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Showing posts with label Economic Policies of Govt. of India. Show all posts
Showing posts with label Economic Policies of Govt. of India. Show all posts

PM's Panel is bullish on Indian economy but with caution

The Prime Minister’s Economic Advisory Council, headed by former Reserve Bank governor C Rangarajan has observed and also recommended following measures.
  1. Riding an investment boom, the Indian economy will grow 9% in the current fiscal on top of last year’s 9.4% growth and price rise will be contained at 4%.
  2. The economy’s managers will have to make some tough choices like curbing the inflow of external debt, allowing the rupee to appreciate further and removing “administrative and procedural impediments” to acquisitions abroad. It sees the external environment as still being benign and expects sustained investment to keep growth booming. The need to curb capital inflows comes from the mismatch between the current account deficit, which is seen at $17.4 billion, and surpluses on the capital account (nearly $58 billion). The excess inflow of foreign capital can make the rupee far too strong; managing this would mean jacking up money supply which could harden inflation and eventually interest rates. A sensible policy response is to allow all these three things to happen in moderate doses and to discourage external borrowing for rupee expenditure.
  3. The council is not in favour of disrupting foreign equity investments. “Equity investment by its very nature is high risk and policy continuity is an essential element to initiate and maintain such flows. They cannot be turned on and off at will. However, on the debt side, there are some areas that can do with some scrutiny,” it said.
  4. The panel suggested three instruments to face the strong capital flow: allowing the rupee to appreciate, sterilising capital inflows in excess of what can be absorbed into reserves without pushing money supply growth above 17.5%; and instituting a policy of encouraging capital outflow and discouraging external borrowing for rupee expenditure.
  5. The report pegged farm growth at 2.5%; industrial output at 10.6%; and services at 10.4%. Mr Rangarajan cautioned that unless the farm and power sectors grow, the current rate of economic growth cannot be sustained. “Food security is an extremely important issue. Agriculture should be priority, as 60% people are dependent on it.”
  6. The Council expects that there will be no unemployment by 2010, if not earlier. Whether people are satisfied with their remuneration or not is a different matter, panel's chairman C Rangarajan qualified promptly. "The unadjusted employment elasticity for the latest period (1999-2000 to 2004-05) is 0.48. Even after adjusting sectoral elasticities to lower figures, it is seen that with a GDP growth rate of 8%, by 2010 the workforce will become equal to the labour force. A stronger growth rate, which is quite possible, will take economy to this point even in a shorter period. Economic growth has been a major driving force in achieving higher level of employment," EAC's Economic Outlook 2007-08 said.

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at 7/18/2007 06:10:00 PM 1 comments

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The new National Mineral Policy is claered by GoM

A Group of Ministers (GoM) cleared the national mineral policy that retains freedom of mining comapnies to export iron ore without any restrictions on quantity or quality. The policy would be sent to the Cabinet for approval.
There is a difference of opinion on iron ore exports between mining and steel industry. While the steel industry supported a cap on iron ore exports to meet the requirement of the growing domestic steel industry, the mining industry favoured unrestricted exports citing comfortable reserve position on iron ore. The domestic steel manufacturers fear that if all the proposed steel plants come in India, some will be deprived of iron ore and if free exports of iron ore are allowed, then prices also go up making the cost of making steel much higher.
The highlights of the proposed national mineral policy are
  • It has been decided to give free hand to companies to export iron ore without any restrictions on quantity or quality
  • It has been decided to provide captive mines to all steel units in operation up to July, 2006
  • As part of policy, a process of competitive bidding could be intiated for allocation of captive coal blocks
  • The new policy gives more powers to states to facilitate value addition within the country and give a boost to steel production. the state governments would be able to give preference to companies undertaking value addition within the state while alloting iron ore mines. This would mean that stand-alone mining activities would be disincentivised.
  • The entire country would be treated as one economic region and states would have to permit transfer of iron ore outside the state if no one is willing to set up a plant there.
  • While approving the policy, the GoM has reatined most of the recommendations of the Hoda Committee.
  • The policy is mainly aimed at procedural simplication for attracting investments in the sector. It would also benefit the states, as under the new policy, the present system of specific rate royalty would shift to an ad valoreum rate of 7.5 percent. This move would increase the royalty earnings of ths states by almost six times.

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at 7/12/2007 08:15:00 AM 0 comments

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Farming sector is heading for government tax sops

On the back of a retail big bang near the horizon, the government wants to boost the slagging agriculture sector by way of tax sops. In order to strengthen the linkage between industry and agriculture, certain agriculture zones may receive tax holidays on the lines of incentives available for certain industrial units. The government is considering a proposal to grant five-to-ten year tax holidays in semi-arid and arid regions of the country to attract corporate investments in the farm sector. These incentives will be available for companies investing in contract farming. Proposed incentives include a weighted deduction of 150% for expenditure incurred in the development of farm lands in semi-arid regions and 200% for such expenditure in arid regions of Rajasthan and Gujarat. Besides, investment in these areas may also be considered for cheaper loans from banks as part of their priority sector lending norms.

The proposed move is part of a long-term agricultural strategy being finalised by the governemnt to increase the growth rate of the sector (currently around 2%) and achieve the targeted 4% growth during the 11th plan. Once the plan is approved by the National Development Council (NDC), it will encourage large companies like ITC, Reliance and Bharti to increase their exposure to the agriculture sector. It would also encourage development of farming infrastructure in dry area that contribute 40% of total food production of the country at present. The idea is to offer sops to private sector investors for increasing production in cultivable arid and semi-arid areas and bringing degraded land under cultivation. As per the government estimates, out of the total land area, while 43% is cultivable, another 45% is degraded land.

Source : The Economic Times

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at 6/03/2007 08:51:00 AM 0 comments

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Govt. to tighten the grip on FDI inflows

The government is considering various proposals to redraft the Foreign Direct Investment (FDI) norms to plug the existing loopholes. Presently there are sectoral caps for various sectors for FDI in India. These limits are maily in the form of caps by way of equity or share capital. Now, the want to include indirect holding of foregn entities in Indian companies as well as the definition of indirect holding. But these changes will be prospective and will not applicable to existing investments.
It is likely that interest-free loans given by the foreign partner (or loans for which it has stood guarantee) to the Indian partner for investing in the joint venture (JV) as well as fully convertible preference shares issued to the foreign partner will be treated as indirect foreign holding and will come within the purview of the FDI sectoral cap. In addition, if the foreign investor has an equity stake in a domestic company which, in turn, holds shares in the JV, the loans advanced by the domestic company to the JV will also be considered as indirect holding.
If these proposals are implemented, it could have sweeping effect on sectors such as retail, insurance, aviation, defence and stock-broking where there are FDI sectoral caps. At the moment, there are four distinct FDI slabs — ranging from 100% to a complete bar in some sectors. The telecom sector has a 74% sectoral cap, the aviation sector has a 49% sectoral cap, and the insurance sector has a 40% sectoral cap.
These moves to tighten the FDI guidelines come in the wake of controversy sorrounding the Hutchison Essar shareholding, while acquired by the Vodafone.
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at 5/16/2007 08:49:00 PM 0 comments

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