India and neighbors
India, China to join Indian Ocean exercise: (The Hindu)
- The Indian Navy will be joining the People’s Liberation Army (PLA) Navy in a maiden maritime search and rescue exercise, chaired by Bangladesh at the Indian Ocean Naval Symposium (IONS) in November this year.
The details of the exercise
- Bangladesh, the current Chair, is arranging a maiden International Maritime Search and Rescue Exercise (IMMSAREX) in November in the Bay of Bengal to be attended by ships and aircraft of the members and observers of the IONS.
- The exercise comes at a time of intensifying competition among regional navies for dominance in the Indian Ocean, i.e., navies of China and Japan, presently observers, in addition to member states like India, France, Iran and the U.K.
- The IONS is a regional forum of Indian Ocean littoral states, represented by their Navy chiefs, launched by India in February 2008. It presently has 23 members and nine observers.
- Bangladesh will also be scheduling an “extraordinary conclave of Chiefs,” a meeting of chiefs of Navy before it hands over the Chair to Iran next year.
- Under the charter of business adopted in 2014, the grouping has working groups on Humanitarian Assistance and Disaster Relief (HADR), Information Security and Interoperability (IS&I) and anti-piracy now renamed as maritime security.
- India has considerably stretched its engagement with countries to further its own interests as well as to check the rapid expansion of Chinese naval forays in the Indian Ocean.
- Other countries in the region are also engaged in rapid expansion of their military capabilities.
Indian Economy. Planning, Growth and Employment
How low can interest rates go?: (The Hindu)
The interest rate on the one-year term deposit in India’s largest bank has nosedived from 9% in July 2014 to 6.5% now. Interest rates on the three-year term deposit have dropped from 8.75% to 6.25%.
- In pegging down their deposit rates, banks have taken their cues from the Reserve Bank of India.
- The RBI has pared its repo rate, the rate at which it lends overnight money to banks, from 8% three years ago to 6% now.
- Bank deposit rates dropping by a steep 250 basis points in three year
Trends in Indian interest rates over the last few years:
- The repo rate, which hovered at 9% in April 2001 drifted down to 6% by March 2004, but reversed direction to recapture the 9% peak in July 2008
- The global credit crisis hitting India and recessionary trends in the economy, RBI was forced to effect a swift and brutal reduction in rates again from 2008.
- This time around, the repo rate dropped from 9% in July 2008 to 4.75% by April 2009
- As growth limped back and inflation began rearing its head, the RBI embarked once again on a hiking spree, taking its rates from 4.75% in 2009 to 8% in 2012.
- The year 2012-14 saw a sideways crawl in rates.
- With inflation moderating the economy going into slow motion, RBI pruned its repo rate again, from 8% in 2014 to 6% by August 2017
- In its recent policy reviews, RBI has shown reluctance to hack away from further, issuing warning about inflation risks.
Reasons for drop in rates:
- Rates have dipped below 6% only under extra-ordinary circumstances, such as the global credit crisis.
- India’s central bank prefers to prioritise inflation targeting over growth.
The RBI considers other variables in its rate decisions:
- The need to maintain positive real interest rates for savers. RBI officials have indicated that for savers to prefers financial instruments, it is desirable to maintain a real interest rate of anywhere between 1.25% and 2% above inflation.
- The second variable that RBI considers is the inflation expectations of households for the future.
- Now, while recent inflation readings in India have been at the 2% mark, sustainable inflation rates are believed to be much higher.
- RBI’s own projections expect inflation rates of 3.5%-4.5% for the second half of this fiscal.
- Assuming a durable inflation rate of 4%, for savers to receive a 1.25%-2% real rates, policy rate need to be pegged at 5.25% to 6%.
- RBI’s recent survey show that these expectations remain quite elevated despite the rock-bottom official inflation readings.
- In the latest June survey, households perceived current inflation rates to be 6.4% and expected inflation one year ahead to be at 8.6%.
Investors ‘shell’ shocked over SEBI order: (The Hindu)
A recent order from market regulator SEBI brought to a halt trading in more than 170 actively traded stocks on the stock exchanges. These firms formed part of a larger group of 331 ‘shell’ companies whose names the Ministry of Corporate Affairs (MCA) shared with the regulator for initiating action.
The order issued by the Securities and Exchange Board of India(SEBI) last week put at risk investor wealth amounting to almost Rs 13,000 crore.
- There are seven companies that reported a net profit of more than Rs 20 crore in the financial year ended March 31, 2017.
- One of them –J Kumar Infraprojects registered a profit of Rs 105.51 crore in FY 17.
- There are 25 entities that reported a total income of more than Rs 100 crore in FY 17 with Prakash Industries, K kalpana Industries, J Kumar Infraprojects and Pincon Spirit reporting incomes of between Rs 1,400 crore and Rs 2,500 crore.
- Eight entities, including the biggest three ‘shell companies’ , have already managed to obtain a stay on the trading restrictions by way of interim relief from the Securities Appellate Tribunal (SAT), that observed in clear terms that the capital market watchdog passed the diktat without an iota of investigation.
- Many companies may not appear as shell firms purely based on numbers, the list prepared by MCA was based on inputs received from various agencies, including the Income
- The challenge would be to delist those really non-operational companies or to penalise the brain behind them.
- Stock exchanges have already asked their member brokers to verify if any of the unlisted entities, that were part of the MCA list, were registered as their clients.
- The brokers will have to verify the credentials of such entities and submit a report to the exchanges by August 31.
- A lot of companies, directors, and promoters are going to go to SAT as this order will create ineligibility for many other things such as directorships in other companies and fund raising.
- The capital market regulator has begun hearing the companies on an individual basis, the proceeding and an order –even in the form of an interim relief-might take time due to the sheer number of companies and the lengthy verification process.
- The order assumes significance as the government, in April, had said that during the last three financial year, i.e from 2013-14 to 2015-16, investigations by the Income Tax department led to the detection of more than 1,155 shell companies used as conduits by more than 22,000 beneficiaries.
- The amount involved in non-genuine transactions by such beneficiaries was more than Rs 13,300crore.
- On Tuesday- a day after the diktat-the BSE Mid Cap and BSE Small Cap indices lost more than 1% each even as the benchmark Sensex declined by 0.8%.
- Well known stocks that made to the MCA list were locked at the lower circuit level as it investors frantically tried to offload their positions as trading restrictions were being imposed.
- The restrictions include allowing the shares to be the traded only once a month and not allowing any upward price movement beyond the last traded price.
- SEBI has advised the exchanges to appoint an independent auditor to audit such listed firms
- Conduct a forensic audit to verify the business credential of such fims.
Prelims Related News
- In a little over six months beginning February, the Centre has brought out an online database developed by the Department of Industrial Policy and Promotion (DIPP) and the National e-Governance Division in the Ministry of Electronics and Information Technology as well as the BISAG – an institute for space applications and geo-informatics under the Gujarat Government.
- The Geographic Information System-enabled database also has details of close to 3,000 industrial parks/clusters, as well as area-wise availability of agricultural/horticultural crops, and mineral production.
Information collected by the database:
- At present, the database has mapped 539,501 hectares of land and 2,978 industrial clusters/estates/parks/regions/areas/corridor/zones including Special Economic Zones and National Investment and Manufacturing Zones.
- It currently has specific area-wise details in each state on industrial parks/clusters, the focus sectors, common facilities available for industry, industrial land in use and available industrial land, approved and pending projects, infrastructure including state/national highways, airport, ports and railway stations and electricity, Central/state government incentives, investment/employment-targets and what has been achieved, range of land sale price and lease/rent rates, waste disposal facilities, and contact details of nodal officials.
- The database also has information on the distance from airport/port to each industrial area/cluster and a satellite map view of the area.
- Data is available on agricultural crops such as fibre crops, food grains, oilseeds, and so on.
- Also available are the details of mineral production.
- This database is initiated in the backdrop of the Centre firming up a new industrial and manufacturing policy to push up the contribution of the manufacturing sector in India’s GDP to 25% by 2020 from the current level of about 16%.
- The aim is to make India a global manufacturing hub and in the process generate employment locally.
- The details on the database about government-approved technical institutions will indicate the availability of skilled and semi-skilled talent.