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    Economic Af f Air s

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    Economic Af f a ir s of sept ember 2012

    n wide-ranging recommendations aimed at soothing the hackles of investors and revive

    the inflow of foreign capital, the expert committee on General Anti Avoidance

    Rules (GAAR), headed by Parthasarathi Shome, on 2 September, has advocated

    postponement of the controversial tax provision by three years till 2016-17 along with

    abolition of capital gains tax on transfer of securities. In a further reassurance to foreign

    institutional investors (FIIs) operating through the Mauritius

    route, the expert panel, in its draft report submitted to the

    government on August 31 , has suggested that the GAAR

    provisions should not be invoked to examine the genuineness

    of the foreign investor entities residency in the island nation.

    Highlighting that the objective of GAAR should be deterrence

    rather than revenue, the panel has recommended that the

    Approving Panel (AP) for purposes of invoking GAAR

    provisions should consist of five members, including

    Chairman, who should be a retired judge of the High Court.Besides, two members should be from outside government and persons of eminence drawn

    from the fields of accountancy, economics or business, with knowledge of matters of income-

    tax, and two members should be chief commissioners of income-tax or one Chief

    Commissioner and one Commissioner. It also suggested that GAAR can be invoked only with

    the approval of the Commissioner.

    ndia received over USD 66.13

    billion in remittances in the year

    2011-12 as compared to USD 55.62 billion in the

    previous, a hike of 19 per cent. "We have

    received USD 66.13 billion in remittances in

    2011-12," Minister for Overseas Indian Affairs

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    Vayalar Ravi said on Friday in a written reply to a question in Lok Sabha. The remittances to

    the country through private transfer of funds have been on the rise in the last few years.

    he Reserve Bank of I ndia ( RBI ) w ill allow domestic entiti es to invest in

    Pakistan if they apply for approval, the central bank said in a statement on 7

    September. Indian entities were earlier not allowed to invest in Pakistan. On 1 August,

    the Indian government formally

    allowed foreign direct

    investment from Pakistan in an

    attempt to build trust between

    the two nuclear-armed

    neighbours. Pakistani citizens

    and companies are now allowed

    to invest in all sectors apart from

    defence, space and atomic

    energy, a government statement

    said. The move to allow FDI from Pakistan had been announced by India's trade minister

    earlier this year. India and Pakistan have fought three wars since they broke from British

    colonial rule in 1947. Both sides have implemented measures to improve trade and business

    ties, as they slowly rebuild relations that were shattered by the 2008 Mumbai attacks.

    ive Indian companies including Larsen & Toubro, Hindustan Unilever and Infosys

    are ranked on Forbes magazine's list of "The W orld 's M ost I nnovative

    Companies"topped by four US companies. Larsen & Toubro with an annual sales growth

    of 19 percent is ranked ninth in the world followed by Hindustan Unilever (12) with 11.4

    percent. Infosys (19) comes third with 12.7 percent growth thanks to what the US business

    magazine called a lower "innovation premium." This measures the difference between the

    value of the company's existing businesses and its expected future innovations. Companies

    must also have $10 billion in market capitalization and spend at least one percent of their

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    asset base on research and development. Tata Consultancy Services (29) with 19.5 percent

    was fourth among Indian companies with Sun Pharmaceutical Industries (38) with a 14.6

    growth bringing up the rear. Four US

    companies- Cloud computing king

    Salesforce.com, drug major Alexion

    Pharmaceuticals, internet retail giant

    Amazon.com and open source software

    leader Red Hat took the top four places.

    Forbes said its analyses show at least three

    key things that the innovative companies do to create and sustain an innovation premium.These were: How well companies leverage people, process, and philosophies, differentiates

    the best in class from the next in class when it comes to keeping innovation alive and

    delivering an innovation premium year after year.

    tate Bank of I ndia, I ndias largest bank, on 5th September, announced a

    reduction in interest rates on fixed deposits by 0.5 per cent for most of the

    maturity periods, a move likely to be followed by other lenders. However, for deposits

    between 241 days and one year, the downward revision is 1 per cent. The new rate would be

    6.5 per cent as against 7.5 per cent. Of the total nine maturity periods for fixed deposits, the

    0.5 per cent downward rate revision is

    for six categories. The new rates would

    be effective from September 7, the bank

    said in a statement. With the revision,

    the interest rate on 7-90 days fixed

    deposit would come down to 6.50 per

    cent from 7 per cent. Similarly, term

    deposits of 91-179 days would be down

    by 0.5 per cent, at 6.50 per cent, and 180-day fixed deposits would also attract 6.50 per cent

    interest rate. Fixed deposits with maturity of 181-240 days would now provide interest rates

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    of 6.50 per cent, down from 7.25 per cent. For maturity years of one year to less than two

    years, the new rate will be to 8.5 per cent as against 9 per cent, down by 0.5 per cent. At the

    same time, interest rates for fixed deposits with maturity period between 2-3 years and 3-5

    years have been slashed by 0.5 per cent to 8.5 per cent. However, the bank has left interest

    rate unchanged at 8.5 per cent for term deposit of 5-10 years.

    he Reserve Bank of I ndia di rected all banks to issue cheques with uni form

    features conforming to the Cheque Truncation System (CTS) 2010 standard by the

    end of this month. The homogeneity in security features act as deterrent against frauds, and

    the fixed field placement specifications facilitate straight-through-processing at drawee

    banks end through the use of optical or

    image character recognition technology, the

    RBI said in a notification. ``Adherence to

    CTS-2010 standards has inherent

    advantages as the security features in

    cheque forms help the presenting banks to

    identify the genuineness of the drawee banks instruments while handling them in the image

    based scenario, it said. sAll banks are advised to arrange only multi-city or payable at par

    CTS-2010 standard cheques, not later than September 30.

    ndia claims the second biggest haul after China in Asia's Fab 50 with 11

    I ndian companies, up from seven last year,

    figuring in Forbes 2012 list of 50 best publicly traded

    companies in Asia-Pacific. The US magazine's 2012

    list sees the return of the big Indian IT software

    services and consulting firms, HCL and Tata

    Consultancy, while an Indian drug company, Sun

    Pharmaceutical, breaks into the elite ranks for the

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    first time. Once again, China dominates the list with 23 mainland entries, the same as a year

    ago. Malaysia, Japan, Philippines and Singapore each had one representative on this year's

    list. South Korea could only muster four companies this year, down from eight last year.

    overnment on 6 September, approved a Rs 768 crore proposal to hive off engineering

    and ground handling services of Air India into two wholly-owned subsidiaries as part

    of its turnaround plan. A meeting of the Un ion Cabinet, chair ed by Prime Minister

    M anm ohan Singh, cleared the

    proposal to create the two

    subsidiar ies -- Air I ndia Engineerin g

    Services Lim ited (AI ESL) and Air

    I ndia Tr ansport Services Lim ited

    (AITSL). With this decision, Air India

    would begin the process of transferring the

    assets and manpower to AIESL and AITSL,

    which would be treated as separate profit centres. AIESL would carry out Maintenance,

    Repair and Overhaul (MRO) business, for not only Air India but other airlines too and tap

    the potential of nearly $1.5 billion MRO business in the Asia-Pacific Region.

    he government of India approved a 14000 crore rupees fund to spur the

    production of hybrid and electrical vehicles in the country. According to a

    new policy approved, Automobile companies and

    the government plan to put six million electric

    vehicles on road by 2020. The government under

    the new policy will fund research and development,

    infrastructure and subsidies. With an aim at

    reducing the burden on fossil fuels, the Union

    government in national budget 2011 had proposed a

    plan to develop electric and hybrid vehicles. Later, the government set up a National Council

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    for Electric Mobility led by heavy industries minister Praful Patel, and a National Board for

    Electric Mobility to ensure uniform rules in all the states. According to an estimate about

    130000 electric vehicles were sold in India in 2011-12. Electric scooters cost between 26000

    rupees and 43000 rupees in Indian market, while countrys only indigenously built electric

    car Reva starts at 3.5 lakh rupees. Japan-based Nissan Motor Co. Ltds electric car, Leaf, is

    the largest-selling car in the world that runs on battery. It costs 33000 dollar (around 18

    lakh rupees) in the US and its battery cost is at least half the cars price.

    he Supreme Cour t, on 6 September , held that I ndian courts have no

    jurisdiction to pass interim orders in foreign arbitration awards between

    an I ndian company and a foreign company under the provisions of the Indian

    Arbitration and Conciliation Act,

    1996. Disposing of a batch of appeals, a five-

    judge Constitution Bench, comprising Chief

    Justice S. H. Kapadia and Justices D. K. Jain,

    S. S. Nijjar, Ms. Ranjana Desai and J. S.

    Khehar, said, if the arbitration agreement is

    found or held to provide for a seat/place of

    arbitration outside India, then the provision

    that the Arbitration Act, 1996, would govern

    the arbitration proceedings would not make

    Part I (relating to domestic arbitration) of

    the Arbitration Act, 1996, applicable or enable Indian courts to exercise supervisory

    jurisdiction over the arbitration or the award.

    hidambaram pitched for Prim e M inister led N ational I nvestment Board:

    Finance Minister P. Chidambaram on 15 September 2012 pitched for

    institutionalization of a National Investment Board under the leadership of Prime Minister.

    The formation of the board will help in speeding the approval of the proposals, for the mega

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    projects and their implementation. Formation of the board will help the country in achieving

    the targeted growth for the twelfth five year of 8.2

    percent. At the meeting of the full planning

    commission under the chairmanship of Prime

    Minister Manmohan Singh, the finance minister

    expressed his concern on the delayed

    implementation of the mega projects and stressed

    on the fact that the decision made by the National

    Investment board (NIB) to be taken as the final decision. Chidambaram also insisted

    interference by any other authority on the approvals and decisions made by the NIB will beentertained. He also added to his statement that NIBs role will be limited to the projects

    with investments of Rs 1000 crore or more.

    uidelines on overseas loans for companies eased : The Reserve Bank of India

    (RBI) on 11 September, relaxed guidelines for Indian companies to raise money

    overseas through external commercial borrowings (ECB). The RBI allowed companies to

    raise more funds through ECBs to repay rupee loans or for new capital expenditure in

    rupees. It raised the maximum limit of ECB to

    75 per cent of the average foreign exchange

    earnings in the past three fiscal years, or 50

    per cent of the highest export earnings in any

    of the three years, or whichever is higher.

    Earlier, a company could raise a maximum of

    50 per cent of its average export earnings in

    the past three fiscal years. The RBI will also allow refinancing of bridge finance, or short-

    term credit taken by companies in the infrastructure sector for importing capital goods, with

    an ECB under the automatic route. Earlier, companies had to seek approval from the RBI for

    replacing the bridge finance with a long-term ECB. The central bank said companies in the

    infrastructure sector can seek trade credit for up to a maximum period of five years for

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    importing capital goods, up from one-to-three years previously. Trade credit is a short-term

    loan.

    ndian external debts are within manageable limits : The Department of

    Economic Affairs (DEA) published its annual publication- Indias external debt: a status

    report 2011-12. As per the published report, Indias external debt in the end of March 2012

    was $345.8 billion, which is 13% high than the previous years debt or $ 39.9 billion from

    where India stood at the end of March 2011. The publication points out about the upward

    movement of the stress that is put on the current account deficit (CAD) of the nation because

    of the risks thrown on it, from the external sectors that comprises Fall in the reserve cover

    for imports and external debt,

    depreciation in the exchange rate of

    rupee, rise in the level of external debts

    and the increased share of the short term

    commercial borrowing in the complete

    external debt quantum. The finance

    ministry cleared on 10 September 2012

    that there can be a rise in the global

    economic risks that may rise with a weakened recovery and a slow growth scopes that may

    lead into high debts and seek growth finances even in the advanced economies. This

    clearance was based on Indian Vulnerability Index indicators, which has been experiencing

    the euro zone debt crisis and the global slowdown. A detailed analysis of Indias position in

    external debt at the end of March, 2012 has been presented in the status report. It is also

    based on the data released by the Reserve Bank of India on 29 June 2012. The report not

    only presents the analysis of external debts trend and composition on the country but it also

    presents a comparative picture of this debt in reference to other developing nations of the

    world with respect to the fluid global economic situations. The best part of the report

    produced is that instead of all the facts presented and developments Indias debt is within

    manageable limits and can be indicated by the debt service ratio to 6 percent and external

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    debt-to-GDP ratio of 20 percent in 2011-2012. Thus India continues to be within the less

    vulnerable countries when it comes to external debt indicators compared to that of the

    indebted countries. The Global Development Finance, 2012 from World Bank, India stood at

    the fifth position for absolute debt stocks when compared with the 20 other developing

    debtor countries. But when taken care of the ration of external debt to that of the gross

    national income, India was at the fifth position from the lowest side.

    ales percentage of car declined in I ndia : The sales of cars in India declined in the

    month of August 2012 by an overall 19 percent. It is counted among the biggest drop in

    one year timeline, resulting to which Society of Indian automobile Manufacturer (SIAM)

    asked the government to cut the excise duty. The next disappointing part is that the export of

    cars is also declined to a figure of 26.83 percent in

    the August month which has affected overall

    production of companies in India. It is the highest

    decline in 11 years of time. The automobile

    industry has entered into a desperate situation.

    The excise duty on automobiles, which was

    increased in this years Budget, needs to be

    reduced, particularly for the commercial vehicles

    segment to regain the sale in momentum. In contrary to that, Chinese market saw a robust

    sale of car in the month of august.

    ndian IT firms among 10 worst paymasters in world : Indian companies are

    among the world's 10 lowest paying employers in the IT space, with their mid-to-senior

    level staff getting an average salary of USD 38,767 (about Rs 21.5 lakh) per annum less

    than one-fourth of the IT pay package at globally top-paying Swiss firms. Salaries in the IT

    sector of Switzerland are the highest in the world at an average of USD 168,211 (about Rs 93

    lakh) per annum as per a study titled 'World wide IT Salary 2012'. The study, conducted by

    global recruitment service provider MyHiringClub.com, has ranked India at eighth spot

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    among 10 worst IT paymasters globally. On the other hand, Switzerland stands at the top

    spot among the top-paying nations in the IT sector. The study, which was conducted in

    August this year, took into account the average salaries for people with four and more years

    of experience for the Indian and other companies. The report compared the total annual

    cash compensation and total remuneration information for IT staff in more than 6,000

    companies across 40 different countries and found that employers in western Europe are the

    best paymasters. It also found that compensation in developed countries focus more on

    variable factors, such as bonus schemes, to attract staff. At the same time, the emphasis

    remains on cash compensation in the lower-paying countries. "Experienced IT managers are

    highly sought-after in India and there is strong competition to attract and retain skilledemployees. MNCs rely heavily on Indian IT managers, so they need to ensure their pay is

    competitive.''"Although pay in Asia and Eastern

    Europe tends to be much lower, it would be

    difficult for firms to outsource the IT manager

    role to these regions. Instead, we may see a

    migration of IT skills from lower paying nations

    to places in Western Europe and North

    America," MyHiringClub.com CEO Rajesh

    Kumar said. Interestingly, IT managers in India

    fare better than their counterparts in neighbouring China, where the average annual

    compensation package were lower at USD 38,624. In addition, IT employees in India, scored

    better than their peers in Bulgaria, Vietnam, Indonesia, the Philippines, Thailand and

    Malaysia, where the average annual salaries were even lower at USD 23,745, USD 29,831,

    USD 33,768, USD 33,965, USD 34,107 and USD 36,790 respectively. Among the best IT

    salaries paying countries Belgium bagged the second position with an average salary of USD

    144,980, followed by Denmark (USD 136,542), the US (USD 128,632) and the UK (USD

    127,890).

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    yotiraditya M. Scindia, Union Minister of State for Commerce and Industry, said in

    Coonoor,that the Union Government has set up a directorate, as part of the

    Tea Board, exclusively to address the issues of small tea growers. Speaking to

    presspersons after inaugurating the 119th conference of the United Planters

    Association of Southern I ndia (UPASI) , he said this was an important measure for the

    welfare of small growers. The

    initiative was now only for the tea

    sector. This could be extended to

    other plantation sectors, if needed.

    The plantation sector was expectedto see higher outlay in the XII Plan

    with focus on various areas such as

    research and development and

    small growers. Mr. Scindhia said

    ,the domestic market for tea was seeing healthy growth. However, India should also increase

    its tea exports, and, hence, the government had come out with the Triple Five (555)

    scheme.Under this, the focus would be on five markets with five major measures for five

    years. For the first phase, the government had sanctioned Rs.6.5 crore for this scheme. Tea

    production was 976 million kg last year and domestic consumption 840 million kg. Exports

    were 191 million kg. G. J. Ancheril was elected as President of the United Planters

    Association of Southern India (UPASI) for 2012-13.

    he study on the Impact of Inter net on the I ndian Economy by M cKin sey,

    which is still to be released, says

    that its contribution to Indias GDP will

    explode to $100 billion (Rs. 5 lakh crore) by

    2015 from $30 billion (Rs.1.5 lakh crore) at

    present. Revealing the highlights of the

    study, on 29 September in the presence of Union Telecom Minister Kapil Sibal at a curtain-

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    raiser held to announce a two-day multi stakeholder conference on Internet governance to

    be held at FICCI in New Delhi on October 4-5, McKinsey said the contribution of the

    Internet to global GDP is roughly three per cent or $1.7 trillion and its performance in India

    will eventually mirror this trend. Mr. Sibal said the government is also alive to the growing

    power of the Internet, including as a communications multiplier. The world currently has 2

    billion Internet users, of whom 50 per cent live outside the developed world. The global

    Internet population is projected to climb to 2.6-2.9 billion by 2015. By 2015, based on

    existing projections, India, which with 120 million users has the third largest Internet user

    base in the world, is projected to hit 350 million, catapulting it to a global ranking of 2, with

    the fastest rate of growth.

    atings fir m Fitch in its Global Economic Outlook repor t on 28 September ,

    lowered I ndias growth pr ojection for the cur r ent fiscal to 6 per cent for

    2012-13 from 6.5 per cent estimated

    earlier citing challenging economic

    outlook. Indias economic growth has

    slowed to a three-year low of 5.3 per

    cent in the April-June quarter of the

    current fiscal. The growth had fallen to

    6.5 per cent in the 2011-12 fiscal. Fitch

    said the high fiscal deficit left little

    scope for government for fiscal easing and increasing spending. It said weak investments

    were affecting supply capacity and thereby pointing towards weaker growth outlook.

    he Secur ities and Exchange Board of I ndia,

    on 28 September, issued draft norms for

    mandatory safety net mechanism in IPOs , to

    protect the interests of retail investors. The SEBI has

    sought comments from the public on the draft norms till

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    October 31.According to SEBI, the safety net mechanism would be available for all securities

    allotted to original resident retail individual allottees, who had made an application for up to

    Rs.50,000.SEBI also said the total obligation on safety net provider will be capped at 5 per

    cent of the issue size. The proposal for such a mechanism, discussed at SEBIs board meeting

    held on August 16, is aimed at protecting the interest of retail investors.

    global study, puts India ranks very low at 111th position in terms of

    economic freedom, behind countries like China, Nepal and Bangladesh, in a

    worldwide index of 144 nations. The annual ranking, titled 'Economic Freedom of the

    W orld: 20 12', is topped by Hong Kong, followed by Singapore, New Zealand,

    Switzerland (8.24) and

    Australia in the top-five. The

    index has been prepared by

    Canada-based public policy

    think-tank, Fraser Institute, in

    cooperation with independent

    institutes in 90 nations and

    territories, and claims to measure the degree to which the policies and institutions of

    countries support economic freedom.

    iting volatile global economic situation, the Standard and Poors (S&P) has

    lowered the gr owth for ecast for I ndia to 5.5 per cent for this fiscal, fr om

    6.5 per cent projected earlier. According to S&P, Asia-Pacific is feeling the pressure of

    ongoing global economic uncertainty, and it has lowered India growth forecast by one

    percentage point to 5.5 per cent for this fiscal from 6.5 per cent earlier. The report says, lack

    of monsoon rains has affected India, for which agriculture still forms a substantial part of

    the economy and global investors have become more critical of Indias policy and

    infrastructure shortcomings which was recently highlighted by the power outage in early

    August that affected 20 of Indias 28 States. S&P said Asia Pacific economies were

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    witnessing cautious growth conditions and any worsening of the economic conditions in the

    euro zone would increase contagion risk for the

    region as these economies were sensitive to

    capital flows and trade. S&P has lowered the

    base case forecasts of 2012 real GDP growth by

    about half a percentage point for some

    countries, with Chinas revised to 7.5 per cent

    (from 8 per cent); Japan to 2 per cent (from 2.5

    per cent); Korea to 2.5 per cent (from 3 per

    cent); Singapore to 2.1 per cent (from 2.5 per cent); and Taiwan to 1.9 per cent (from 2.5 percent).Earlier this month, Morgan Stanley had also lowered Indias growth forecast to 5.1 per

    cent for the current fiscal from its earlier estimate of 5.8 per cent; HSBC to 5.7 per cent from

    6.2 per cent and Standard Chartered to 5.4 per cent from 6.2 per cent projected earlier.

    consortium compr ising Oil and Natur al Gas Corporation, I ndian Oil

    Corporation, and Oi l I ndia has jointly placed a $5-billion bid for buying

    stake in ConocoPhillips six Canadian oil-sands assets in Alberta. Early in 2012,

    Houston-based ConocoPhillips had announced

    that it was planning to sell as much as 50 per

    cent of its oil-sands reserves in Alberta.Early

    this month, ONGC Videsh (OVL) had bought

    U.S. energy firm Hess Corp's stake in Azeri,

    Chirag and Guneshli (AGC) group of oil fields in

    Azerbaijan for $1 billion. ConocoPhillips has

    hired Scotia Waterous for selling stake in six Alberta properties that produce about 25,000

    barrels of oil a day from an estimated 30 billion barrels of bitumen in place.

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    Authors Note

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