders concerned continuously exchange ideas and support each other with confidence in the future, and concern for the well being of all.

"I have great faith and confidence in India’s entrepreneurs and particularly in the wisdom and experience of captains of industry assembled here today to meet the challenges confronting our economy," he said.

Dr Singh said the world today looked at India with respect and hope: respect for its calibrated reforms which have resulted in growth with justice, and hope that India would be an engine of global growth for the world economy.

"I am confident that we will all work together to fulfil these expectations, and secure the growth essential for our people," he said.

Dr Singh had held a similar meeting with the industrialists in the first week of November last year. He recalled that, at that point, India had also started experiencing the first shock waves of export demand attrition and constriction of capital inflows.

"Besides, the Indian financial sector was facing a liquidity shortage. Overall sentiment had also been dampened by the impact of the crisis on global and domestic capital markets and the consequent attrition of the savings of many individuals and corporates," he said.

He said that meeting had come up with many suggestions relating to the need to maintain adequate liquidity, problems of credit flow and credit cost on the domestic and foreign fronts, special issues of certain stressed sectors, possible fiscal and other measures, and steps to ensure that domestic industry is not adversely affected by the dumping of products by other countries.

After that meeting, the Prime Minister had constituted an Apex Group under his chairmanship to monitor the developments in the economy and take the necessary measures.

Since then, the Government and the RBI have, from time to time, come out with measures which were considered necessary and possible he said.

The RBI has steadily adjusted the policy rates downwards and has announced a number of steps in support of medium and small enterprises, non-banking financial companies, and the housing and export sectors.

Guidelines have also been issued for restructuring of loans, increasing the rates on non-resident deposits and relaxing the criteria for external commercial borrowings.

The Government has announced two stimulus packages, one in December 2008 and the other in January 2009. In these packages, and in subsequent announcements in the Interim Budget, a number of measures have been taken to provide relief to exporters; CENVAT, service tax, and duty concessions to industry; and support to infrastructure projects, and to increase Government expenditure despite an elevated level of fiscal deficit.

The Government has also been in touch with banks and has been monitoring the sectoral credit flows, especially by the public sector banks. The Cabinet Secretary has been interacting with the Chief Secretaries of States, as almost the entire additional budgeted amounts have been released to the States and their role in ensuring expenditures on ground is now crucial.

Dr Singh said that while it needed to be borne in mind that the time taken for these steps to take effect would vary across measures and sectors, there were signs of improvement in sectors like steel and cement. The auto sector after a difficult patch seems to be showing signs of recovery. Food grain production for 2008-09 is likely to be in excess of 228 million tonnes. The rural demand for goods and services appears quite robust and the outlook in the agricultural sector gives room for optimism, he said.

At the same time, he said, the government was aware of the problems that persist in certain sectors and sub-sectors, particularly where export dependence is high.

"We are monitoring these sectors. We are aware that a big push to infrastructure would have a counter-cyclical influence and have taken steps to ensure that this happens in 2009-10 and beyond," he said.

On the credit front, the figures of the Reserve Bank of India at the end of February 2009 indicate that while the credit growth of public sector banks on a year-on-year basis this year has been 23 per cent against 21.9 per cent of the corresponding period of 2007-08, the credit growth of private banks and foreign banks has been of the order of one-third to one-fourth of what it was a year ago, he said.

While public sector banks have reduced the prime lending rates in the last three months between 150 and 200 basis points, other Scheduled Commercial Banks are yet to respond in equal measure, calling for a further moderation in interest rates amnd maintenance of the flow of domestic credit flow for productive needs.

ASSOCHAM President Sajjan Jindal, who was among those who attended the meeting, said the Prime Minister should raise the issue of growing protectionism, surfacing in economies of scale, at the G-20 Summit, emphasising that such tendencies could hamper the spirit of globalisation.

If these tendencies were not curbed, they could  be counterproductive in the long run and, therefore, needed to be arrested before gaining ground to boost demand in the economy, he said.

He also suggested that India should call for joint negotiations with the Organisation of Petroleum Exporting Countries (OPEC) to fix a price band for oil to arrest speculation in oil prices.

Referring to Dr Singh's scheduled April 2 meeting with US President Barack Obama, Mr Jindal hoped the Prime Minister would urge him to lift restrictions on issuance of H1-B visa to Indians.

INT

CCEA nod for North East Road Network Connectivity Project Phase I

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The Cabinet Committee on Economic Affairs (CCEA) yesterday gave its approval for development of 403 km of national highways in Meghalaya and Mizoram.
 
An official press release said that, out of the 403 km, approximately 52 kms will be in Meghalaya and 351 km in Mizoram. The project will be executed in engineering, procurement and construction (EPC) mode, it said.
 
The estimated cost is Rs. 6,721 crore including cost of land acquisition, resettlement and other pre-construction activities. 
 
The projects will be taken up for implementation during the financial year 2017-18. The civil works are expected to be completed by 2021 and maintenance works are expected to be completed by 2025, the release said.
 
The projects will encourage sub-regional socio-economic development by improvement of infrastructure in Meghalaya and Mizoram. It will also enhance the connectivity with inter-state roads and international borders, the release said.
 
The work for development to two lane standards is under scheme "North East Road Network Connectivity Project Phase I" with loan assistance of Japan International Cooperation Agency (JICA), it said.
 
The existing carriageway of all the stretches is varying between single lane to intermediate lane. The condition of the pavement is very poor and at some locations not in traffic worthy condition. In addition, the stretches are also in poor condition in the landslides areas/sinking zone. Updation and development of these stretches to two lanes with paved shoulders standard will be done, the release added.
 
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BHEL commissions 250 MW unit at largest thermal power plant in North East

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The public sector Bharat Heavy Electricals Limited (BHEL) today said it had successfully commissioned another 250 MW coal-based unit at the Bongaigaon Thermal Power Station (TPS) in Assam.
 
BHEL is executing the main plant package contract for setting up three coal-fired units of 250 MW each at Bongaigaon TPS of NTPC Limited. This is the highest rating coal based power plant in the North East region.
 
The first unit of the power plant was commissioned earlier by BHEL and is presently operational while the third and final unit is in an advanced stage of commissioning, a press release from the company said.
 
Bongaigaon TPS is located at Salakati near Bongaigaon in Kokrajhar district of Assam. Also known as the gateway to Lower Assam, Bongaigoan is one of the industrial towns of the state, which also has a major petrochemical industry. This project has been set up after demolishing an old 4x60 MW power station of Assam State Electricity Board.
 
The sets of this rating class, supplied by BHEL, are considered as the workhorse and backbone of the Indian power sector. These sets have been performing much above the national average as well as international benchmarks.
 
Presently, in Assam, BHEL is also executing a gas-based combined cycle power project of 98.4 MW at Namrup. The plant is already commissioned in the open cycle mode and the commissioning in combined cycle mode is in the final stages, the release added.
 
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CCEA approves fresh estimates for deepening, widening of Mumbai Harbour, JN Port channels

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The Cabinet Committee on Economic Affairs (CCEA) yesterday approved fresh estimates of the project Deepening and Widening of Mumbai Harbour Channel and JN Port Channel (Phase-II). 
 
The cost of the project will be Rs. 2029 crore excluding Service Tax, an official press release said. The entire project cost will be funded through internal resources of JN Port Trust (JNPT) with market borrowing, if necessary. 
 
The release said the project includes the widening of the existing channel from 370 m at present to be widened from presently 370 m to 450 m for straight reach and the channel to be extended from existing 33.5 kms to 35.5 kms. The draft of the channel will be increased from existing 14 m draft to 15 m. The estimated quantity to be dredged to the tune of 35.03 million cu.mtr. including 1.73 million cu.mtr. rock dredging. 
 
The work is likely to be implemented by inviting global tenders and to be completed within two years after its award, it said.
 
The present total capacity of the JNPT for container handling is 5 million TEUs (Twenty feet Equivalent Unit). After the 4th Terminal becomes operational, this capacity will be enhanced to 9.8 million TEUs. Considering the expansion of the container vessel sizes on the main trade routes, it is anticipated that vessels of more than 8,000-12,000 TEU size will call at the JN Port. 
 
After completion, JNPT will attain capacity for handling additional traffic throughput of 1.67 million TEUs. The enhanced capability would help in handling larger vessels upto 12,500 TEUs besides economic benefits like saving in vessel waiting time and savings on account of transshipment. The ultimate benefit to users will be in terms of lower unit cost, direct and indirect tax benefits in addition to reduction in vessel traffic congestion at JNPT. This would add to the competitiveness of India’s export-import trade, the release said.
 
"Over the years, the size of container ships is progressively becoming larger as it is much more economical to operate large ships and the cost of operation gets cheaper as much as by 40% for the larger ships. With increase in container cargo volume and increase in capacity of container carrying vessels fleet worldwide, JN Port has decided to handle new generation container vessels with wider beam and deeper drafts. The new generation bigger size vessels need deeper channel depth to navigate and accordingly deepening and widening of the channel further from 14.0 to 15.0 m draft with vessel capacity of 12,500 TEU is envisaged," it said.
 
At present, JN Port is handling vessels having a draft of 14 m that is 6,000 TEUs capacity by taking advantage of tidal window, the release added.
 
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CCEA okays policy for extension of PSCs for Pre-NELP exploration blocks

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The Cabinet Committee on Economic Affairs (CCEA) yesterday approved a policy for grant of extension to the Production Sharing Contracts (PSC) signed by the Government of India awarding Pre-NELP Exploration Blocks to enable and facilitate investment to extract the remaining reserves. 
 
This policy will enable the contractors to extract not only the remaining reserves but also plan to extract additional reserves by implementing new technologies, an official press release said.
 
In certain fields, additional recovery of hydrocarbons can be obtained through Enhanced Oil Recovery / Improved Oil Recovery (EOR/IOR) Projects and as such the production would extend beyond the current duration of PSC.
 
In the year 2016-17 (upto February 2017), the production from these oil & gas blocks, allotted in Pre- NELP regime, is around 55 million barrels of oil and 965 MMSCM of natural gas. The recoverable reserve from these blocks is estimated to be more than 426 million barrel of oil equivalent. 
 
During the extension period, contractors are expected to make an additional investment of more than US$ 5430 million, the release said.
 
"The policy will give boost to accelerate and supplement indigenous production of hydrocarbon from existing blocks and act as a progressive step towards achieving the target of 10% reduction in import of crude oil by 2022. Among others, it includes oil and gas blocks in the State of Rajasthan that account for about half of the country's onland production of crude oil. Extension of these oil blocks will be major stepping stone in sustaining and enhancing onland production," it said.
 
The Government share of Profit Petroleum during the extended period of contract would be 10% higher for these fields, thus bringing additional revenues to Government. 
 
"In addition, the policy brings out detailed guidelines regarding grant of extension, criterion for evaluation of request, time frame for consideration of request, duration of extension etc. The extension of these contracts is expected to bring extra investments in the fields and would generate both direct and indirect employment. The policy aims at bringing out clear terms of extension in fair and transparent manner so that the resources can be expeditiously exploited in the interest of energy security of the country besides improving the investment climate," the release added.
 
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