Volume 25 – No.4 – July 2011

In this issue

4 President’s message

4 Chamber’s activities

Seminar on Securing US

Green Card

Video Discussion-

Between You and Me

4 General Committee

4 Expert Committees

4 SPOT LIGHT

12th FIVE YEAR PLAN Draft

4 Policy Watch

4 Trade Fairs & Exhibitions

4 Additions to Library

4 Economic Review

4 Others

MOU between MCCI

and CCIFI

1

PRESIDENT’S MESSAGE

Dear Members

Interest rates have gone up, again!

RBIs latest hike of 50 Basis Points (BPS)

on July 26th was the eleventh such

hike since March 2010. Though a hike

was not unexpected, the 50 bps dose

was more than market expectations,

especially considering the fact that the

last increase was only in May 2011.

With this increase, the repo rate, the rate

at which RBI lends to banks has now

reached 8%, while the reverse repo rate,

the rate at which the RBI borrows from

banks now stands at 7%. With 300

basis points of tightening over the past

sixteen months, India is easily the most

aggressive inflation fighter in the world,

surpassing even Brazil.

Clearly the concerns around spiralling

inflation have been uppermost on the

minds of the policy makers. In the words

of the RBI Governor, the rates had to be

increased to “maintain the credibility of

the commitment of Monetary Policy” to

controlling inflation.

In simple terms, RBI’s way to tame

inflation is to reduce the amount of

money that enters the economic system.

How does that work? A high interest

rate influences spending patterns

and shif ts consumers and businesses

from borrowing to saving mode. This

influences money supply. The high

reverse repo rate would tempt banks to

park funds with RBI instead of lending

as the former is risk free and yields a

fairly good return. Both ways the money

supply would be cur tailed, making funds

costlier for borrowers, thus resulting in

less borrowing and spending.

There can be no two opinions on the

need for controlling inflation, which

stood at 9.4% as of June 2011. India

suf fers from the worst inflation of

any major Asian economy, prompting

the Reserve Bank of India to raise

rates more than its regional peers.

High inflation eats away the fruits

of economic growth and poses a

significant risk to future growth. Not

surprisingly, growth projections have

been revised downwards and double

digit growth will perhaps have to wait

for a couple of years.

Inevitably, there is also the debate

between inflation targeting and growth.

RBI in its review had said since domestic

inflation remains very high, some shor t

term deceleration in growth may be

inevitable to bring inflation under control.

Already, the ef fects of the interest hike

have become visible in rate sensitive

sectors like auto, reality, housing and

consumer goods, which may have

cascading ef fect on the economy

as a whole.

But monetary policy only goes so

far. Inflation in India has been fuelled

by several structural bottlenecks in

agriculture and infrastructure as well

as heavy Government borrowings and

subsidies. High oil prices, loose fiscal

policy and supply constraints have

muted the impact of the Reserve Bank’s

aggressive anti-inflation stance. Even

the RBI Governor made it clear that in

the absence of reforms and fiscal steps

to ease the supply-side constraints on

food and commodities, the central bank

had no choice but to keep monetary

policy tight.

Therefore RBI’s move in controlling the

demand side without matching policy

actions from the government to address

the supply side concerns may not

yield expected results. Higher interest

rates are pushing up costs of products

and services, while inflation remains

stubbornly strong despite RBI‘s frequent

interventions in the last one year. This

is bound to af fect the competitiveness

of our industries as well. We should not

end up with the remedies worse than

the disease itself.

What we require now is a balanced

approach to contain inflation, without

dampening the growth momentum.

Best wishes

T T Srinivasaraghavan

President

2

CHAMBER’S ACTIVITIES

1st July 2011

Seminar on “Securing U. S. Green Card”The MCCI in association with Fox

Mandal Lit tle organised a Seminar on

Securing US Green Card on 1st July at

Hotel Savera.

The objective was to brief the

par ticipants on how to secure a US

Green card via the EB-5 programme

created by the US Congress to

encourage foreign investment in the

United States, to create jobs and provide

expeditious Residency and Citizenship to

Qualified foreign investors.

The Green Card Fund is a United States

Citizenship and Immigration Service

(USCIS) approved EB-5 Regional Centre

specialising in providing quality EB-5

investment projects. Green Card Fund is

a subsidiary of the Bedford companies,

founded in 1991.

Mr Gregory Wing, co-founder of t he

Green Card Fund and President &

CEO of Bedford International made a

presentation on the following:

l How to apply for an EB-5 visa

through a USCIS approved

Regional Centre

l How to identify and Select safe,

qualified EB-5 investment projects

l How to secure Permanent US

Residency through an Investment in

an EB-5 project

He explained the following steps for a

EB-5 programme:

l select an EB-5 programme

that is safe

l provide information for

your visa application

l Fund the project ; and

l Get your money back in 4-5 years

What is needed by an EB-5 applicant

is – the ability to invest $ 500,000 for

up to 5 years and $ 55,000 towards

administration fee.

Currently 10,000 US visas are available

for EB-5 prospective investors.

The advantages of EB-5 were:

l expedited residency

l permanent residency for investor,

spouse and children (unmarried

under 21 yrs of age)

l live anywhere in the US

l become a US citizen in 5 years

EB-5 target industries are – Education,

Healthcare and Energy.

There was a lively interaction during

which Mr Satish Kholay, Managing

Director, Green Card Fund who was

also present clarified the queries of the

par ticipants.

27th July 2011

Video Discussion

on “Between You and Me”. The monthly video discussion jointly

being organized by the Chamber along

with MMA was held on the topic

“Between you and me”. The trainer

was Ms Shripriya Srinivasan, Corporate

Trainer.

The video showed realistic role plays

to help employees embrace team work

and solve their own conflicts without

management intervention.

It is important to recognise that there are

two sides to every story. Of ten we leave

the responsibility of solving the conflict

with someone else.

It is important to listen and take

responsibility for the conflict.

The video brought out that –

l Be open and honest

l Ask questions

l Ask for feedback

l Listen without arguing or judging and

reach a consensus

l Be committed

l Enjoy the work in the work place

l Focus on job related actions

l Take action and do the follow up

Every person in the organisation down

to the last is also very important. The

end result is customer satisfaction and

all organizations aim for that.

The program was attended by

around 35 par ticipants from various

organisations and the feed back

was excellent.

For more details, please contact Fox Mandal Lit tle in Chennai – Tel: 24361029

Email: Chennai@foxmandal lit tle or Ms Madhri Guruswamy Mobile: 95000 57312

Email: madhri.guruswamy@foxmandal.com

3

GENERAL COMMITTEE

9th July 2011 Brief excerpts of the discussions are given below:

Study on Port Sector:

The Chamber has engaged Madras

Consultancy Group for a study on the port

sector. Once the study is completed, the

Chamber will hold a Seminar and present

the findings to all the stakeholders. It is

hoped that the study would be completed

by the middle of August.

While on this it was informed that the

members of CTCC met the Hon.Speaker of

Government of Tamil Nadu and impressed

upon him the importance of the timely

completion of the EMRIP project . He

promised his personal attention and

thereupon assured to hold a meeting with

all the agencies involved and Chennai Port

Trust to expedite the project. This meeting

has since been held.

Programme on XBRL:

This being of contemporary interest, it

was felt this certainly warrants one more

programme. Members were informed

that there were two circulars from MCA

in this regard. These have been put on

their website and any one could give their

comments.

The Chamber will organize another

programme on this shortly with the

presence of Secretary, MCA.

Co-options to the Committee:

It is usual for the Chamber to co-opt

some leading corporate representatives to

the Committee in order to gain from their

knowledge, expertise and suggestions

for the benefit of the Committee’s

deliberations.

The Committee felt that the same persons

co-opted last year be co-opted this year

as well, considering their involvement and

the contributions to the activities of the

Chamber.

Invitees to the Committee:

It has been the convention of the

Chamber to invite all the Past Presidents

who are active in business to join

the General Committee as invitees.

Accordingly communications would be

sent to them in this regard.

MCCI - Skill Development Initiative - Progress:

As announced at the AGM, the

preliminary steps for starting the Skill

Development Course are almost complete.

The soft launch of the training activities will

be started in August at a rented place in

Chembarambakkam in association with

organizations like NTTF.

As already indicated, efforts are underway

for setting up the skill development centre

at MCCI’s own land at Koppur village,

Tiruvallur District.

Applicability of Service Tax for Chambers of Commerce:

Representatives of local Chambers of

Commerce including their tax professionals

met on 5th July. This meeting was

initiated by MCCI. It was noted that none

of the Chambers in the city are collecting

service tax.

An opinion was obtained that Chambers

and Associations have taken a stand

that the principle of mutuality applies and

based on this, service tax should not

apply.

Chamber Day - 29th September 2011- Action plan:

The Chamber has extended an invitation

to Dr.J.Jayalalithaa, Hon’ble Chief Minister

of Tamilnadu to be the chief guist and her

confirmation is awaited.

The Coffee Table Book and the Directory

of Members 2011 will be released on this

occasion. The Skill Development project

would also be unveiled on this occasion.

New Membership:

The following companies were admitted

as members:

EDAC Engineering Ltd.

Nokia India Pvt Ltd.

Spearheaders Management Consultants

Pvt Ltd.

Treeline Business Solutions Pvt Ltd.

Assocham Managing Committee - Nominations from the Promoter Chambers:

The Chamber has five seats on the

Managing Committee and the following

names have been forwarded to them:

Mr T T Srinivasaraghavan

Mr T Shivaraman

Mr Srinivasan K Swamy

Mr N Srinivasan (F&R Retd)

Mr S Gopal

Sustainable Chennai Initiative:

An informal group consisting of

representatives of Anna University (Water

Dept), British Dy High Commission and the

MCCI have been meeting on 3rd Fridays

of the month with regard to taking this

initiative further.

A number of activities like training and

engaging students to conduct eco

assessments in college campuses,

documenting green initiatives in industries

etc were being planned as a part of this

Initiative.

The plans to organize a seminar on 3rd

October on the occasion of World Habitat

Day were also deliberated in detail.

4

EXPERT COMMITTEES

6th July 2011

COMPANY LAW/COPORATE MATTERS:Terms of Reference of the Committee:The Committee perused the terms

of reference and felt that Foreign

Contribution Regulation Act 2010 which

was notified by the Government of India

would be relevant to include in the terms

of reference. Organisations seeking

foreign contribution for cultural, social,

economic, educational purposes, may

obtain registration or prior permission

to receive foreign contribution from the

Ministry of Home Af fairs by making

application in the prescribed format and

furnishing details of the activities and

audited accounts.

Work Plan for the year 2011-12: Members were apprised that the

Committee has been organising about 5

to 6 programmes each year. Members

were of the opinion that Companies Bill

is likely to be tabled at the for thcoming

monsoon session in the Parliament. If

it is passed, the Chamber could plan a

discussion meeting on this.

It was also noted that a number of

legislations were being amended from

time to time. In view of this, not much

of changes will be expected in the

new Companies Bill. New Schedule VI

and XBRL is one of the core topics for

discussion today and the Ministry of

Corporate Af fairs expects to implement

new changes in an urgent manner

without proper discussions.

It was informed that the Chamber had

organised a seminar on Schedule VI

and XBRL recently and a number of

issues had emerged at the Seminar and

the Chamber had sent a representation

to the Government. Members were of

the view that the Chamber could plan

a Training Programme on XBRL which

would help the corporates to know

the technical details, filling data and

many more connected issues. They

also suggested to invite an approved

sof tware developer to demonstrate the

XBRL tool.

In the recent past, MCA has issued a

number of circulars on various subjects

which seem to be important. The

Chamber would organise a meeting

to gain knowledge of various circulars

issued by MCA.

The draf t code for Independent Directors

has been announced and af ter

analysing the draf t code, a suitable

programme would be planned by the

Chamber on this topic.

Interaction meetings with ROC and

RD, Chennai, also will be scheduled at

appropriate time.

Companies (Dematerialization of Certificates) Rules 2011:Members were informed that MCA

has issued a draf t on Companies

(Dematerialization of Cer tificates) Rules

2011 for comments from the public.

l The Draf t Rules are proposed to be

made ef fective from

1st October 2011

l The Draf t Rules will be applicable

to all public companies and their

subsidiaries which have

raised money by issue by shares,

debentures by accepting public

deposits, stocks, bond or any other

financial instruments from public

other than from directors

of company.

l The Draf t Rules provide that such

companies shall issue and keep

share cer tificates, debenture

cer tificates and cer tificates

issued for receipt of deposits,

stock, bond or any other financial

instruments only in dematerialised

form as prescribed in the

Depositories Act 1996.

l The Companies falling in the above

categories are required to conver t

their existing cer tificates in the

dematerialised form by

30th September 2011.

Members felt that this is impossible and

impracticable to implement.

Members were requested to send

their suggestions to the Chamber to

enable the Chamber to forward it to the

Government.

Invitees to the committee:The Committee desired that Mr.B.Ravi,

Mr.L.Venkatesan, Mr.S.A.Muraliprasad

and Ms. B. Chandra be requested

to join the Committee as Invitees

since their knowledge and exper tise

would be of immense value to the

deliberations of the Committee.

“In a free enterprise, the community is not just another stakeholder in business but is in fact the very purpose of its existence” - JRD

13th July 2011

LOGISTICS:Mr.J.Krishnan, Chairman of the

committee, apprised the members that

the Chamber has been instrumental

in setting up the Chennai Por t and

the Chamber’s history describes the

historical links of the Chamber with

the Por t. Coming to the operations

and administration of Chennai Por t in

the present day context, he said there

were a number of issues unsettled and

day-by-day its number was growing. He

informed that to highlight these issues

and the expectations of the industry, the

Committee had decided to commission

a study on por t sector development in

Tamilnadu. Madras Consulting Group

has been appointed for this purpose

and the work was in progress and

requested Mr.Shanker, President, MCG,

to inform the present position of the

study to the members.

Mr.Shanker made a brief presentation to

the Committee on the progress

of the study.

He and his team also met the of ficials

of the Por t Trust, Corporate Houses,

Expor ters & importers, Por t Users,

Associations etc. He said it would be

possible to present the final draf t only

af ter a number of representatives

connected with the industry and the

Government sector are met. Members

felt that the points covered in the

study were well taken and need to be

fine tuned. During the presentation,

members suggested a number of

issues/solutions which need to be

incorporated in the study.

The final draf t expected to be ready

by the first week of August would be

discussed by the Logistics Committee

and then placed before the General

Committee for their concurrence.

Once the final repor t is ready, the

Chamber would be planning a

suitable conference and the study will

be released at the conference. The

conference would be organised before

15th September.

Course on Logistics:Members were informed that a course

on Logistics has been finalized. The

Committee also suggested conducting

capsule courses like product liability

insurance, marine insurance, shipping

related courses etc. for the benefit of

professionals working in corporate.

18th July 2011

HRD/CSR:

Work Plan for the year 2011-12: The Chairman of the Committee, Mr S

Ganguly, informed the members that

the Chamber every month organizes

Food For Thought (FFT) programmes

which were well received by the

corporates. He mentioned that one

such programme was on CSR. He felt

that the Chamber could plan similar

programmes on topics relevant to

the Committee and requested the

members to suggest such topics. He

said, the Chamber has developed

a good website and requested the

members to visit the site periodically

and place their queries, suggestions,

comments, etc. as also share their views,

if any, relating to this Committee,

so that the Chamber could take

appropriate action.

The Committee suggested to have a

seminar/meeting with the PF of ficials,

ESI of ficials, labour depar tment of ficials

and related authorities to understand

the present legislative changes,

policy changes and administrative

requirements. Presently there were a

number of changes in PF legislation and

the committee will work on a possible

programme in due course.

It was brought to the notice of Members

that the Ministry of Corporate Af fairs,

Government of India, New Delhi has

issued National Voluntary Guidelines

on Social, Environmental & Economic

Responsibilities of Business. Members

were informed that MCA had released

the Voluntary Guidelines on CSR in 2009

as the first step towards mainstreaming

the concept of Business Responsibilities.

This has now been revised with a more

comprehensive set of guidelines that

encompass social, environmental and

economic responsibilities of business.

The Chamber would provide a link in

the MCCI website to download the

guidelines issued by MCA. The Exper t

Committees on Company Law and

HRD would study the guidelines before

providing suggestions. Members were

requested to go through the website

and have a look at the guidelines and

send their comments to the Chamber

either through website or by e-mail.

The Chairman suggested that this topic

could also be considered as one of the

topics for future FFT programmes.

5

EXPERT COMMITTEES

CSR activities in association with Government of Tamilnadu: Mr M Ramakrishnan, Co-Chairman gave

highlights of his earlier CSR project done

in Coimbatore where large groups like

PRICOL, LMW, ELGI, Bannari Amman

Group and Sankara Eye Foundation

and other trading agencies joined

hands and made a successful project

called “Sirutholi”. These initiatives were

done with the suppor t of Government

agencies like PWD, Revenue, Forestry

and the Corporation. He suggested

that the Chamber can embark on similar

projects in Chennai, taking the suppor t

of our member industries.

Job Fair – 27th & 28th August: The MCCI in association with Jaya

TV is planning to organize a Job Fair

on the 27th & 28th August. The basic

objective of this Fair is that MCCI would

act as a bridge between the Corporate

and the Student community and the

idea would be to bring a number of

students to take par t in the Fair, since

many students are unable to take

up jobs due to many factors and this

fair might of fer a good oppor tunity to

them. Graduates of various disciplines

including engineering, ar ts and science,

diploma holders, etc. are eligible to

par ticipate in the Fair.

Members were also informed that

the Chamber is also setting up a skill

development centre and sof t skills

training would be commenced from

August. For the selected students from

the Fair, training in communications,

front of fice management etc., would be

planned by the Chamber under the Skill

Development Programme. The Secretary

General requested the Committee to

suppor t the Fair.

EXPERT COMMITTEES

6

25th August

Preview on UNEP’s Responsible Production

Framework:

Sheraton Park Hotel – 3 to 6.30 p.m.

Mr Jayakumar, Speaker, Tamilnadu Assembly will address.

(By invitation – please contact Mrs J Edwards,

MCCI for invitations)

............................................................................................................................

10th & 11th September

Job Fair – MCCI & Jaya TV –

Atrium, Spencer’s Plaza

............................................................................................................................

4th September

Felicitation to Mr Harsh C. Mariwala, President, FICCI – 4 p.m. Taj Coromandel Hotel

.............................................................................................................................

5th September

Interaction meeting with the representatives

of Greater Geneva Berne Area (GGBa), Western Switzerland - 4.45 p.m. MCCI Conference Room

............................................................................................................................

9th September

MCCI & TCS – Seminar on IT for SMEs –

Hotel Raintree, Anna Salai – 6 p.m . followed by Dinner

............................................................................................................................

10th September

Seminar on Cost Audit & Rules under the

Companies Act 1956 – 10 a.m. Hotel Deccan Plaza

............................................................................................................................

12th September

Talk by Rober t F Bruner,Dean, Darden School of Business, University of Virginia –

on Global Trends and the Changing Economic Outlook.

(Time and venue to be finalized)

............................................................................................................................

15th September

Presentation on “Indo-German Trade in

the Machinery Sector – Challenges &

Opportunities” –

by Mr Ulrich Ackermann, Managing Director of Foreign

Trade Division, German Engineering Federation (VDMA)

10.30 a.m. t0 11.30 a.m. MCCI Conference Room

Forthcoming Programmes

SPOTLIGHT

Process of formulating the

12th Plan:

The Planning Commission

has commenced a very wide

consultative process on the

challenges for the 12th Plan. Over

900 CSOs across the country

have par ticipated, as well as

many Industry Associations and

‘think tanks’. A series of regional

consultations with States have been

planned and the dialogue with other

stakeholders continues.

Eleventh Plan Experience:

The GDP growth is likely to average

8.2% over 11th Plan - shor t of the

9% target but remarkable, given the

global crisis and drought. In the 10th

Plan, GDP growth averaged 7.7 %.

The Commission has seen progress

on inclusiveness: Agricultural growth,

Pover ty Reduction, Education,

Health, Uplif tment of SCs/STs,

Minorities etc. However, progress on

inclusiveness is less than expected.

Inflation has accelerated in the last

two years. The current international

environment is very uncer tain as

there is global pressure on food,

oil and other commodity prices.

Financial conditions and exchange

rates are likely to be volatile due to

sovereign debt related problems

in Europe/US, and readjustment

of extraordinary monetary/fiscal

easing.

Key messages from

consultations:

Strong demand from all sectors

of society is the need of the

hour to improve Implementation,

Accountability and Service Delivery.

Citizens Groups broadly suppor t

the stated objectives of existing

Government programmes. However,

the design and institutional

arrangements are weak. Greater

devolution and empowerment is

needed.

Government programmes need

a new architecture: greater

localisation, break-down of silos,

feedback from citizens and

mechanisms for learning and

sharing of best practices. A major

contribution to economic growth

now comes from the private

sector. A policy environment that

suppor ts this dynamism is therefore

important. There is a need to create

environment for nur turing enterprise,

improving markets, suppor ting

innovation, providing access to

finance and inculcating respect for

common pool resources.

Twelfth Plan Objectives:

The basic objective is to have

faster, more inclusive, and

sustainable growth. The 12th plan

aims to achieve a growth rate

of 9.0 to 9.5 percent. Energy,

Water and Environment present

major sectoral challenges. It is a

challenge to address them without

sacrificing growth. We need to find

resources to create a world class

infrastructure.

For growth to be more

inclusive we need:

l Better per formance in agriculture

l Faster creation of jobs, especially

in manufacturing

l Stronger ef for ts at health,

education and skill development

l Greater ef fectiveness of

programmes directly aimed

at the poor

l Special programmes for socially

vulnerable groups

l Special plans for disadvantaged/

backward regions

The 12th Five year Plan – Draft

7

8

SPOTLIGHT

Agriculture and Rural

Development:

We need to target at least 4%

growth for agriculture. Cereals are

on target for 1.5 to 2% growth. We

need to concentrate more on other

foods and on animal husbandry

and fisheries, where feasible.

Land and water are the critical

constraints. Technology must focus

on land productivity and water

use ef ficiency. Farmers need

better functioning markets for both

outputs and inputs. Also, better rural

infrastructure, including storage and

food processing. States must act to

modify APMC Act/Rules (exclude

hor ticulture), modernize land records

and enable properly recorded land

lease markets. RKVY has helped

convergence and innovation and

gives State governments flexibility.

This must be expanded in the

Twelf th Plan. MGNREGS need

to be redesigned to increase

contribution to land productivity

and rain-fed agriculture. Similarly,

FRA has potential to improve forest

economies and tribal societies. But

convergence with NRLM is required

for enduring rural livelihoods.

Water:

Revisit India’s water balance

estimates basin-wise. Must map

all aquifers over next five years to

facilitate aquifer management plans.

AIBP is not achieving its objectives.

It must be restructured to incentivise

irrigation reform and ef ficiency of

resource use. Setting up of Water

Regulatory Authority must be a

precondition. There is a strong

case for higher priority to watershed

management. Separation of

electricity feeders for agriculture can

improve quality of power availability.

Propor tion of water recycled by

urban India and industry to be

raised to protect water levels and

improve sur face and groundwater

quality.

Rational water use may need for:

l New Groundwater Law reflecting

Public Trust Doctrine

l New Water Framework Law

(as in the EU)

For this there is a need to evolve

political consensus and the

constitution of a National Water

Commission to monitor compliance

with conditionalities imposed in the

investment clearance of important

projects.

Industry:

Manufacturing per formance is

weak. There is a need to grow at

11-12% per year to create 2 million

additional jobs per year. Indian

industry must develop greater

domestic value addition and more

technological depth to cater to

growing domestic demands and

improve trade balance. FDI and

trade policies should be tuned

up to attract quality investment in

critical areas. Improve business

regulatory framework: ‘cost of doing

business’, transparency, incentives

for R&D, innovation etc. Land and

infrastructure constraints are a major

problem. States should develop

‘special industrial zones’ with good

connectivity and infrastructure.

‘Clusters’ need to be suppor ted to

enhance productivity of MSMEs and

there should be better consultation

and co-ordination in industrial policy

making.

Some sectors should be given

special attention because they

contribute to most of our objectives

eg:

l Create large employment

in the following:

4textiles and garments,

4leather and footwear;

4gems and jewelry;

4food processing industries

l Deepen technological

capabilities: Machine tools; IT

hardware and electronics

l Provide strategic security:

telecom equipment;

aerospace; shipping;

defence equipment

l Capital equipment for

infrastructure growth:

Heavy electrical equipment;

Heavy transpor t and

ear th-moving equipment

l Sectors with global

SPOTLIGHT

9

competitive advantage:

automotive; pharmaceuticals

and medical equipment

l MSMEs: innovation, employment

and enterprise generation

Sectoral plans are being prepared

for each of the above with

involvement of Industry Associations

and the concerned Ministries.

Education and Skill

Development:

The Government must aim at

universalisation of secondary

education by 2017 and at raising

the Gross Enrolment Ratio (GER)

in Higher Education to 20 percent

by 2017 and 25 percent by 2022.

It must also focus on quality of

education (11th Plan emphasis was

on quantity). Must invest in faculty

development and teachers’ training.

Must aim at significant reduction in

social, gender and regional gaps in

education. Targets to be set for this

purpose. Major curriculum reforms

in vocational/skill development to

ensure employability in response

to changing market needs are

required. Development and

operationalisation of PPP models

in School and Higher Education

in accordance with the needs of

a fast growing economy should

be under taken. Research and

innovation in higher education must

be encouraged with cross-linkages

between institutions and industry.

Health:

Better health is not only about

curative care, but about better

prevention and therefore clean

drinking water, sanitation and

better nutrition, childcare, etc. and

convergence of schemes across

Ministries is needed. Expenditure

on health by Centre and States

to increase from 1.3% of GDP

to at least 2.0%, and perhaps

2.5% of GDP by end of 12th Plan.

There is a desperate shor tage

of medical personnel. For this,

targeted approach to increase

seats in medical colleges, nursing

colleges and other licensed health

professionals should be taken.

Improve quality of NRHM services

vs. quantity of NRHM infrastructure.

Structured involvement of PRIs/CSOs

can help. Role of PPP in secondary

and ter tiary healthcare must

be expanded. Health insurance

cover should be expanded to all

disadvantaged groups. Focus on

women and children; ICDS needs to

be revamped.

Energy:

Commercial energy demand will

increase at 7% p.a. if GDP grows at

9%. This will require a major supply

side response and also demand

management. Energy pricing is a

major issue. Petroleum and Coal

prices are significantly below world

prices and world prices are unlikely

to sof ten.

1. Power Sector Issues:

Government aims to set a target

of 100,000 MW capacity in 12th

Plan (against likely achievement of

50,000 MW in Eleventh Plan). Coal

availability will be a major constraint.

Long term health of power sector

seriously undermined (losses Rs.

70,000 crore per year). AT&C losses

are coming down, but too slowly.

State governments must push

distribution reforms. Hydro-power

development seriously hindered by

forest and environment clearance

procedures. Electricity tarif fs not

being revised to reflect rising

costs. Regulators are being held

back from allowing justified tarif f

increases. Open access is not being

operationalised.

2. Coal Production:

On optimistic assumption about

Coal India production, India needs

to import 250 million tonnes in 2017-

18. We must plan for corresponding

expansion of rail and por t capacity.

Coal India must become a coal

supplier and not just a mining

company. It should plan to import

coal to meet coal demands. This

requires blending of imported

and domestic coal as supplied by

Coal India. Environment and forest

clearances of coal mining projects,

including few private sector captive

projects will be critical.

3. Petroleum and Natural Gas:

There is a need for fur ther

SPOTLIGHT

10

expansion of new NELP blocks.

Stable and clearer production

sharing contracts will incentivise

exploration and encourage

investment. Pipeline network for

transpor tation of natural gas and

LNG is limited and this needs quick

expansion.

4. Other Energy Sources:

Nuclear power programme must

continue with necessary safety

review. Solar Mission is seriously

under funded. Need longer term

energy solution for cooking in rural

areas. Expand LPG network (with

cash subsidy for the deserving, not

subsidised prices). Also use of grid

solar and bio-mass energy. Wind

power development, including of f

shore wind power, needs to be

encouraged.

5. Demand Side

Management:

Expansion in supply will need to

be suppor ted by demand side

management.

l Rational energy pricing will help

l Energy standards for high energy

consuming industry, electrical

appliances, energy ef ficient buildings

or enhanced use of electric/ hybrid

vehicles.

Transpor t Infrastructure:

It is proposed that the Railways’

Western and Eastern Dedicated

Freight Corridors (DFC) will be

completed by the end of the Twelf th

Plan. There is a proposal for a High

Speed Rail link between Delhi-

Mumbai and Delhi-Kolkata in the

Twelf th Five Year Plan. More PPP

in railways and State highways

to complement Government

investment would help. Capital

intensive transpor t projects should

rely on private investment to

release resources for other priorities.

Complete the linkages between the

por ts and the existing road and rail

network. Need to deepen existing

por ts. Increase bulk/container

capacity. Ensure suf ficient provision

for maintenance of the already-built

roads. Invest in unified tolling and

better safety on highways. Improve

bus services/public transpor t in

smaller cities, towns and districts.

Metros in urban areas through PPPs

wherever feasible.

Managing Urbanisation:

India’s urban population is expected

to increase from 400 million 2011 to

about 600 million or more by 2030.

The critical challenges therefore

are basic urban services especially

for the poor: water, sewerage,

sanitation, solid waste management,

af fordable housing and public

transpor t. The investment required

in urban infrastructure is estimated

at `60 lakh crores over the next

20 years. We need to develop

and propagate innovative ways

of municipal financing, through

Public-Private Par tnerships (PPPs).

Land management strategies

are key factors for good urban

development as well as financing

urban infrastructure development.

Training and capacity building for

urban planning and urban services

management for corporators and

municipal of ficials is required.

Reform of JNNRUM for the next

phase and convergence with RAY

for an integrated approach.

Source: Planning Commission, Govt. of India

Mr K V Shetty

MCCI deeply mourns the sudden

demise of Mr K V Shetty,

Director, IP Rings Ltd.

on 18th August 2011.

He was the President of the

Chamber during the

year 2002-2003 and led the

Chamber so ably.

The Chamber, on behalf of

all its members, conveys its

hear tfelt condolences to the

bereaved family

and to all at IP Rings Ltd.

May his soul rest in peace.

INCLUSIVE GROWTHBy M.A. Oommen, Emeritus Professor

Institute of Social Sciences, Thiruvananthapuram

SPOTLIGHT

INCLUSIVE GROWTH

Institute of Social Sciences, Thiruvananthapuram

Montek Singh Ahluwalia’s paper on

“Prospects and Policy Challenges

in the Twelf th Plan” (EPW, 21

May 2011) is very interesting and

cer tainly illuminating. I think that

among the various issues the

paper has raised for “spurring a

broader discussion”, the concept

of “inclusive growth” is an ideal

candidate for debate because of

the “policy challenges” it raises. The

term not only appears prominently

in recent years in the documents

of the Planning Commission, and

in budget speeches and Economic

Surveys, but it is constantly used in

the speeches of the leading public

persons of the country. Even so, the

concept of inclusive growth is lef t

delightfully vague. In terms of policy

content, it is cer tainly not a focal

variable. Clarity about the concept

and its contents leaves many things

to be desired. This paper, by one

of the leading architects of India’s

recent five-year plans, is important

for the light it throws on the concept

and some of the policy implications

that follow. In this brief note, I try

to make some observations that I

hope will help to stimulate fur ther

discussions on the subject.

Coequal Objectives?

Presenting growth and inclusiveness

as coequal objectives, the author

notes: “The Eleventh Plan aimed at

delivering faster and more inclusive

growth and it is logical to assess

per formance against this dual

objective” (p 88) and even goes

on to say, “it is dif ficult to assess

inclusiveness than per formance on

growth” (p 89). The three reasons

which the author mentions may be

summarised thus: (a) inclusiveness

is a multidimensional concept,

(b) the data on inclusiveness are

available only af ter a lag, and

(c) the impact of inclusiveness is

not immediately visible. These

arguments do not seem to be

tenable. For one thing, concepts like

growth and development are also

multidimensional. Moreover, several

components of growth (which in the

aggregate appear as the sum-total

of value added) have long-term

implications and some of the related

data are available af ter a lag.

The critical issue is the treatment

of growth and inclusiveness as

two separate boxes and then

considering such an approach

“logical”. The fundamental question

then is why underscore inclusive

growth as a development goal and

proceed to ar ticulate the “vision

and strategy” of inclusive growth in

the very first chapter of the Eleventh

Plan and earlier in the Approach

to the Eleventh Five-Year Plan:

“Towards faster and more inclusive

growth”. Of course, one can quarrel

with the content of the vision and

strategy, but it is incorrect to treat

the two as disparate entities as

policy variables. Ahluwalia speaks

of the “systemic reforms” since 1991

based on a wider play of market

forces, gradual liberalisation of the

financial sector and the opening up

of the economy to world trade and

capital flows. But the moot question

is whether “the cumulative ef fect of

the systemic reforms” has promoted

inclusive growth. A more per tinent

question is what “systemic reforms”

the policymakers have initiated

to strategise a well-designed

vision of inclusive growth. Treating

inclusiveness and growth separately

and then enumerating the variables

to be included (27 is an impressive

number) to monitor progress is pretty

easy, but misses out the needed

vision, strategy and surely “systemic

reforms”.

11

SPOTLIGHT

12

Exclusionary Process

According to the author,

“Inclusiveness must obviously

include progress in delivery

of essential services” such as

education, health, clean drinking

water and sanitation. These

services, especially education

and health, are basic to capability

building and freedom of any

democratic society. The growing

commericalisation of education

and health cer tainly has excluded

many poor and dispossessed them

from the mainstream of growth.

There is no dear th of evidence. Joe

et al (2008) utilising the National

Health Survey data under take a

state-level analysis of inequities

in child health employing widely

accepted concentration measures,

and find that the poorer sections

of population are buf feted with

ill-health and malnutrition of their

children, thus jeopardising the future

of the already vulnerable sections of

society. Using data from a nationally

representative high sample of 41,554

households conducted in 2005,

Sonalde Desai and Amaresh Dubey

(2011), examine the relationship

between social background and

dif ferent dimensions of well-being

and find the continued persistence

of alarming caste disparities in

education, income and social

networks.

The author of the paper on the

policy challenges in the Twelf th Plan

who tries to give the latest figures

and evaluation repor ts about the

unfolding pathology of inadequate

access to proper education, health

and so on seems to walk past the

excluded like the high priest before

the wounded man in the Biblical

parable of the Good Samaritan.

“Accelerating agricultural growth”

is indeed important for inclusion,

but the problem is whether it can

really be inclusive in the absence

of redistributive land reforms. Some

benefits may trickle down to the

wage earners but surely not into the

hands of the landless who remain

excluded (unless they succeed in

selling their labour). Growth is not an

end in itself, but important only as

one of the means towards human

well-being and freedom.

By its own logic, market mediated

growth prices out or excludes those

without exchange entitlements,

the latter including not only assets,

but also income, employment,

social security entitlements, initial

endowments, credit wor thiness and

so on. Apar t from market exclusion,

there are several institutional failures

and market failures. There are

also several social exclusions like

caste, gender discrimination and

so on. While some of these can

be addressed through af firmative

action, economic exclusion can

be taken care of ef fectively only

through relevant policy choices on

redistributive strategy and then with

sustained action. Charity can help

one to par ticipate in the market.

But cer tainly that is not what one

bargains for in an inclusive growth

regime.

Strategy, Not Mitigating Factor

Inclusiveness is not a mitigating

act, but a strategy of par ticipation

in the social production (growth)

process and settlement of claims

on the product on a fair basis. For

the Asian Development Bank which

has been advocating inclusive

growth in the region, “growth is

inclusive when it allows all members

of a society to par ticipate in and

contribute to the growth process on

an equal basis regardless of their

individual circumstances” (Ali and

Zhuang 2007: 10). This definition is

positive but does not indicate the

structure and pattern of growth and

rules out a distribution strategy. A

growth process that works towards

ef fective equality of oppor tunity

must define the boundaries of

the market, the composition of

the commodity flow, the structure

of initial endowments, the social

arrangements for enhancing the

capabilities of individuals and the

freedoms needed to achieve the

capabilities and so on.1

Equality is a universally acclaimed

value and is generally af firmed

as a basic human right. Amartya

Sen famously asked the question

“equality of what”? The answer

to this question is important for

identifying the policy variables that

have to be chosen for action.2

Ahluwalia’s paper rightly asser ts

that inclusiveness must address

the concerns about inequality

and identifies some variables for

focal action. Basically one has to

review the rationale and interrogate

the ethics of the existing social

arrangements that exclude some

and enrich others in order to

propose a meaningful strategy

of inclusive growth. Even without

any such plea for radical structural

transformation one can be more

positive than the following remarks

of the author on inequality.

It is sometimes argued that

inequality should not matter as long

as the poor are getting better of f

and it is probably true that a rapid

rate of improvement in incomes

for the poor may make them

willing to accept some increase in

inequality. However, large increases

in inequality accompanying only

modest improvements in the levels

of living of the poor, are unlikely

to be acceptable (p 89, emphasis

added).

This type of approach obviously is

not inclusive, but willy-nilly keeps

the poor excluded in perpetuity. It

is a matter for debate whether you

can build the road map to inclusive

growth on such postulates. I have

no hesitation in saying that the

wedge between “Shining India” and

“suf fering India” will keep growing

unless strong “systemic reforms” are

initiated for promoting a sustainable

inclusive growth path similar to

what has been done since 1991 to

ensure the unfettered freedom of

capital. The indif ferent way in which

inclusive growth is handled in India

is probably because “they could get

away with it” as when Sen (1973,

1998) points out how the Athenian

intellectuals of direct democracy

fame lef t out the slaves and women

from the orbit of their discourse and

discussion.

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SPOTLIGHT

identifying the policy variables that

have to be chosen for action.2

Ahluwalia’s paper rightly asser ts

that inclusiveness must address

the concerns about inequality

and identifies some variables for

focal action. Basically one has to

review the rationale and interrogate

the ethics of the existing social

arrangements that exclude some

and enrich others in order to

propose a meaningful strategy

of inclusive growth. Even without

any such plea for radical structural

transformation one can be more

positive than the following remarks

of the author on inequality.

It is sometimes argued that

inequality should not matter as long

as the poor are getting better of f

and it is probably true that a rapid

rate of improvement in incomes

for the poor may make them

13

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Charges: Full day - Rs 4000 (for members) Rs 5000 (for non members) Half day - Rs 2000 (for members) Rs 3000 (for non members) LCD Projector - Rs 1000 (full day) Rs 500 (half day)

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Appointment of Mr D K Pradhan, Chief Operating Officer, MCCI Skill Development Centre

SPOTLIGHT

The Planning Commission has

listed 10 areas given below on

cross cutting themes, each of

which is relevant for dif ferent

sectors. These ten areas

include:

1. Citizens’ expectations - What

are the citizens’ expectations

in individual sectors? How can

we set targets to reflect these

expectations?

2. Governance and Institutions -

How does government or public

institutions af fect us in dif ferent

sectors? How can we make

them work better?

3. Markets - Are markets

per forming their role in these

sectors satisfactorily? How

can we improve the functioning

of markets?

4. Global Developments - How

will global developments af fect

us in individual sectors?

How can we use global

developments to our

advantage?

5. Demography and Skills - How

does the age / sex /

geographical / skill distribution

of our population af fect

our per formance or potential?

How can we cope with

demographic changes

already underway?

6. Science and Technology - What

kinds of science and technology

are available and appropriate?

How can we get more

useful S&T?

7. Information - Do we all have

appropriate information

to take informed decisions?

How can we improve the

availability and usefulness of

information?

8. Land Climate and

Environment - How does

land use and environmental

considerations af fect us?

How do we build strategies

to take them into account?

9. Innovation and Enterprise -

Are we creating enough

innovations and

enterprise for inclusive and

sustainable growth? If not, how

can we do so?

10. Financing the Plan - What are the

financial requirements, both

public and private of achieving

our targets? Can we meet them?

Governance

The first draf t to the XI Plan,

prepared and issued by the

Planning Commission in 2006, had

this to state on Governance:

“All our ef for ts to achieve rapid and

inclusive development will come to

naught, if we cannot ensure good

governance both in the manner

public programmes are implemented

and, equally important, in the way

the government interacts with the

ordinary citizen. Corruption is now

seen to be endemic in all spheres

and this problem needs to be

addressed urgently.” Crucially the

quality of governance (or the lack of

it) is seen as India Achilles heel in

her march to prosperity.

In shor t, given the quality of

governance it is inappropriate in

the current Indian context to raise

outlays significantly and hope

for the best. Af ter all, anything

multiplied by zero is zero. Since there

is a complete disconnect between

service providers and consumers,

poor governance has become the

norm in India. For long, we have

assumed that poor governance can

be tackled through “Better design

of projects and implementation

AN APPROACH TO THE XII FIVE YEAR PLANAN APPROACH TO THE XII FIVE YEAR PLANBy M R Venkatesh

Chairman, Exper t Committee on Economic Af fairs, MCCI

14

SPOTLIGHT

15

mechanisms and the Right to

Information Act.” But these are

passive attempts when the rot is

deep and massive.

The malaise of poor governance

needs radical and innovative

solutions, especially in three crucial

sectors – Primary education, health

and public transpor t. It is the failure

of India in delivering in these crucial

sectors that has been attracting

comments from critiques, both

in India and abroad. Naturally

we need to tackle this upfront

before we proceed any fur ther.

Various government agencies

have repeatedly brought about the

charge that these sectors were

under-funded as a percentage

to our GDP. This is only par tially

true. Even a substantial increase in

the spending of any one of these

sectors may not help to see any

significant increase in outcome /

outputs. The reason for the same is

too obvious – the service providers

are completely disconnected from

the needs of the service seekers.

And this disconnect lies at the

root of all malice af fecting our

governance.

Making Growth inclusive:

While we appreciate the ef for ts

of the Government in tackling the

scourge of pover ty, the fact is India

continues to be a laggard in Human

Development Index. According to the

recent global Human Development

Repor t (2010) India’s HDI rank is

119. Countries with lesser natural

endowments, human capital and

those repeatedly ravaged by

several natural calamities are placed

far higher than India in the Global

Human Development Index (HDI). For

long , we in India had discussions

on the economic model and

revelled in mere sloganeering. The

time to act is now. Consequently,

MCCI suggests that as an

overarching objective of the XII plan,

the Planning Commission must have

an ambitious target of ensuring

that India significantly improves

her rankings in the global HDI.

Unless we benchmark ourselves

to the global HDI and measure our

per formance, we would be stuck

in the quagmire of pover ty, illiteracy

and disease.

Notwithstanding the above, one

area that is engaging our attention

is the disparity in various social

indices even within our country. For

instance, on social indices, cer tain

States seem to do far better than

the other. This gap needs to be

bridged for thwith. It is suggested

that the best social index for every

State to be drawn up and the

worst per forming State to be given

special attention by the Planning

Commission in the next five years,

so that the laggard State catches

up with the best per forming State

within 2017. This obviously calls

for micro-management and in our

opinion make growth more inclusive.

Fur ther, the scourge of pover ty and

depravation can be conquered only

when we achieve an ambitious

farm growth of 10 or 12 per cent.

In fact, the farm sector should

be one of the growth drivers of

Indian economy. Experiences in

several pockets of the country

demonstrate that farm sector can

indeed grow in excess of 12 per

cent p.a. consistently for well over an

extended period of time. Gujarat is

a case in point.

It is believed that even to this day,

over fif ty percent of our population

is dependent on the farm sector.

However, the overall growth rate

recoded by the farm sector for the

past decade or so has not been

impressive. Naturally, the majority of

our population seems to have been

lef t out on the India growth story.

That can be remedied if and only if

we plan and achieve a double-digit

growth.

Extract from Times of India under “Madras

Diaries” “It was in 1836 that the Madras Chamber of Commerce mooted the idea of setting up a harbour to enable the embarkation and disembarkation of goods and passenger ships. In 1861, an iron screw-pile pier was erected along the coast, and the harbour was thrown open to traffic almost immediately.”

Read more ….... Times of India Chennai Presentation .. Saturday, 20th August 2011

POLICY WATCH

16

Sector-specific industry policies soonFirst in line will be the launch of energy sector policy:

Tamilnadu is all set to become a new

growth model in India with the launch

of sector-specific industry policies

within the next two to three months

said Principal Industries Secretary, Mr N

Sundradevan recently.

Tamilnadu has immense potential and

it was currently considering a number

of new initiatives such as the sector

specific industry policy to improve the

investment climate and attract more

foreign direct investment.

He fur ther said the draf ts were ready

and the first in line would be the launch

of energy sector policy. This would be

followed by the release of industrial

policy that would include automobile,

manufacturing and infrastructure

sectors. Pharmaceutical policy would

take longer.

Five States to get priority in Centre’s infra spending:New infrastructure projects in Gujarat,

Andhra Pradesh, West Bengal, Tamil

Nadu and Orissa are set to get a

major push in the five years star ting

2012 as various government agencies

will be prioritizing building of roads,

rail networks, airpor ts and sea por ts

in these States that are setting up

mega petroleum and petrochemical

investment regions. Five massive

regions meant to attract investments

in the petrochemical and allied

sectors are now at various stages of

implementation at Dahej in Gujarat,

Visakhapatnam-Kakinada in Andhra

Pradesh, Haldia in West Bengal,

Paradeep in Orissa and Cuddalore and

Nagapattinam in Tamil Nadu. These

investment zones, each of which is

not less than 250 square kilometers,

are expected to attract a collective

investment of Rs 8,63,664 crore and

create more than 40 lakh jobs during

the 12th Five-Year Plan.

Commerce Ministry to revisit SEZ Rules book:The Commerce Ministry is mulling over

a “relook” at the area ceiling for multi-

purpose Special Economic Zones (SEZs),

presently at 5,000 hectares, since land

is emerging as ‘a binding constraint’

for huge industrial projects in the wake

of widespread protests by farmers for

land acquisition across the country.

The Commerce Secretary, Dr Rahul

Khullar, said the time has come where

issues per taining to land, labour and

infrastructure in the context of the SEZ

need to be looked at again as the rules

were framed seven years ago.

Government lifts restrictions on cotton export:The Government has lif ted expor t

restrictions on cotton and allowed it to

be shipped under open general licence

(OGL) for the rest of the cotton season

responding to a fall in prices of the

commodity and its adequate availability

in the country. In the remaining two

months of the cotton season — that

runs from October to September —

expor ters will only have to register with

the Directorate General of Foreign Trade

(DGFT) to send shipments. They will be

free to expor t any quantity they want.

The government had placed a cap on

cotton expor ts at 55 lakh bales (170

kg each) in October last year to check

spiraling prices and ensure availability

of the raw material for the domestic

textiles industry.

Indo-Japan pact comes into effect:The CEPA between India and Japan,

that seeks to augment bilateral trade

of $25 billion by 2014, has come into

ef fect. The CEPA will see about 94%

reductions in goods ranging from cars to

shrimps and easier movement of nurses

and chefs. On a trade value basis

while Japan has agreed to 97% tarif f

reduction in trade in goods, India has

consented for 90% duty abolition.

NREGA back on table for removing flaws:New Rural Development Minister Jairam

Ramesh is working to overhaul the

United Progressive Alliance’s six-year old

flagship rural jobs programme to rid it

of all ‘man-made’ flaws and make the

job entitlement more demand driven.

The Mahatma Gandhi National Rural

Employment Guarantee Act (MGNREGA),

which costs the government Rs. 40,000

crore a year – the largest spend on any

social welfare scheme – played a key

role in catapulting the UPA government

back to power in the general elections

of 2009. The scheme, however, has

floundered on the ground because of

red tape and corruption. Star ting with

a complete administrative revamp, the

17

POLICY WATCH

government plans to link MGNREGA to a

cluster of mini watersheds, or aquifers,

in a cluster of panchayats, or village

councils. The government also aims to

make the scheme truly demand driven

by moving to a system of receipts, which

will clearly mention the date work was

demanded.

SEBI changes code to ease takeovers by India Inc: SEBI has proposed new takeover rules

that will ease acquisitions by Indian

companies and scrap the non-compete

fee. But it will dilute the spirit of a

committee that mandated total buyout

of minority holders by acquirers as in

the developed markets. The minimum

holding requirement to trigger an of fer

to minority holders has been raised to

25% of the company from 15%. Once

that level is reached, the acquirer must

of fer to buy 26%, up from 20% now.

New norms make it mandatory for the

board of the target company to suggest

its opinion to shareholders, and the rise

in minimum limit may benefit private

equity investors who can own more of a

listed company without having to invest

a substantial sum.

Food Bill likely to be tabled in Parliament in December: Thomas:The proposed National Food Security

Bill for providing subsidized food grains

to the poor is likely to be introduced

in Parliament by December 2011.

The Empowered Group of Ministers

(EGoM) has approved the draf t Bill,

which is now before the Law Ministry.

“Once that is done, it has to go to

the Cabinet. We will also discuss with

the chief ministers, because they are

the implementing agency... then it

has to go to Parliament,” Thomas,

said.”What I propose is to introduce the

Bill by this December so that it can be

implemented from next year,” he said.

Textile Ministry provides Rs 1,972 cr as subsidy under tech upgrade fund:The Textile Ministry has made provisions

for Rs 1,972 crore towards subsidy

amount under the Restructured

Technology Up-gradation Fund Scheme

(TUFS) up to March 31, 2012.The

Union Minister of State for Textiles, Ms

Panabaka Lakshmi, said there will be

an overall subsidy cap of Rs 1,972 crore,

which can be leveraged to make a total

investment of Rs 46,900 crore in the

dif ferent sectors.

Starting business in India to take less than a day:India will soon join an elite group of

countries where star ting a business will

take less than a day. The Ministry of

Corporate Af fairs (MCA) has simplified

the procedures for incorporation to

enable promoters to get their companies

incorporated within 24 hours. The new

procedure to issue online cer tificate

of incorporation will be implemented

from August 11. Earlier, of ficials at the

Registrar of Companies used to go

through the available list of names

and approve all documents manually.

Incorporation took anywhere between

four days to two weeks, depending

upon individual issues. Under the new

procedure, the promoters need to

get the application and other relevant

documents cer tified by a practising

professional and the applications will be

processed electronically.

New Land Acquisition Bill to be introduced soon:To take on the discontentment

against land acquisition process,

Rural Development Minister Jairam

Ramesh has cleared a draf t Bill for

public comments. The Land Acquisition

and Rehabilitation Bill which is on

the Ministry’s website proposes a

compensation of more than six times

the circle rate of land, acquired for

industrial and real estate projects. This is

in line with the recommendations of the

National Advisory Council but given the

time constraint is unlikely to be cleared

by Parliament in the next monsoon

session.

Manufacturing policy clears Labour Ministry hurdle:The proposed manufacturing policy of

the government has crossed a major

hurdle with the issues concerning the

Labour Ministry getting sor ted out.

Labour and Employment Secretary P C

Chaturvedi said that the Ministry had

detailed discussions on the matter with

the Department of Industrial Policy and

Promotion (DIPP) and all the issues

had been resolved. Under the agreed

plan, existing labour laws would be

applicable in the manufacturing zones

18

POLICY WATCH

and there would be administrative

arrangements for quick relief to workers

in case a unit is closed.

MNCs with liaison offices may be taxed:Multinationals which have liaison of fices

in India may have to star t paying taxes

soon. The government feels that many

of these companies generate income

in the country but have not opened

branches, to avoid paying taxes. The

Income Tax depar tment has already

sought details of operations of many

MNCs with liaison of fices in India. Lloyds

of UK, Bender of Germany, BBLO of

Spain, Doosan of South Korea, Magna

of Canada and CKD of Japan are some

of the leading MNCs which operate

liaison of fices in the country. Foreign

entities are allowed to open liaison

of fices in India af ter approval from the

Reserve Bank of India. They are not

subjected to any tax on the condition

that no business activity is carried out.

On the other hand, profits from branches

of foreign companies are taxed at the

rate of 42%.

Steel Ministry to announce new policy by year end:The Government will announce a new

steel policy by this year end. The policy

will address issues related to raw

material security, land acquisitions, steel

demand and infrastructure and will

replace the extant national steel policy

that was announced in 2005.

DEPB sops for textiles restored:The government has restored the Duty

Entitlement Pass Book (DEPB) benefits

for cotton and cotton yarn following a

sharp fall in domestic and international

prices of the commodities. Commerce

and Industry Minister Anand Sharma

who has recently been given additional

charge of the Textiles Ministry said, “The

government has restored the DEPB

benefits for cotton yarn from April 1, 2011

and on Cotton from October 1, 2010.”

India, Lithuania ink double taxation avoidance pact:

India has signed a double taxation

avoidance pact with Lithuania. This

agreement provides for ef fective

exchange of information between

tax authorities of the two countries,

including exchange of banking

information. Lithuania is the first Baltic

country with which India has signed a

double tax avoidance pact.

Builders will be Forced to Cut Prices by 20%:Proper ty prices are expected to

come down by around 20% as realty

developers may not be able to hold

on to the current prices following

the Reserve Bank of India’s liquidity

tightening move to increase repo and

reverse repo rates by 50 basis points

(bps) each. According to exper ts, the

current rate hike may achieve what

the earlier 10 rate hikes could not. Most

realty developers may be now forced

to cut proper ty prices and move the

inventory out to infuse liquidity into their

business, said market exper ts. The

move has come in as a shock and will

hit both developers and home buyers

given the higher cost of funding, said

most realty developers.

Duty drawback on cotton yarn export to return:The Finance Ministr y has decided to

reinstate the duty drawback facility

for cot ton yarn expor ts keeping in

view the current situation of huge

inventories with spinning mills and the

contraction in demand for the item in

the world markets. The government

had withdrawn the duty drawback

on expor ts of cot ton yarn through

a notification on April 29, 2010 for

discouraging overseas shipments in

the backdrop of high domestic prices.

It also put a ceiling on cot ton yarn

expor ts in January this year, which

remained in force till March. According

to a finance ministr y of ficial, “The

duty drawback facility for cot ton yarn

expor ts would be reinstated shor tly”.

“The finance ministr y has given a

confirmation to the textile ministr y that

the duty drawback facility would be

reinstated shor tly. This would come as

a relief to the expor ters,” said a textile

ministr y of ficial.

POLICY WATCH

19

TRADE FAIRS & EXHIBITIONS

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management, wastewater treatment

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from 20th to 22nd October 2011 at

Bombay Exhibition Centre, Mumbai.

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call Conventions and Fairs (I) Pvt .Ltd.

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Nilekani’s 3 steps for direct food subsidy transfer:As the government works out the

modalities for implementing direct

transfer of subsidies on cooking gas,

fer tilizers and kerosene, a task force

headed by Nandan Nilekani has

proposed a three-stage model for

direct transfer of food subsidy. The

rollout of direct transfer of food subsidy

will be contingent on a modern and

computerized public distribution system

(PDS), for which Nilekani has suggested

a centralized network. ‘Aadhaar’

numbers, currently being rolled out

across the country, will form an integral

par t of the transfer, just as in the case

of fuel and fer tilizers. The draf t repor t

on direct transfer of fuel and fer tilizer

subsidy was submit ted earlier this

month, following which the government

asked Nilekani to also prepare a

blueprint for the direct transfer of food

subsidy.

Dairy majors want milk items kept out of trade pact with New Zealand:The domestic dairy industry has

opposed inclusion of milk products

within the ambit of the proposed

India-New Zealand Free Trade

Agreement (FTA). “We want Chapter

4 (of the Customs Tarif f dealing with

dairy produce) to be kept out of the

FTA. Any plan to grant New Zealand

preferential access to the Indian dairy

market in exchange for a more liberal

visa and employment regime for our

professionals is totally unacceptable,”

said Mr. R.S. Sodhi, Managing Director,

Gujarat Cooperative Milk Marketing

Federation (Amul).

Telecom may move to unified licence regime:The government could move to a

‘unified licence’ regime under a planned

radical overhaul of telecom rules,

potentially dismantling walls between

dif ferent types of communication

services but at the same time risks

triggering fresh turmoil in the scandal-

ravaged sector. A senior depar tment of

telecom of ficial said the new telecom

policy being readied by the government

may allow operators to of fer all “forms

of communication services under a

single permit”. Telecom firms now need

separate licences for each type of

service.

New accounting regime for taxation from Finance Ministry soon:A key hurdle to implementing

International Financial Reporting

Standards (IFRS) in India is set to be

removed. The Finance Ministry, which

flatly refused to endorse IFRS for taxation

purposes, has now star ted work on

developing a new set of indigenous

accounting standards, which would

be capable of accurately estimating

the tax liability of India Inc. The new

India-specific standard will be marked

by its flexibility to suit dif ferent types

of businesses. It will also reconcile the

Direct Taxes Code — which would replace

the Income Tax Act once Parliament

approves it — with the IFRS. The finance

ministry move would mean that IFRS and

the new standards for taxation would

co-exist and companies could achieve

compliance with both with relative ease.

Environment regulator to be set up soon:Recognizing the need for a change in

the way environmental clearances are

granted, Prime Minister Manmohan

Singh has said the country would

soon have a National Environment

Appraisal and Monitoring Authority.

“We hope to establish an independent

regulator — the National Environment

Appraisal and Monitoring Authority

— soon. This authority could lead to

a complete change in the process of

granting environmental clearances,”

Singh said at the valedictory session

of the international seminar on ‘Global

environment and disaster management:

Law and society’.

ADDITIONS TO LIBRARY

Directories:

Assocham – “The Luxury”

Competition Law in India – An overview

Future Jobs – The Employment Challenges

A Step towards measuring social responsibility and sustainability

Qualified Institutional Placement – The flavour of Indian corporate world

Others:

Chambers Asia Pacific – Asia Pacific’s Leading Lawyers for Business -2011 A client’s guide - Chambers and Par tners

National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business

- Ministry of Corporate Af fairs, Govt. of India

Cooperation Agreement

The Madras Chamber of Commerce & Industry has signed a Cooperation Agreement with The Chamber of Commerce and Industry France-India, France.

Under this agreement, both the Chambers will work together to:

l provide a framework within which the CCIFI and MCCI will work collaboratively together

l establish a basis to fur ther develop the relationship and achieve greater collaboration

l define common objectives for joint par ticipation and engagement

l share relevant information, market and economic study to the extent possible

l share agenda/logos to promote events on the par ties website

l provide each other with visual material to realize the above missions and

l assist each other in networking with other relevant organizations

A warm welcome to our following new members

EDAC Engineering Ltd.

Nokia India Pvt Ltd.

Spearheaders Management

Consultants Pvt Ltd.

Treeline Business Solutions Pvt Ltd.

Directories:

Assocham – “The Luxury”

Competition Law in India – An overview

Future Jobs – The Employment Challenges

A Step towards measuring social responsibility and sustainability

Qualified Institutional Placement – The flavour of Indian corporate world

Others:

Chambers Asia Pacific – Asia Pacific’s Leading A client’s guide - Chambers and Par tners

National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business

-Ministry of Corporate Af fairs, Govt. of India

The Madras Chamber of Commerce & Industry has signed a Cooperation Agreement with The Chamber of Commerce and Industry France-India, France.

Under this agreement, both the Chambers will work together to:

21

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ECONOMIC REVIEWECONOMIC REVIEW

ECONOMY

India’s core industries output growth up 5.2 percent in June

Fiscal deficit surges four-fold in April-June, 2011

Food inflation moderation trend continued for yet another week

India- UK Reaf firms their Commitment to Strengthen their Economic and Financial Relations

POLICY

First Quar ter Review of Monetary Policy 2011-12: RBI

REPORTS

Rising prices hur t Asia’s growth - ADB

2010 Global FDI Inflows up 5%; India slips to 14th spot: UNCTAD

ECONOMIC REVIEW

ECONOMY

India’s core industries output

growth up 5.2 percent in June

The Index of Eight core industries

having a combined weight of 37.90

per cent in the Index of Industrial

Production (IIP) with base 2004-05

registered a growth of 5.2 per cent

in June 2011 as compared to 4.4 per

cent in the same period last year.

However, the growth of eight key

infrastructure industries is less than

the 5.3 per cent growth achieved

in May. Also, for the first quar ter of

current financial year, the Index of

eight core industries grew by only

5.0 per cent as compared to 6.8

per cent during the corresponding

period of previous fiscal year.

Despite the unfavorable environment

of growth, such as high inflation rate

and increasing interest rates, the

production of eight core industries

has more or less been able to

maintain its pace of growth. Also,

the high global commodity prices

have acted as a barrier to the

industry‟s faster expansion.

The government has added two

more sectors - natural gas and

fer tilisers to the existing six industry

segments. With the inclusion

of these two sectors, the core

industries now cover the sectors

such as crude oil, petroleum refinery

products, natural gas, fer tilisers,

coal, electricity, cement and steel.

Also, its weightage now account for

37.9 percent in the overall index of

industrial production, as compared

to 26.7 percent earlier.

According to provisional data

released by the Ministry of

Commerce & Industry on July 29,

production of steel, electricity, crude

oil and petroleum refinery products,

saw positive growth in the month

of June, 2011. On the other hand, the

remaining sectors such as natural

gas, coal, fer tilizers and cement saw

a negative growth.

Steel production registered a growth

of 12.5% in June 2011 compared to

4.3% in June 2010. In addition to

Steel, the remaining three sectors

also repor ted better growth during

the month. Electricity generation

registered a growth of 8.2% in June

2011 compared to a growth of 3.8%

in June 2010. The growth in Crude

oil production expanded by 7.7% in

June 2011 compared 6.8% percent

expansion in the corresponding

period of 2010. Also, the Petroleum

refinery production showed an

23

ECONOMIC REVIEWECONOMIC REVIEW

improved output growth of 4.7% as

against the growth of 2.9%

in June 2010.

Among the sectors, which

experienced contraction in growth,

Natural Gas production registered

the worst growth of (-) 11.7% in

June 2011 compared to 25.4%

expansion in June 2010. Coal

production growth also slowed

down to (-) 3.3% during the month

under review, compared to growth

of 0.8% in June last year. Similarly,

Fer tilizer production contracted by

(-) 2.4% in June 2011 compared to

(-) 6.7% in year ago period. Cement

production maintained its continuous

contraction in growth during the

current fiscal, this time by (-) 0.8% as

compared to 3.7% in June 2010.

During the first three months of

current financial year (April-June

2011-12), Steel production grew by

7.8% compared to an increase of

8.6% during the same period of

2010-11. Similarly, during the period

Electricity generation, Crude Oil

production, and the Petroleum

refinery production grew by 8.3%

(5.7% in 2010-11), 9.5% (5.9%), and

5.3% (5.3%) respectively. On the

other hand, Natural Gas production

registered a growth of (-) 10.2%

during April-June 2011-12 compared

to 37.0% during the same period

of 2010-11. Similarly, the respective

rates of growth for the remaining

sectors were 0.2% (- 0.6% in 2010-

11) for Coal production, 1.1% (-2.6%)

for Fer tilizer production, and (-) 0.9%

(7.0%) for Cement Production.

Fiscal deficit surges four-fold in

April-June, 2011

The central government’s fiscal

deficit surged by over four-fold

in the first three months of the

current fiscal 2011-12 to Rs 1.62 lakh

crore on account of lower non-tax

receipts. The deficit was Rs 40,196

crore in April-June, 2010. The fiscal

deficit, or the gap between overall

expenditure and receipts in the first

quar ter of this year is almost 40% of

the Budget estimate of Rs 4.12 lakh

crore for 2011-12.

The sharp rise in Centre’s fiscal

deficit is on account of 89% decline

in non-tax receipts which went

down to Rs 12,221 crore in the first

quar ter of this fiscal compared to

Rs 1.15 lakh crore in the year-ago

period. Besides, there was a 6.3%

decline in tax revenues at Rs 78,699

crore during the period under

review. The figure was Rs 83,994

crore in the year-ago period.

As per the latest data of the

Controller General of Accounts (CGA),

the total receipts were Rs 98,564

crore in April-June 2011, down by

51% year-on-year. The figure was Rs

2.02 lakh crore in the three month

period in 2010.

Also the non-tax receipts have

been lower as the government’s

disinvestment programme for this

year is yet to take of f fully. The higher

non-tax revenue in first quar ter

of last fiscal was on account of

auction of 3G spectrum. Meanwhile,

the revenue deficit, the dif ference

between revenue earned and

expenses, in April-June this year

stood at Rs 1.34 lakh crore, which

is almost 13 times higher than the

figure of Rs 10,577 crore in the first

three months of 2010-11. The latest

number is 48.3% of the Budget

estimate of Rs 3.07 lakh crore.

Though, the government has set a

fiscal deficit target of 4.6% of the

GDP for the current fiscal. Exper ts

had said that lower revenue

collection on account of removing

duties on petroleum products, could

pose a challenge and take the

deficit to over 5%. In 2010-11, the

fiscal deficit was 4.7%.

Food inflation moderation

trend continued for yet

another week

India’s food inflation rate based

on the Wholesale Price Index (WPI)

eased to 7.33 per cent (%) for

the week ended July 16, 2011 as

compared to 18.56 per cent during the

corresponding period of the previous

year. Food inflation for the previous

reported week was recorded at 7.56

per cent on a year-on-year basis. The

decline was mainly on account of fall

in the prices of coarse cereals, fibres

and minerals.

24

ECONOMIC REVIEWECONOMIC REVIEW

Among the major groups, the index

for „Primary Ar ticles‟ rose by 0.2

percent as compared to the previous

week levels. Annual rate of inflation

for this group was 10.49 per cent,

down from last week’s level of

11.13 per cent. It was 19.23 per cent

for the corresponding week of the

preceding year.

The index for ‘Food Articles’ sub-

group moved up by 0.8 per cent,

due to higher prices of fish-inland,

fruits & vegetables and fish-marine

(2% each). However, the prices of

jowar (4%), ragi and poultry chicken

(2% each) declined.

The index for „Non-Food Articles‟

sub-group also declined by 0.3 per

cent owing to higher prices of flowers

(16%), groundnut seed (10%), gaur

seed (3%). However, the prices of

raw cotton (6%), raw silk (3%), copra

and raw rubber (2% each) declined.

On the other hand, index for another

major category „fuel, power, light &

lubricants‟ remained unchanged at

its previous week’s level. The annual

rate of inflation under this category

for the week ended July, 16 stood

at 12.12 percent as compared to

previous week level of 11.89 per cent.

India- UK Reaf firms their

Commitment to Strengthen

their Economic and Financial

Relations

The Union Finance Minister Shri

Pranab Mukherjee said that the

Indo-UK Economic and Financial

Dialogue which was established in

2005 has contributed successfully

in strengthening the bilateral

relationship. He said that the

significance of this dialogue is in

laying the agenda and guidance for

future engagement.

While speaking at the Four th

Ministerial Level Indo-UK Economic

and Financial Dialogue at London,

Shri Mukherjee said that both the

countries have identified a number

of issues for joint collaboration. He

said that he is sure that both the

countries will make fur ther progress

in the coming months in deepening

countries economic relations based

on mutual appreciation of their

respective concerns and aspirations.

“This exchange of views will

go a long way in improving our

understanding of each other‟s

position on issues of mutual

concern, he said.” Shri Mukherjee

said that India and UK share a

strategic par tnership and enjoy

traditionally warm and close bilateral

relations in diverse areas.

“Our two countries enjoy strong

historical and cultural relations built

on shared values and traditions.

Since the visit of His Excellency, UK

Prime Minister David Cameron to

India in July 2010, we have seen our

bilateral relations being elevated to

an „Enhanced Par tnership for the

Future‟- he added.”

POLICY

First Quar ter Review of

Monetary Policy 2011-12: RBI

The Reserve Bank of India (RBI) has

released its first quar ter review of

monetary policy for 2011-12 on 26th

July 2011. In its monetary policy

release, the RBI signalled that

battling inflation took precedence

over growth imperatives. The RBI

remains confident that moderation

of domestic growth is not yet broad-

based, but the risks to growth from

uncer tainties abroad have increased

instead of dissipating. Also the

Inflation expectations are becoming

entrenched due to persistently high

food prices, while rising wages are

another worry.

“There are signs that growth is

beginning to moderate, par ticularly

in interest sensitive sectors. But

there is no signs of a broad-based

slowdown”, said RBI Governor D

Subbarao, adding that a moderation

in demand is necessary to bring

down inflation and that the US debt

standoff will add risks to the global

capital flows. In this backdrop, the

RBI continued the tightening cycle

and took a more decisive step

with a 50 basis point hike, beating

market expectations. Moreover, the

central bank gave enough hints that

the latest hike may not be the last.

On the basis of the policy stance

RBI has raised the Repo Rate by

25

ECONOMIC REVIEWECONOMIC REVIEW

50 basis points (bps) from 7.5 per

cent to 8.0 per cent. This has raised

operational policy rates by 475

basis points in a span of 15 months

since mid-March 2010, one of the

sharpest monetary tightening seen

across the world. Infact, RBI has

hiked the rates at all its previous 10

policy meetings.

The Central Bank, however, kept the

Cash Reserve Ratio (CRR) and Bank

Rate unchanged at 6.0 per cent.

The Marginal Standing Facility (MSF)

rate, determined with a spread of

100 basis points above the repo

rate, gets calibrated at 9.0 per cent.

Similarly, the Reverse Repo Rate, or

shor t-term borrowing rate, hiked to

7.0 per cent from 6.5 per cent.

RBI‟s May 3 Policy Statement

projection of baseline real GDP

growth for 2011-12, based on the

assumption of a normal monsoon

and crude oil prices averaging USD

110 a barrel, lef t unchanged at

around 8.0 per cent.

The RBI’s both the documents,

“Macroeconomic and Monetary

Developments First Quar ter Review

2011-12” and “First Quar ter Review

of Monetary Policy 2011-12 by

the Governor D. Subbarao” were

critical on the fiscal intervention

of the government as well as its

policy. Among other things it said

“While the anti-inflationary bias of

monetary policy (of RBI) anchors

inflation expectations, the present

trends necessitate structural reforms

to enhance supply response (from

the government).”

Fur ther, the RBI pointed out that

with overshooting of the fiscal deficit

target a possibility, its expansionary

impact on demand could par tly

of fset the moderation in demand

resulting from anti-inflationary

monetary actions and weaken

monetary policy ef fectiveness.

Responding to persistent

high inflation and increasing

generalisation of price pressures,

the Reserve Bank has significantly

raised its emphasis on containing

inflation. The RBI noted that two

things, the minimum suppor t price

for agricultural commodities and the

increase in wages of rural labour

would add fur ther pressure to

prices. The Central Bank feels that

controlling inflation is imperative

both for sustaining growth over the

medium-term and for increasing the

potential growth rate.

The challenge for the government

and the Reserve Bank, said Dr.

Subbarao, was to ensure that

demand was constrained in the

shor t-term to bring inflation down,

“but to encourage supply response

so as to expand the potential output

of the economy in the medium-

term”. “The economy’s ability to

grow rapidly for any length of

time without provoking inflation

is dependent on implementing

policies, with corresponding resource

allocations, which will allow supply

of various products and services

to keep pace with demand – he

added.”

REPORTS

Rising prices hur t Asia’s

growth - ADB

World Surging inflation, a weak

post-tsunami economic recovery

in Japan and debt woes in the

U.S. and Europe threaten East

Asia’s economic outlook, the Asian

Development Bank (ADB) said on

July 28, 2011. ADB maintained its

growth forecasts for 14 emerging

and newly industrializing East Asian

economies in 2011 and 2012. But

it said the region faces risks that

also include more volatile financial

markets and destabilizing inflows of

shor t term capital, also known as

“hot money.”

The ADB’s growth forecasts were

unchanged from a repor t in April,

with East Asia forecast to expand

nearly 8 percent this year and next.

It forecasts China’s gross domestic

product growth at 9.6 percent this

year and 9.2 percent next year. But

it indicated that economic growth

forecasts for China, Malaysia,

Thailand and Vietnam would likely

to be cut. That would also result

in a downgrade for the region,

26

ECONOMIC REVIEWECONOMIC REVIEW

which includes 10 Southeast Asian

countries as well as the economies

of China, Taiwan, Hong Kong and

South Korea.

In the first half of 2011, economic

growth across East Asia eased from

a blistering pace as inflation surged

across much of the region, driven by

higher commodity prices and strong

economic recovery. Annual growth

in the region’s ten largest economies

moderated to 8.1%, in the first

quar ter of 2011, down from 8.4% in

the previous three months. “Rapidly

rising inflation risks a wage-price

spiral that could derail the region’s

recent strong growth,” the repor t

said, noting that inflation in many

economies has risen above 10-year

averages.

Consumer prices in the region have

been rising due to higher food and

fuel costs. The repor t also detailed

other sources of rising prices.

In many East Asian economies

proper ty prices are climbing quickly.

The devastating tsunami and

nuclear disaster in Japan in March

has also spurred a debate over the

use of nuclear power, which could

drive up energy prices by boosting

demand for other energy sources

such as oil and gas.

The threat of inflation has been a

major worry in Asia this year. The

ADB warned in April that surging

food prices of 10 percent on

average in many Asian economies

could drive 64 million more people

into pover ty. The bank warned that

if price growth does not slow, it

could make things more dif ficult for

the region’s economies. “Elevated

food and commodity prices and

robust domestic demand could

push inflation higher yet,” the bank

said. Rising prices have seen many

economies in the region raise

interest rates in a bid to curb price

growth. Tighter monetary policies

have resulted in a slowdown in

growth.

However, the bank said the

economies will continue to take

measures to tackle inflation.

“Authorities are expected to keep

tightening monetary policy and

rolling back fiscal stimulus to counter

rising inflation and economic

overheating,” the bank said.

The ADB’s economists also fretted

about the dismal prospects for

the U.S. and Europe, which are

plagued by high unemployment

and debt problems. Both are major

customers for East Asia’s expor ts.

“If the recovery in Japan, U.S. and

eurozone falters, sluggish external

demand could once again disrupt

the region’s expor ts,” the repor t

said.

The repor t also warned that the

region could be hur t if the U.S.

government’s top-notch credit rating

is downgraded amid fears that U.S.

lawmakers may fail to come up

with a way to prevent a debt default

in the world’s biggest economy.

That could depress the dollar

against other currencies, hur ting

Asian governments that hold large

amounts of U.S. government debt in

their foreign reserves.

The bank said this “two-paced”

global economy had resulted in

investors flocking to the region’s

economies looking for better

returns, putting fur ther pressure

on inflation. “Continued shor t-

term capital inflows add to already

ample liquidity and exacerbate price

pressures,” it said.

2010 Global FDI Inflows up

5%; India slips to 14th spot:

UNCTAD

Global FDI inflows grew 5 percent to

USD 1.24 trillion in 2010, according to

the United Nations Conference on

Trade and Development (UNCTAD)

„World Investment Repor t 2011‟.

This was never theless 15% below

pre-crisis average levels, and 37%

below the 2007 peak of USD 1.9

trillion.

Also, the UNCTAD predicts in

this repor t that the recover y of

FDI f lows will continue in 2011

and will reach a total of some

USD 1.4 to USD 1.6 trillion,

thus returning to the pre-crisis

average. Thereaf ter, f lows are

forecast to rise to USD 1.7 trillion

in 2012 and USD 1.9 trillion in

27

28

ECONOMIC REVIEWECONOMIC REVIEW

2013, barring any unexpected

global economic shocks.

The US topped the tables for

FDI inflows in 2010 at USD 228.2

billion, followed by China (USD

105.7 billion) and Hong Kong

(USD 68.9 billion). Regionwise, EU

and other developed European

countries at tracted the highest FDI

inflows (USD 313.1 billion), followed

by Nor th America and other

developed countries (USD 288.8

billion).

On the other hand, the US topped

the tables for FDI out flows in 2010

at USD 329 billion, followed by

Germany (USD 105 billion) and

France (USD 85 billion). Regionwise,

EU and other developed European

countries contributed the highest

FDI out flows (USD 475.8 billion),

followed by Nor th America and

other developed countries (USD

288.8 billion).

In terms of sectoral pat terns, FDI in

services continued its downward

path in 2010. FDI flows to the

financial industry experienced one

of the sharpest declines. The share

of foreign investment channelled

to manufacturing increased,

meanwhile, and accounted for

almost half of all FDI projects.

In 2010, the rise of emerging

economies as new powerhouses

of FDI became more apparent.

Developing countries and transition

economies absorbed more than

half of global FDI inflows for

the first time. Half of the top 20

host economies for FDI in 2010

were developing and transition

economies. Their outward FDI also

rose sharply in 2010, climbing by

21 per cent. These economies now

account for 29 per cent of global

FDI out flows. Six developing and

transition economies were among

the top 20 investors.

The record level of cash holdings,

low rates of debt financing and

rising stock market valuations of

transnational corporations (TNCs)

should encourage them to expand

overseas, the repor t says. On the

recipients´ side, ongoing corporate

and industrial restructuring,

privatizations resulting from fiscal

rebalancing ef for ts and unwinding

of state suppor t programmes, and

the growth of emerging economies

should create new investment

oppor tunities.

However, the repor t warned

that “the post-crisis business

environment is still beset by

uncer tainties. Risk factors such

as the unpredictability of global

economic governance, a possible

widespread sovereign debt crisis,

and fiscal and financial sector

imbalances in some developed

countries, as well as rising inflation

and signs of overheating in major

emerging market economies, may

yet derail the FDI recovery.”

Despite the emergence of cer tain

developing countries, FDI flows

continued to decline in some of

the poorest regions of the world.

Flows to the Africa and South

Asia, as well as to least developed

countries, landlocked developing

countries and Small Island

developing States fell in 2010. “FDI

to South Asia declined to USD 32

billion, reflecting a 31 per cent slide

in inflows to India and a 14 per

cent drop in flows to Pakistan. By

contrast, inflows to Bangladesh, a

rising low-cost production location,

increased by nearly 30 per cent to

USD 913 million,” the repor t said.

Meanwhile, at a time when

developing and emerging countries

are set ting new records in foreign

direct investment (FDI) inflows,

India‟s position among the top 20

recipients fell to 14th position, from

8th in 2009. India at tracted FDI

wor th USD 25 billion in 2010, much

lower than the inflows of USD 36

billion seen in 2009. In contrast, the

other emerging economies such as

China stood at 2nd position with

inflows totalling USD 106 billion in

2010. Similarly, Brazil stood at 5th

position with inflows at USD 48

billion during the year, the repor t

said.

Source: Assocham

Seminar on Securing US Green Card

- Gregory Wing addressing

- A view of the meeting. Satish Kholay at the mike.

Video Discussion on “Between You and Me”

Shripriya Srinivasan interacting with the par ticipants.