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ECONOMYTHE RUPEE PLUNGEDTOA RECORD LOWOF 56.90

Indian Rupee plunged to an all time low

of 56.90 rupees against the US dollar on 22

June 2012 on global risk aversion and de-

mand for dollar. Indias slipping domestic

growth, declining industrial output figure,

RBIs stringent monetary policy stance, per-

sistent high rate of inflation and credit rating

downgrade by international rating agencieslike Fitch and Standard and Poors have

prompted the worsening of Indian rupee

against the dollar. Given the current economic

and political situation of the country, rupee

may fall further at 57-58 levels in June 2012.

Rupee, given its current trading status, is

proving to be Asias worst performing cur-

rency. The currency has also been the poor-

est performer among the all Asian currencies

this week, on a 5-day basis. So far the Indian

currency had tumbled 6.7 per cent in the year

2012.

PATENTED DRUG PRICESTOBE LINKEDWITH PER-

CAPITA INCOME

An inter-ministerial group formed in

2007 and entrusted with the responsibility of

regulating prices of patented medicines rec-

ommended using a per capita income-linked

reference pricing mechanism. The proposal

by the group is expected to reduce prices of

several patented dugs by up to one-third.However it will hit the profitability of for-

eign companies. The committee suggested

fixing the price of patented drugs by com-

paring the price at which these drugs are pro-

cured by governments in the UK, Canada,

France, Australia and New Zealand. The

committee recommended that the retail price

is to be fixed by adjusting it to the per capita

income of the country. The new mechanism

is to be applicable for patented drugs that

dont have any therapeutic equivalents in themarket.

For patented drugs that have similar al-

ternatives in the market, the price is to be

fixed in such a manner that it should not lead

to an overall increase in the treatment cost.

If the global launch of the patented drug takes

place in India, the retail price will have to be

based on the cost of developing the drugs and

other factors. Prices of patented drugs are

currently unregulated. Patented drugs account

for 1% of the $13-billion domestic market.This share is expected to grow to 5% of the

estimated $50-60 billion drug market by

2020. The Indian Pharmaceutical Alliance,

the representative body of big Indian drug

makers, supported the reference-based sys-

tem. The Organisation of Pharmaceutical

Producers of India (OPPI), the lobby body of

multinationals however stated that the cross-

country per capita income-linked proposal is

fundamentally flawed. India had adopted a

new product patent regime in 2005 after it

became a signatory to TRIPS, an international

intellectual property protection agreement,
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providing 20 years of marketing exclusivity

to the patent holder. Global innovator com-panies such as GSK, Bayer AG, Novartis,

Merck & Co and Bristol Myers Squibb who

started launching their drugs in India continue

to remain jittery about the governments poli-

cies aimed at reducing healthcare costs. They

complain that Indias implementation of in-

tellectual property rights has been unsatisfac-

tory.

SEBI ALLOWED PARTIAL FLEXIBILITYIN IDRS

Indias market regulator Security andExchange Board of India (SEBI) on 28 Au-

gust 2012 allowed partial flexibility in the

conversion of Indian Depository Receipts

(IDRs) into equity shares by investors. The

SEBI move is aimed at retaining domestic

liquidity besides, it is also expected to attract

foreign entities to enroll their IDRs on India

stock exchanges. In another circular released

by the RBI, the central bank put an overall

cap of 5 billion dollar for raising of capitalthrough IDRs by foreign companies in Indian

markets. The RBI measure will help Indian

investors to convert their depository receipts

into equity shares of the issuer company and

vice versa.

49 PERCENT FDI IN INSURANCE AND PENSION

SECTORAPPROVED

In a move aimed at encouraging invest-

ment sentiment in the country, the Union Fi-

nance Ministry on 22 August 2012 approved

49 percent foreign direct investment in in-

surance and pension sector. Earlier the per-

mitted level of FDI in the insurance and pen-

sion sector was 26 percent. The proposal for

49 percent FDI in insurance and pension sec-tor was made during Pranab Mukherjees ten-

ure at the finance minister office. However,

the decision on the same was delayed because

of resistance from the cronies. With the ap-

proval of Union Finance Ministry, the bill will

now be discussed in the cabinet and will re-

quire to be approved by the parliament. The

chances of the bill getting through in the

monsoon session of the parliament are very

low as opposition parties have been consis-tently stalling the house on the issue of coal

scam. The monsoon session is set to end on

27 August 2012.

As per the Insurance Regulatory and

Development Authority (IRDA) estimates,

over the next five years, the insurance sector

requires a capital infusion of more than 12

billion dollar. The Union Government has

been trying hard to introduce the major re-

forms to revive the ailing economy. The mea-

sures such as FDI in multi -brand retail andcivil avaiation, implementation of Goods and

Services Tax (GST) have , however, faced

fierce opposition from different political par-

ties. Indian economy is rapidly moving to-

wards the grim economic situation similar

faced during the recession. The economy

needs some big ticket reforms to reverse the

pessimistic economic environment. Indias

GDP growth fell to 6.5 percent during 2011-

12 but the fourth quarter growth rate dropped

to 5.3 percent, the slowest in past nine years.

Business confidence among the investors and

business leaders has touched the historic low


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as industrial output and trade figures are con-

stantly going down.The tight monetary policy measures

adopted by the central bank to check infla-

tion has actually aggravated the situation as

high interest rates are hugely impacting the

overall growth scenario. Indian industries

have been reiterating that there is an urgent

need to create conditions for revival of pri-

vate investment. The FDI in insurance might

prove to be a start of the long pending re-

form but the Union Finance Minister PChidambaram will have to work hard on po-

litical front to make it possible. Earlier the

government had to defer the decision on the

bill as it faced opposition from its allies such

as Trinammol Congress.

E-VOTING IS MANDATORY FOR TOP 500 LISTED

COMPANIESOF BSE & NSE

The capital market regulator Securities

and Exchange Board of India (SEBI) made it

mandatory for top 500 listed companies to

hold e-voting with an objective to widen

shareholder participation in key decisions.

SEBIs decision on e-voting is to be imple-

mented in a phased manner. The implemen-

tation will begin by subjecting the top 500

listed companies at the Bombay Stock Ex-

change and the National Stock Exchange

based on market capitalization to e-voting.

The structural changes like scrutiny of audit

reports as well as e-voting are expected to

benefit the capital market in the mediumterm. SEBI also decided to create a Quali-

fied Audit Report review Committee

(QARC) represented by accounting regula-

tor ICAI (Institute of Chartered Accountants

of India) and stock exchanges. The commit-tee would be responsible for processing quali-

fied annual audit reports filed by the listed

entities with stock exchanges. The commit-

tee will be expected to study reports where

accounting irregularities have been pointed

out by Financial Reporting Review Board of

the Institute of Chartered Accountants of In-

dia (ICAI-FRRB).

The regulator relaxed norms for Offer

For Sale (OFS). OFS is a new route intro-duced by SEBI in early 2012 to help compa-

nies increase their public shareholding. A

minimum gap of two weeks between two

OFS issuances was permitted by SEBI.

SEBI made it easier for promoters of

listed companies to dilute their stake and

comply with public holding rules by 2013.As

specified by SEBI, private sector companies

and also the state-owned corporations is re-

quired to have a minimum public holding of

25% by August 2013. In the SEBI boardmeeting, the regulator also announced a sim-

pler share auction mechanism that would help

listed companies to attract investors. It pro-

vided institutional investors with the option

of applying for shares either with 100% mar-

gin or with a lesser margin to be fixed by

stock exchanges. However in case of the

lesser margin being fixed by the stock ex-

change the bids cannot be changed. With re-

gards to fulfilling public holding norms, the

board decided that issuers will be required

to disclose the floor price a day before the

share auction. The floor price may or may


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not be a part of the notice given by compa-

nies on the offer. Investors were barred frommodifying or cancelling bids during the last

60 minutes from the close of the bidding ses-

sion in the auction. Exchanges are required

to display the indicative price during the last

60 minutes of the close of bidding session

irrespective of the book being built.

INDIAS PUBLICDEBT ROSEBY 4.9 %

According to the quarterly report on

Public debt management prepared by the

Department of Economic Affairs (DEA) un-der the Ministry of Finance, Indias public

debt rose by 4.9 per cent to 3752576 crore

rupees during the first quarter (April-June)

of fiscal year 2012 from 3578244 crore ru-

pees in the fourth quarter (January-March)

of 2011-12. The report was released by the

government on 27 July 2012. The report

pointed out that internal debt constituted 90.6

per cent compared with 90.1 per cent at the

end of March, 2012 quarter. The report notedthat outstanding internal debt of the Govern-

ment at 3398154 crore rupees constituted

33.4 per cent of GDP compared with 36.4

per cent in the last quarter of 2011-2012. On

the tax front, report revealed, the government

did remarkably better as gross tax collections

during April-May period at 7.8 per cent of

budget estimate were higher than 6.6 per cent

a year ago. Personal income tax collections

at 25999 crore rupees also surged by 44.2 per

cent against budgeted estimate of 13.9 percent for 2012-13. In the direct taxes, corpo-

rate tax collections at 10137 crore rupees

showed a healthy growth. Among the indi-

rect taxes, customs and excise duties showednegative growth of 2 per cent and 4.6 per cent,

respectively, against budgeted growth rates

of 22 per cent and 29.1 per cent. Service tax

collections, however, increased by 37.7 per

cent during April-May 2012-13 as against

budget estimate of 30.5 per cent.

UNION GOVERNMENTTO LIBERALISE ECB

The Union government decided to liberalise theexternal commercial borrowing (ECB) norms for the

power sector. The announcement was made in tunewith the announcement made in this respect by theFinance Minister, Pranab Mukherjee while presentingthe Union budget 2012-13. Power sector companieswill now be able to use up to 40 per cent of ECB loansto refinance their rupee debt, provided the remaining60% balance is utilised for investments in new projects.So far, power companies were permitted to use only25 per cent of the ECB to refinance their domesticrupee-debt loan. Besides, the government also openedthe ECB route for capital expenditure on maintenanceand operations of toll systems in the roadways andhighways sector, only if these constitute a part of the

original project.

NABARD INTRODUCES

NEW SYSTEMFORFARMERS

The National Bank for Agriculture and

Rural Development (NABARD) has intro-

duced a Negotiable Warehouse Receipt

(NWR) system to help farmers avoid distress

sale of their produces. NABARD chief gen-

eral manager K.C. Shashidhar said the NWRs

would enable small and marginal farmers

with Kisan Credit Cards to avail post-harvest

loans at concessional interest rates and store

their produce in warehouses against ware-


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house receipts. At present, concessional loan

at 7 per cent interest is available to farmersas pre-harvest loan. However, in the case of

post-harvest loans, the farmers must pay com-

mercial interest rates. The interest subven-

tion being offered now would be released

through NABARD for the post-harvest loans

granted by cooperative banks and regional

rural banks.


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