RBI cuts repo rates by 25 basis points

Encouraged by softening inflation, the RBI on Thursday decided to cut the benchmark interest rate by 0.25 per cent to 7.75 per cent with a view to boost growth.

The decision to reduce repo rate comes a fortnight ahead of the scheduled date of monetary policy announcement on February 3.

“It has been decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8.0 per cent to 7.75 per cent with immediate effect,” Reserve Bank said in a statement on Thursday.

The RBI has been keeping the benchmark interest rate at elevated level at 8 per cent since January 2014.

The RBI, however, has decided to keep the cash reserve ratio (CRR), the portion of deposits which the banks are required to have in cash with the central bank, unchanged at 4.0 per cent.

Following reduction in the repo rate, the reverse repo rate has been adjusted to 6.75 per cent and the marginal standing facility (MSF) rate and Bank Rate to 8.75 per cent.

The RBI said that the Consumer Price Index (CPI) has been easing since July 2014 and was below the expected trajectory and the government has reiterated its commitment to adhering to its fiscal deficit target.

“These developments have provided headroom for a shift in the monetary policy stance,” the RBI added.

The central bank in its fifth bi-monthly monetary policy statement of December had said that “if the current inflation momentum and changes in inflation expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle”.

In its public interactions, the RBI functionaries had committed to initiate the process of monetary easing as soon as data indicated that medium-term inflationary targets would be met, the statement said.

Elaborating on the price situation, it said, “Inflation outcomes have fallen significantly below the 8 per cent targeted by January 2015. On current policy settings, inflation is likely to be below 6 per cent by January 2016.”

“The lower-than-expected inflation has been enabled by decline in prices of vegetables and fruits, cereals and the large fall in international commodity prices, particularly crude oil,” the statement added.

The crude prices, barring geo-political shocks, are expected to remain low over the year, it said.

The Reserve bank in December had said that once the monetary policy stance shifts, subsequent actions would be consistent with it.

“Key to further easing will be data that confirm continuing dis-inflationary pressures. Also critical would be sustained high quality fiscal consolidation as well as steps to overcome supply constraints and assure availability of key inputs such as power, land, minerals and infrastructure,” the RBI statement said.

There was a need to ensure that potential output rises above the projected pick-up in growth in coming quarters so as to contain inflation, the apex bank said.

The RBI said it would continue with daily variable rate repos and reverse repos to smooth liquidity.

The central bank will “provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions,” the statement added.

Targeting development

We now have a successor to the Planning Commission with a carefully contrived acronym as its name, perhaps to signal what the institution is expected to do. What a pity they did not call it "National Institution for Transforming the Indian Nation", for then I could truly have rejoiced in the acronym!

The name chosen, and the initial appointments of its vice-chairman and full-time members suggest that the government's principal concern is the reform of the institutions, regulations and policies that control the process of economic development in a relatively freer market environment.

How would the products of a commission operating in a freer market environment differ from the Five-Year and annual Plans that we are used to? Basically, one can expect a shift from quantitative targeting and public investment planning to indicative projections and policy guidelines. Five-Year Plans would not have any role in this, though this should not preclude a medium-term fiscal framework for budgeting. One could call it planning without targeting.

However this is not the signal so far from the pronouncements of the government. What we have had instead is targeting without planning. Bold goals - like 100 gigawatts of solar energy by 2022, a pucca house for everyone by 2022, Swachh Bharat by 2019 - are announced with little analysis of resource requirements, intersectoral linkages and the needed policy changes. Hopefully, the National Institution for Transforming India (NITI) Aayog will change this.

But will the Aayog have sufficient weight in the policymaking process? The doubts on this score arise from the elimination of a role for the Aayog in Centre-state fiscal transfers and how that affects its role in the internal dynamics of policy formulation in the Union government. Let me suggest that the answer to this also depends on whether the government accepts the proposal to eliminate the Plan/non-Plan Budget classification as recommended by the Rangarajan committee, and its response to the reported recommendation of the 14th Finance Commission that all non-tax transfers from the Centre to the states should be delinked from schemes. These two changes, if implemented, would be a seismic change in the dynamics of policy influence.

The flow of funds from the Centre to the states falls into three broad streams. First is the flow that arises from the award of the Finance Commission in the form of shares in taxes and grants for specific purposes. Second is the flow of discretionary block grants for Plan expenditures that are based on the Gadgil-Mukherjee formula - except for special category states, where the flow is based on an assessment of need. These two streams of funds flow are essentially unconditional.

The third is the flow of funds for central and centrally sponsored Plan schemes implemented by the states. This third stream is essentially a conditional transfer tied to particular uses and with various associated policy conditionalities. The Rangarajan committee recommendation would eliminate the distinction between the first stream and the other two. The 14th Finance Commission recommendation on delinking non-tax transfers from schemes would merge the second and the third stream into one block grant stream.

The two recommendations in themselves do not require the Aayog to give up its role in the fiscal transfers to the states for development purposes. That is an independent decision that the government has made.

Will this reduce the policy leverage of the Aayog? Not necessarily. The erstwhile commission's financial clout vis-à-vis the states had already been greatly reduced with the proliferation of central and centrally sponsored schemes that are projected to account for 76 per cent of the gross fiscal transfer to the states for the 12th Plan. In these schemes, the policy leverage rested largely with the sectoral ministry concerned, for instance, the rural development ministry for Mahatma Gandhi National Rural Employment Guarantee Act. If the reported recommendation of the 14th Finance Commission is implemented, the locus of influence could shift to the Aayog, which provides a space for "cooperative federalism" and could bring the states together on policy guidelines for reaching agreed sectoral goals. Something like this has been attempted in the implementation of the goods and services tax.

In an open economy relying substantially on private investment and enterprise, the government had to exercise influence through its policies rather than through spending programmes. A national institution that has the active support of a powerful prime minister could well be more effective than a commission caught up in the nitty-gritty of scheme-wise Budget allocations.

The Aayog can transform the ecosystem of development policy. But the gains from this would be lost if the rising tide of religious intolerance and obscurantism is not countered. The government has performed better than expected in foreign policy and seems to be getting up to speed on economic issues. However, both of these could be endangered if the narrow and intolerant social agendas of some extremist members of Parliament and fringe groups politically associated with the ruling party are not visibly restrained by the prime minister.

India is a country of many communities (4,653 according to the Anthropological Survey). With development, these communities will inevitably move into each other's social and geographical spaces. The project report for the Delhi-Mumbai corridor, for instance, projects the in-migration of nearly 100 million people into the project area. This will not happen peaceably, unless political process fosters a climate of tolerance of "different diets and incompatible gods" (from "Partition" by W H Auden).

Majoritarian aggressiveness will also have its international impact if it leads to civil strife, disruptions and violence and undermine the prime minister's potential to be a global leader. Moreover, it will complicate matters in relations with neighbours, as critical border areas like the Northeast, Punjab and Kashmir are populated largely by minority groups.

The prime minister and his team must echo what a senior colleague, Sushma Swaraj, said in a recent speech: "The genius of India lies in its ability to absorb and encompass many cultures with whom it has come in contact. At the same time, it has allowed these cultures to flourish as distinct entities based on the principle of unity in diversity." The aspiring youths who voted for Narendra Modi need an India that cherishes and enjoys the diversity of language, culture, cuisine, religion and ethnicity with which it is blessed, and not one mired in social strife.

US eyes drone, C-130 project deals with India for Obama trip

The United States aims to secure agreements with India to start pilot projects for joint production of drones as well as equipment for transport planes in talks next week ahead of a visit by President Barack Obama, a US industry source said on Wednesday.

Frank Kendall, US undersecretary of defense for acquisition, technology and logistics, will be making his fourth visit to India to promote collaboration on defense technologies and co-production of weapons systems in an effort to finalize the projects.

Kendall's spokeswoman Maureen Schumann said he will meet with Defense Secretary Radha Krishna Mathur, Secretary for Defence Production G. Mohan Kumar and Scientific Advisor to the Minister of Defence Avinash Chander.

"His primary objective is to continue momentum on the Defense Trade and Technology Initiative (DTTI), which promotes collaboration on defense technology and enables co-production and co-development of critical defense systems," Schumann said.

An industry source familiar with US-India discussions on the defense initiative said Kendall aimed to finalize two pilot projects, one involving unmanned aerial vehicles (UAVs) and the other involving systems for the C-130 military transport aircraft built by Lockheed Martin Corp.

The source said the drone project involved the RQ-11 "Raven" built by AeroVironment Inc, a small US firm. Raven is the world's most widely used unmanned aircraft, a lightweight plane that can be used manually, or for autonomous operations.

The US government strictly controls foreign sales of larger UAVs, but has approved sales of unarmed systems like the Raven, which are used purely for surveillance to a range of countries, including Uzbekistan, according to a US source.

The transport plane project involves manufacturing of roll-on, roll-off modules that allow C-130s to be used for surveillance, and as VIP transports or hospitals, according to the industry source, who did not want to be named due to the sensitivity of the discussions.

US and Indian officials have declined to comment publicly on the systems under discussion, but the industry source said the aim was to announce the pilot projects during Obama's planned visit to India on Republic Day.

Lockheed declined comment on any specific co-production agreement, but a spokesman said teams from five Indian universities were participating in a design challenge to develop C-130 modules for use in disaster relief around the world.

India has received five C-130Js built by Lockheed, and six more planes are on order through 2017, parts of which will be built in India.

No comment was immediately available from AeroVironment.

The United States is keen to develop its political and strategic ties with India, with which it shares concerns about China's increasingly assertive territorial claims in the Asia-Pacific region.

Since the DTTI was launched in 2012, the United States has proposed 17 projects with potential for collaboration. But the initiative has been hampered by concerns from India that the projects do not sufficiently involve the transfer of technology.

On the US side, meanwhile, there have been concerns about India's demand for the right to manufacture components rather than whole systems, which could put them in competition with US manufacturers.

Ellen Lord, president and chief executive officer of Textron Systems, an aerospace unit of defence firm Textron Inc, which makes Bell helicopters and UAVs, told Reuters she was encouraged by reforms being undertaken by the Indian government.

"I'm energized by what I see as very positive changes," said Lord, who returned on Tuesday from a visit to India.

NOFN-National Optical Fibre Network

Govt decides to rope in private players for NOFN project

Earlier project cost was estimated to be Rs 20,000 cr which has now escalated to Rs 35,000 cr

The government has decided to rope in private sector players to expedite its National Optical Fibre Network (NOFN) project, which has seen a cost overrun of 75 per cent because of delays.

The project, which was approved by the Cabinet in October 2011, was expected to be completed within two years. Then, the project cost was estimated to be Rs 20,000 crore, which has now escalated to Rs 35,000 crore, said a senior official in the department of telecommunications.

“We will float tenders to invite private players for laying down optical fibres in the second phase of NOFN. The bids will be called by the end of March. It will involve trenching, ducting and laying (of cables),” the official added.

The second phase involves connectivity mainly in northern states such as Uttar Pradesh, Bihar, Punjab, Haryana and Uttarakhand for about 100,000 gram panchayats.

The target is to provide connectivity to all the 250,000 gram panchayats across India by December 2016, by using the existing optical fibre and extending it to the all the gram panchayats.

The government is already in the process of implementing the first phase of connecting 50,000 gram panchayats, which is expected to be over by the end this year, the official said. This will be done in Kerala, Karnataka, Andhra Pradesh, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha, the North East and Maharashtra. Once implemented, NOFN will provide 100 Mbps (megabit per second) bandwidth to facilitate broadband services.

On January 12, the minister for communications and IT Ravi Shankar Prasad inaugurated the launch of the project in the Idukki district of Kerala. Also, Kerala will be the first state to be fully connected through NOFN by the end of March this year.

Bharat Broadband Network Ltd, a special purpose vehicle set up by the government, is responsible for management and operations of NOFN under the administrative control of ministry of IT and communications.

BBNL was incorporated as a PSU in February 2012. BBNL is getting the project executed through three PSUs — BSNL, RailTel and PGCIL — in the ratio of 70:15:15 and till now, no private player has been taken on board for laying down of the optic fibre project.

The deadline for the project has been revised many times because of coordination problems among the agencies and other issues, including right of way. The official said in global countries such projects have taken 6-10 years to be completed.

NOFN is being funded by the Universal Service Obligation Fund (USOF) that is built with contributions from private telecom operators. However, for end-to-end services, companies will have to set up their own infrastructure at the gram panchayat level.

Government hands over new Maritime Security Gadget to Navy, Coast guard

Union Home Minister Rajnath Singh has handed over Resident Identity Card (RIC)readers to Navy Chief Admiral R K Dhowan and Coast Guard Director General Vice-Admiral A G Thapliyal.

As part of RIC Scheme, these maritime security gadgets will be used by security agencies to check identity cards of the residents of coastal areas issued under RIC Scheme.

Government had issued more than 65 lakh people mainly residents of coastal villages with identity cards as per RIC Scheme under the National Population Registrar.

Key facts of Resident Identity Card (RIC) scheme

• It aims to strengthen coastal security measures in 9 states and 4 Union Territories which have a sea-line running along their borders.
• The scheme of issuing Cards is being implemented by the Office of the Registrar General and Census Commissioner- an office under the aegis of Union Home Ministry.
• Under this scheme, Union Government will prepare National Population Registrar (NPR) in 3,331 coastal villages by issuing Resident Identity Cards (RIC).
• RIC readers will be used by coastal security agencies to authenticate an individual’s demographic and biometric authentication without using Internet services.
• RIC cards are manufactured indigenously and can be read only when the key present in the RIC readers.
• RIC reader is temper-proof and self-destructs itself if it is opened in an unauthorized manner.
• Initially, these card readers will be issued to the Navy and Coast Guard. Later it will be given to Maritime Police stations and state governments.

MSME-Samsung Technical School

MSME-Samsung Technical School has been set up following an MOU signed between the Ministry of MSME and Samsung Electronics. The MOU aims to establish Ten “MSME–Samsung Technical Schools” at MSME Technology Centers for conducting joint training programmes at various parts of the country. 

This is one of the possible models under which the training imparted to youth, increases to a great extent the possibility of their subsequent employment as well as motivates them to establish their own enterprises. It shall provide students trade-specific training on repair and troubleshooting for consumer electronics products such as mobile phones, televisions, home theatres and home appliances. Additionally students will also be educated in soft skills that will further enable them to provide exemplary customer service. 

Samsung officials also informed that they are promoting the concept of “Make in India” by sourcing a lot of parts and components of their products from Indian industries especially MSMEs. 

Looking into the success of this unique PPP based initiative, the Minister desired to explore the possibility of replicating this successful model in at least 50 more locations. He also underlined the role of Samsung in enhancing the capacity of Indian MSMEs by sourcing various parts and components from them. 

International Workshop on ‘Performance Evaluation and Management of State Owned Enterprises

A two day long  international workshop on ‘Performance Evaluation and Management of State Owned Enterprises’ began here in New Delhi with a remark of  hope of finding possibilities of  future collaborations and expansion of  operations in varied areas by the Union Minister of Heavy Industries and Public Enterprises Shri Anant Geete. He was accompanied by the MoS Heavy Industries and Public Enterprises Shri G.M Siddeshwara and Shri Kapil Dev Tripathi, Secretary Department of Public Enterprises, Shri Satish B. Agnihotri, Secretary, Performance Management Division, Cabinet Secretariat, Govt. of India  and Shri Arvind Subramanian,  noted economist and the currently, Chief Economic Adviser to the Government of India on the occasion.

The Minister appreciated the initiative taken to bring together policy makers, academicians, SOE officers and experts in the field of management of SOEs from all over the world with the objective of sharing best practices and experiences in this area.  Welcoming the delegates he said It is heartening to note the overwhelming participation from both developed and developing countries and in my opinion this is a reflection of the continued relevance and importance of SOEs in the present liberalized economic environment.

He said , SOEs referred to as Central Public Sector Enterprises (CPSEs) in India have been  at the forefront of our country’s developmental efforts since independence. They have played a pivotal role in the balanced social, economic and industrial development of the country. The strong presence of CPSEs in strategic areas such as petroleum, mining, power generation and transmission, shipping etc have been the building blocks of our economy. With the opening up of our economy, CPSEs have been exposed to both national and international competitive forces and though they have risen to the challenge, there is scope for higher levels of performance.

The Boards of CPSEs have been provided with a large measure of flexibility and autonomy to deal with day to day management issues. In addition, we have identified select profit making CPSEs as Maharatna, Navratna or Miniratna and empowered their Boards with operational and financial powers in the areas of capital expenditure, investment in joint ventures/subsidiaries, human resources management, entering into technology joint ventures or strategic alliances, etc, Shri Geete added. He suggested the country representatives and CPSE officials to  take this opportunity to discuss possibilities of leveraging their respective strengths to collaborate and expand their operations.

The minister said  all organizations need to constantly reflect on their performance standards and work on strategies to constantly improve such standards and the organization of this workshop is outcome of such realization. While discussing the issue of performance of State Owned Enterprises, it is generally agreed that metrics of assessing performance cannot be completely similar to that of the private sectorSince, the challenges of management of SOEs remain more or less similar across countries; it would be very useful to learn about initiatives taken by other countries as we share our experiences in this regard, the minister noted.

Shri Geete expected of stimulating discussions on various issues relating to management and evaluation of performance of SOEs during the course of conference with suitable conclusions.  He said  an institutional network should be established which would allow cross learning on a continuous basis. Hoping that senior officers and Chief Executives and Directors of our CPSEs getting  benefitted  from the discussions in the workshop as well as interactions with their international peers and such interaction would lead to innovative policy interventions. He welcomed participating delegates coming from 11 countries and thanked the DPE as well as the United Nations Development Programme (UNDP) and the World bank in organising the 1^st ever such workshop in India.

Minister of State in the M/o Heavy Industries & Public Enterprises Shri G.M Siddeshwara said India with its mixed economic system had accorded its State owned enterprises, known here as Central Public Sector Enterprises (CPSEs), a crucial role in facilitating balanced social, economic and regional development of the country. In terms of governance structure, our CPSEs come under the administrative jurisdiction of line Ministries and agencies such as Department of Public Enterprises, Ministry of Finance, Department of Personnel & Training, etc. coordinate matters concerning all CPSEs.

Shri Siddeshwara said the strong performance of our CPSEs can be gauged from the figures which speak for themselves. He said we started from 5 CPSEs in 1951 and there are  more 270 CPSEs operating in almost all critical sectors of the economy. Our CPSEs have aggregate investment of around ninety three thousand million US dollarsand a turnover of more than sixty thousand million US dollars for the year 2012-13. The total net profit of 228 operating CPSEs was around twelve thousand million US dollars and our CPSEs contributed more than thirteen thousand million US dollars to the Central Exchequer by way of excise duty, customs duty, corporate tax, dividend, etc. during the year 2012-13.

The Minister said , Government is  aware of the dynamic nature of the business environment of CPSEs and has taken appropriate policy initiatives. The system of Memorandum of Understanding has facilitated the process of indication of the Government’s expectations to the management of CPSEs in an objective manner. In tune with the current business scenario, while profitability has been a major consideration for commercial CPSEs, parameters such as Research & Development, Corporate Governance, Exports, Capital Expenditure, Human Resources Development, Project Implementation, etc. have been given due importance in the MOUs of all CPSEs so that management of CPSEs does not lose sight of these important aspects.

He said Government of India remains fully committed to a strong and vibrant public sector so that it can supplement efforts of the Government to fulfil aspirations of the common people and to ensure development of all parts of the country with every section of the society getting its rightful benefits. The Government will continue to take appropriate and required policy measures to further improve the performance of CPSEs in the coming years. 

Shri Satish B. Agnihotri, Secretary, Performance Management Division, Cabinet Secretariat, Govt. of India in his presentation outlined the basics required to gauze the working and performance of State Owned Enterprises.  He deliberated on the challenges ahead and insisted on continuous learning and sharing of experiences from counterparts. He also advocated for the inculcation of new technologies to better the performance of SoEs.

Shri Arvind Subramanian,  noted economist and the currently, Chief Economic Adviser to the Government of India, in his address referred to the changes occurred in the Indian economy during the past 15 months and hailed the upward trend of positive signs and its revival notes. He said with the change of regime conditions on economic front have also become favorable for India.  Mr. Subramanian emphasized on the enhanced investment by the public sector   towards the economic growth .