General Awareness Updates June 2012 and July 2012




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НазваниеGeneral Awareness Updates June 2012 and July 2012
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S&P downgrades India’s credit rating

Global agency Standard and Poor’s (S&P) lowered India’s rating outlook to negative and warned of a downgrade in two years if there is no improvement in the fiscal situation and the political climate continues to worsen.

The lowering of outlook from stable (BBB+) to negative (BBB-) is expected to make external commercial borrowings expensive for Indian Inc. It may also have implications for the capital market.

“The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish or progress on fiscal reforms remains slow in a weakened political setting,” S&P said.

BBB- is the lowest investment grade rating, just one step away from junk bond status.

The negative outlook, the rating agency further said, signals likelihood of the downgrade of India’s sovereign within the next 24 months. “A downgrade is likely if the country’s economic growth prospects is dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow,” it said.

S&P’s rating action provides timely warning: Pranab

Terming S&P’s decision to lower India’s credit rating outlook to negative as a “timely warning”, Finance Minister Pranab Mukherjee said there is no need to panic as the government is committed to economic reforms.

 “I am concerned but I don’t feel panicky because I am confident that our economy will grow at 7 per cent, around 7 per cent if not plus. We will be able to control fiscal deficit and it will be around 5.1 per cent,” he said. 

The Minister, however, said that government will take note of the S&P’s decision to lower India’s rating outlook to BBB- (the lowest investment grade rating) and work for achieving higher economic growth.

“So economic reforms will be on track. The reform process and necessary administrative decisions required to ensure that fiscal deficit is retained at projected level (will be taken). We should continue to work for higher GDP... We will take note. It is a timely warning,” the Minister said.

Mr Mukherjee in his Budget for 2012-13 projected a growth of 7.6 per cent and proposed to bring down the fiscal deficit to 5.1 per cent, from 5.9 per cent a year ago. As regards the projections, the Minister said, “I am confident that we will be able to stick to the numbers... Situation may be difficult, but surely we have confidence that we will overcome these difficulties.”

Admitting that there has been delay in passing of certain financial sector reforms bills, the Minister said, “We will try to get these legislations enacted with a broad consensus and I do hope some of the legislations may be enacted during the latter part of the session and surely in Monsoon Session.”

The Government would discuss the Direct Taxes Code (DTC) Bill in the next session of Parliament, he said, adding that certain other legislations which had received approval of the Standing Committee too would be taken up soon. It has not been able to push reforms in insurance, pension, banking and multi-brand retail because of political reasons.


India’s GDP slips to 5.3, ticks off alarm bells

India’s economic growth rate slipped to 5.3 per cent in the fourth quarter of 2011-12, lowest in nearly 9 years due to poor performance of the manufacturing and farm sectors.

The Gross Domestic Product (GDP) growth in the January- March quarter of 2010-11 was 9.2 per cent, according to the latest data. GDP in 2011-12 also moderated to 6.5 per cent from 8.4 per cent in the 2010-11.

During the quarter ending March 31, growth in the manufacturing sector contracted to 0.3 per cent, from 7.3 per cent in the corresponding period of 2010-11. Farm output also exhibited a similar trend and expanded by just 1.7 per cent during the quarter, compared to 7.5 per cent in the Q4, 2010-11.

However, mining and quarrying production growth stood at 4.3 cent during the quarter under review, as against a growth of meagre 0.6 per cent in Q4 of in 2010-11.

Growth in the construction sector slowed to 4.8 per cent during the January-March quarter of 2011-12, from 8.9 per cent in the year-ago period.

The trade, hotels, transport and communications segment grew by 7 per cent during in the quarter under review, as against 11.6 per cent expansion in the year-ago period.

However, electricity, gas and water supply grew by 4.9 per cent in the January-March period, compared to 5.1 per cent growth in the corresponding period last fiscal.

The growth of the services sector, including insurance and real estate remained unchanged at 10 per cent in the fourth quarter ended March.


India improves global trade logistics performance

Countries like India, China, and the U.S., which pursued aggressive reforms, have improved their global trade logistics performance despite the slowdown in progress in the sector over the last two years amid the global recession, the World Bank has said.

India now ranks 46th in global trade logistics performance, whose top five slot are occupied by Singapore, Hong Kong, Finland, Germany, and The Netherlands in the list of 155 countries. The United States is ranked ninth, while Japan occupies the eight spot.

Countries like Chile, China, India, Morocco, South Africa, Turkey, and the U.S. all improved their previous performance, the World Bank said, citing a study based on a comprehensive global survey of international freight forwarders and express carriers, as it released the “Connecting to Compete 2012: Trade Logistics in the Global Economy” report.

“Trade logistics is key to economic competitiveness, growth and poverty reduction,” Otaviano Canuto, World Bank Vice President for Poverty Reduction and Economic Management (PREM), said. “Unfortunately, the logistics gap between rich and poor countries continues and the convergence trend experienced between 2007 and 2010 has stalled as events like the global recession, and the European debt crisis shifted attention away from logistics reform,” he said.

According to the LPI, high-income economies dominate the top logistics rankings, while the economies with the worst performance are least developed countries that are also often landlocked, small islands or post-conflict states. Nevertheless, logistics performance is not simply determined by the level of per capita income, as many countries across different income groups have done better than their peers.

In the upper-middle income country category, top performers include South Africa, China and Turkey. In the lower middle income category, India, Morocco and the Philippines have above average performance improvements. And among low-income countries, outperformers included Benin, Malawi and Madagascar, the Bank reported.

“Infrastructure stands out as the chief driver of progress in top performers, followed by improvements in logistics services and customs and border management,” the World Bank said. “All top performers show strong cooperation between the public and private sectors, and a comprehensive approach in the development of services, infrastructure and efficient logistics.”

At a time where food prices are at historic highs, the survey also found that logistics is important for food security. Transport and logistics directly affect the price and local availability of food through the performance and resilience of food chains, especially in African and Middle Eastern countries that depend heavily on food imports.

The survey, which for the first time included environmental indicators, also found that green logistics is quickly gaining prominence in high-income and emerging economies a positive development since logistics and freight-related activities may account for up to 15 per cent of human carbon dioxide emissions.


SC lambastes Central Government over 2G spectrum auction issue

The Supreme Court refused to grant 400 days to the government to complete the process of fresh auctioning of the 2G spectrum licences but extended the deadline for it from June 2 to August 31, 2012. A bench of justices G. S. Singvhi and K. S. Radhakrishnan also said the existing licences for 2G spectrum will continue to be operational till September 7, 2012. “In our view, it will be just and proper to partially accept the averments made in the application (by the Centre). Accordingly, the time specified for conducting the auction and grant of licences is extended up to August 31, 2012,” said the bench. The bench also said its February 2 order cancelling 122 licences, allocated during the tenure of A. Raja, will remain operational.

The bench made it clear that it was not going to accept the Centre’s prayer for allowing it 400 days to complete the process of auctioning radio waves.

The bench was hearing the Centre’s application, seeking clarification of its direction in the February 2, 2012, judgement which had fixed June 2 as the deadline, when the 122 2G spectrum licenses, issued in 2008, would stand quashed. The court had asked the Centre to complete theprocess of fresh auctioning by June 2.

During the hearing, Attorney General G. E. Vahanvati tried to explain the practical difficulties and implication of the apex court order, which had asked the government to complete the entire exercise of fresh auctioning by June 2.

Mr Vahanvati also appraised the bench about the Telecom Regulatory Authority of India’s (TRAI) recommendation. On Mr Vahanvati’s submissions, the court remarked, “You ask for 400 days. That is your prayer. How much time did you take to complete the process in 2008? The entire exercise could have been avoided if little more effort would have been made,” the bench said.

”We are still not in a position to believe that your officers were so naive that they don’t understand the difference,” the bench said referring to the calculation made by the Department of Telecom (DoT) in grant of the spectrum for 4.4 MHz and 6.2 MHz. “We are not going to accept the prayer for 400 days,” the bench said adding “government was alive and aware that something wrong has gone and petition was filed in 2010”.

Before passing the order the bench said, it was extending the time because technically it was not possible to analyse the auction by June 1. The Centre had on March 1 moved the apex court stating that it will impact over 69 million mobile users as the auction process for radio waves will take at least 400 days.


TRAI proposes steep minimum price for2G auction

The Telecom Regulatory Authority of India (TRAI) has proposed a steep minimum price for auction of 2G telecom spectrum, setting off fears of a hike in mobile phone tariffs which are at present among the cheapest in the world.

The regulator, whose recommendations are not binding on the government, valued 2G spectrum at about `7 lakh crore, nearly seven times more than `1.04 lakh crore that the government had received through auction of 3G spectrum in 2010.

It proposed a minimum or base price of `3,622.18 crore for every mega Hertz (MH) of spectrum in the 1800 MHz band, where radio airwaves have been freed after the Supreme Court cancelled all mobile permits issued by the then Telecom Minister A. Raja in 2008. The price set is around 10 times more than what companies such as Unitech Wireless, Swan Telecom, and Shyam Telecom paid for at least 4.4 MHz of all-India spectrum in 2008.

A pan-India spectrum in 1800 MHz band will cost `18,000 crore. The reserve price is several times the base price of `3,500 crore for 3G spectrum auction. 

TRAI recommended that auction should be open to all companies except those having a more than prescribed limit of spectrum, potentially disqualifying incumbents like Airtel, Vodafone, and BSNL. Telecom operators were naturally not happy with the recommendations with some even mulling legal action on the grounds that the regulator had exceeded its brief.

The reserve price for 800 MHz has been fixed at `7,244 crore, TRAI said, adding that spectrum will be offered in blocks of 1.25 MHz, and at least 5 MHz will be offered in the auctions. The auction is proposed to be open to all eligible companies holding spectrum below a prescribed cap. Also, spectrum to be assigned through auction shall be liberalised – that is spectrum in any band can be used for deploying any services in any technology.

TRAI said the refarming of spectrum in the 800 MHz and 900 MHz bands should be carried out progressively at an early date but not later than the due date of renewal of the licences. Also, the spectrum available with service providers in the 900 MHz band should be replaced by spectrum in the 1800 MHz band, which should be charged at the price prevalent at the time of refarming. The auction should be conducted using Simultaneous Multiple Round Auction (SMRA) format.

The Indian telecom sector is reeling under hyper competition due to overcapacity and under cash strain due to high prices paid for 3G spectrum.
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