(Study Notes) Current Affairs: Economy Issues: 16 - 23 Jan 2010 By Dialogue India

Email Newsletter FREE SMS ALERTS  FACEBOOK , TWITTER

(Study Notes) Current Affairs: Economy Issues: 16 - 23 Jan 2010 By Dialogue India

CAG Weekly
(Current Affairs & GK)
By Om Prakash (goldy sir)

Rising rupee not an unmixed blessing

On January 11 the rupee closed at a 16-month high of 45.34 to the dollar in the inter-bank currency market. At the end of last year (December 31) it was at 46.54. A dollar would have fetched Rs.1.20 less in ten days. In other words, fewer rupees would be needed to acquire dollars.

The rupee has been appreciating since April 2009, but the trend has become more pronounced recently. In the New Year, the appreciation has been particularly sharp, by 2.6 per cent in 10 days.

Reasons-

• The rupee’s strength is more due to the weakness of the dollar over a fairly long period. the American currency has recently been under pressure in relation to most Asian currencies. The Korean won, the Thai baht and the Malaysian ringgit have all appreciated against the dollar recently. This phenomenon is attributed to the fact that these Asian economies have rebounded sharply in the post-recession period.The U.S. economy, on the other hand, has had an uneven performance. More to the point, the Indian economy seems capable of growing by about 7 per cent this year. That rate will be one of the highest posted by any country and will be second only to that of China.
• Currently, the major factor influencing exchange rates is the large flow of foreign institutional investment into Indian stock markets. Last year FII flows were estimated at $17.5 billion and their main motivation seems to be the prospect of higher returns in India and other emerging markets as compared to the U.S.

Implications-

• Exporters will be hard hit as their competitiveness will be eroded in the global markets.
• Importers, on the other hand, stand to gain by the strengthening rupee. However, the petroleum import bill, forming a significant part of the overall import bill, may not see a sizable saving: high petroleum prices may offset the advantage in foreign exchange rates.
• While the FIIs’ confidence in the Indian capital market is welcome, the flood of dollars coming in may not be an unmixed blessing. Such flows are not stable. In the recent past these investors have pulled out of India en masse, causing a sharp drop in the stock markets.
• Any mop up of dollars will add to reserves and increase domestic liquidity exponentially, thereby fuelling inflation. Sterilisation measures _ to suck out excess rupees in the system — will be expensive in the current context of abundant liquidity. In its forthcoming policy statement, the RBI is expected to announce measures impounding a portion of domestic liquidity.
• Finally, any talk of discouraging FII inflows — through, for instance, a Brazil type Tobin tax — will have to reckon with the crucial role they play in shoring up the balance of payments.

What's wrong with the existing system of taxation of goods

• The current system taxes production whereas the GST will aim to tax consumption.
• Indeed, the current law levies taxes on movement of goods from one state to another — effectively creating borders within borders.
• It distorts the allocation of resources and inhibits productivity growth. The transition to GST will be an important milestone from a macro perspective.
• team after the cancellation of an Indian cricket tour in the aftermath of the Mumbai attacks.

Carry trade in US$

• The dollar beginning to harden against currencies like the euro. The strengthening of the dollar is confirmed by a rise in DXY - the currency index that measures the relative value of the dollar to a basket of currencies — by 2.48% since January 14 at around 78.525 levels. Currencies in the basket include the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc. The index is viewed as the barometer of the greenback against major currencies in the world.
• The carry transaction /dollar carry trade is where global fund managers borrowed dollar and converted it into currencies of countries they chose to invest in.
• As the carry currency turns more expensive, markets begin to fear that investors will start to sell some of the stocks to pay back the loan which no longer looks cheap.

NTPC plans to set up arm for acquiring coal assets abroad

• NTPC, the world’s second-largest independent power producer (IPP), plans to set up a new entity for acquiring coal assets abroad to secure fuel supplies for its coal-based plants.

Mauritius government comes hard on round-tripping

• The Financial Services Commission of Mauritius has imposed a stringent set of conditions on Mauritius-based companies investing in India in a bid to allay fears about round-tripping of funds.
• In round tripping, domestic funds/companies go out and come back again through circuitous routes from Mauritius or other tax havens, to save taxes.
• The Mauritian government has also warned that licences of entities investing in India would be revoked if they source funds from India.
• The move provides a new turn to the lingering debate over allegations of Indian corporates using the Mauritius route to escape capital gains tax.

Teaser rate

• This is an offer by lenders where customers seeking homes loans are extended an attractive interest rate — at a substantial discount to market rates. These rates, normally an introductory offer, last only for a few months or sometimes only during the initial year or two of a mortgage loan. Subsequently, the rate is adjusted to the market rate after the special offer period is over.
• In India, the concept is relatively new with many banks offering a low interest rate for the first 2-3 years of the maturity of the loan. State Bank of India — the country’s largest bank — queered the pitch in early 2009 in an attempt to woo home borrowers and revive the sagging demand for loans, following the global economic crisis.
• The Reserve Bank of India has, however, expressed its concern relating to banks indulging in this practice, keeping in mind the impact on bank balance sheets.

Carrefour set to enter India's retail scene?

• Carrefour, Europe’s biggest retail chain, is reportedly close to a deal with Kishore Biyani of Pantaloon Retail to set up franchisee stores in India.
• The Carrefour franchise stores will be aimed at affluent customers, pitting them against the Raheja group’s HyperCity, which operates four stores in three cities.
• Currently, Indian rules permit foreign direct investment in the cashand-carry wholesale business to supply to other retailers, but not directly to customers. Foreign investment is barred in case of multi-brand retail stores, while single-brand retailers such as Nike and Reebok can be foreign owned up to 51%. Multi-brand international retailers are also allowed to operate, but only through the franchisee route.

China records 8.7 per cent growth

• A year after suffering one of its worst declines in decades, China's economy has rebounded strongly, recording 8.7 per cent growth in 2009.
• The Chinese government's official growth figures for last year, released  have exceeded earlier forecasts: the economy registered an unexpectedly high 10.7 per cent growth between October and December, largely on the back of record government spending on infrastructure projects.
• China is now on course to overtake Japan as the world's second-largest economy, though confirmation of that development will have to wait until next month, when Japan's official GDP figures are released.

Currency futures permitted in euro, pound, yen

• Exchange-traded currency futures will now be expanded to the euro, pound sterling and yen pairing with the rupee, giving investors more flexibility to hedge their risks against volatility in exchange rates.
• At present, currency futures are allowed only in the dollar-rupee contracts.

SNC-Lavalin still a player

• SNC-Lavalin Energy Control Systems (ECS), a subsidiary of the SNC-Lavalin Group, which is the ninth accused in a charge-sheet filed by the CBI, has bid its way into a list of 14 empanelled implementation agencies for the Union Power Ministry’s flagship scheme, the Rs.50,000-crore Re-structured Accelerated Power Development and Reforms Programme (R-APDRP).
• The R-APDRP, launched during the 11th Five Year Plan, with Power Finance Corporation Limited (PFCL) as the nodal agency, aims to reduce the aggregate Technical and Commercial (AT&C) losses to 15 per cent in power utilities in States including Kerala.

Restructuring NABARD

• Boston Consulting Group (BCG), a management consulting firm, will soon begin consultations aimed at restructuring the National Bank for Agriculture and Rural Development (NABARD).
• NABARD Chairman Umesh Chandra Sarangi .
• NABARD has undergone a change from being a development finance institution to a development facilitating and financing institution.
• On the implementation of the Vaidyanathan Committee report on cooperatives, Mr. Sarangi said Rs. 7,400 crore had been disbursed for strengthening cooperatives.

On a strong wicket

• The rupee touched a 16-month high of Rs.45.34 against the dollar on Monday, January 10.
• The trend of rupee appreciation that began in March-April 2009 has accelerated in the new year.
• The rupee gained almost three per cent in less than 10 working days.
• In India, the recent gains by the rupee are attributed to a spurt in foreign institutional investment (FII). During 2009, FII flows were estimated at around $17.5 billion.
• the Malaysian ringgit and the Thai baht.

Bharti Airtel to acquire 70 % in Warid Telecom

• Bharti Airtel would acquire 70 per cent stake in Bangladesh’s Warid Telecom, a wholly-owned subsidiary of the Dhabi Group. Under the agreement, Bharti Airtel will have management and board control of Warid Telecom and make a fresh investment of $300 million to expand its operations in Bangladesh, making it the largest investment by any Indian company in Bangladesh.
• The Dhabi Group will continue as a strategic partner, retaining 30 per cent shareholding and have its nominees on the company’s board.
• Interestingly, this is Bharti’s first international buyout since its failed multi-billion dollar bid for South Africa’s MTN last year.

Lakshmi Narayanan, Kochhar on ISB board

• Three new directors — ICICI Bank CEO Chanda Kochhar, Citigroup South Asia head Mark Robinson, and Cognizant Vice Chairman Lakshmi Narayanan — have joined the board of the Indian School of Business (ISB). With the new appointments, the tally of total number of directors on the ISB executive board reached 33, according to information available on its website.
• The decision of appointing new members on its board was taken at ISB’s board meeting held on January 8 in Mumbai.

India poised for strong recovery — ADB

• In its study titled ‘Impact and policy responses-India’, the Manila-based multilateral lending agency said that the Indian economy had emerged from the crisis relatively unscathed and quickly regained growth momentum, thanks to its own stimulus actions, past reforms, banks’ limited exposure to troubled parts of the global financial system, as well as the nation’s robust domestic consumption.

Anil Ambani eyes MGM

• Anil Ambani plans a takeover of the Metro-Goldwyn-Meyer Hollywood studio (which owns the James Bond franchise) in an attempt to become one of the world’s most powerful film bosses.
• Anil Ambani already owns a controlling stake in Steven Spielberg’s DreamWorks studio and has struck a series of deals with stars including Brad Pitt, Jim Carrey, Julia Roberts and George Clooney to develop their films.
• Anil Ambani-led Reliance Big Pictures produced two most successful films last year while its current blockbuster ‘The 3 Idiots’ has broken Indian box office records.

Courtesy:- Dialogue India and Career Plus

Post Your Resume | UPSC Downloads | Aspirants Times Direct Download | Online Book Store