RBI cuts CRR by 25 bps; Holds repo rate steady 

On the basis of an assessment of the current macroeconomic situation, the RBI has decided to:

Reduce the cash reserve ratio (CRR) of scheduled banks by 25 basis points from 4.75% to 4.50% of their net demand and time liabilities (NDTL) effective the fortnight beginning September 22, 2012. Consequently, around Rs170 billion of primary liquidity will be injected into the banking system; and Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0%. Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0%, and the marginal standing facility (MSF) rate and the Bank Rate at 9.0%. In a statement, the RBI said there have been several significant developments since the Reserve Bank’s First Quarter Review of Monetary Policy in July.

Globally, as risks have risen, both the European Central Bank (ECB) and the US Fed have responded with liquidity measures intended to calm financial markets and provide further stimulus to economic activity. While these measures have certainly mitigated short-term growth and financial risks, they will also exert pressure on global asset prices, and particularly, commodity prices. Domestically, growth continues to be weak amidst a negative investment climate; however, the recent reform measures undertaken by the Government have started to reverse sentiments. The Government undertook long anticipated measures towards fiscal consolidation by reducing fuel subsidies and selling stakes in public enterprises. Further, steps taken to increase foreign direct investment (FDI) should contribute to both greater capital inflows and, over the long run, higher productivity, particularly in the food supply chain. Importantly, however, for the moment, inflationary pressures, both at wholesale and retail levels, are still strong.

In April, the Reserve Bank implemented a frontloaded policy rate reduction of 50 basis points on the expectations of fiscal policy support for inflation management alongside supply-side initiatives for addressing the deceleration of investment and growth. As these expectations did not materialise and inflation remained firmly above 7.5%, the Reserve Bank decided to pause in its policy easing in the Mid-Quarter Review (MQR) of June and in the First Quarter Review (FQR) of July. As inflationary tendencies have persisted, the primary focus of monetary policy remains the containment of inflation and anchoring of inflation expectations. In this context, the Government’s recent actions have paved the way for a more favourable growth-inflation dynamic by initiating a shift in expenditure away from consumption (subsidies) and towards investment (including through FDI). Of course, several challenges remain, one of which is persistent inflation. But, as policy actions to stimulate growth materialize, monetary policy will reinforce the positive impact of these actions while maintaining its focus on inflation management. Only this will ensure that the economy derives the maximum benefit from the recent, and anticipated, fiscal and supply-side policy measures...Read More

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Govt notifies FDI in Retail, Aviation, Broadcasting & Power Exchanges

The Government  notified the cabinet/CCEA decisions on FDI in single brand retail, multi brand retail, civil aviation, broadcasting sector and power exchanges. The decisions were taken in the Cabinet and CCEA meetings on September 14, 2012.
 
Please see the following notifications by clicking on the hyperlinks below.
 
Amendment of the existing policy on Foreign Direct Investment in Single-Brand Product Retail Trading- Press Note No.4 (2012 Series)
 
Click here to see
 
Review of the policy on Foreign Direct Investment- allowing FDI in Multi-Brand Retail Trading.- Press Note No.5 (2012 Series)
 
Click here to see
 
Review of the policy on Foreign Direct Investment in the Civil Aviation sector- Press Note No.6 (2012 Series)
 
Click here to See
 
Review of the policy on Foreign Investment (FI) in companies operating in the Broadcasting Sector- Press Note No.7 (2012 Series)
 
Click here to See
 
Policy on foreign investment in Power Exchanges- Press Note No.8 (2012 Series)
 
Click here to See.

Mixed response to nationwide bandh on UPA reforms

The nationwide bandh called by leading political parties such as the BJP, Left Front, SP, BJD, JD (S) and TDP has met with a mixed response. In Tamil Nadu, the DMK, which is a key ally of the UPA is also supporting the bandh. The parties are demanding rollback of the Government's decision to hike diesel prices, cap subsidised cooking gas cylinders and allow FDI in multi-brand retail. Last week, the government had hiked diesel prices by Rs. 5 per litre, capped the supply of subsidised LPG cylinders to six per household and cleared 51% FDI in multi-brand retail. In the national capital there were no reports of any major disruption to traffic. Most of the schools and colleges in New Delhi too were open. However, shops in several areas of national capital were closed. Protesters disrupted traffic in several opposition ruled states, according to reports. Railway police had to intervene at many places to facilitate the movement of trains even as some supporters were arrested at Dhanbad, Parasnath and Koderma stations.

Life in the Kolkata city and elsewhere in West Bengal was disrupted by a 12-hour bandh called by the Left parties. Though airport and Metro train services were normal, train services in Eastern Railway and South Eastern Railway were disrupted, reports said. No untoward incident was reported from Tamil Nadu. Autos affiliated to Left unions kept off the road while scores of commercial establishments downed their shutters to join the protest. Schools and educational institutions remained open in Tamil Nadu. Protesters were seen disrupting road and train services across Bihar though. In Mumbai, taxis, auto rickshaws and BEST buses continued to ply on the roads even though few people have stayed at home fearing violence. Suburban trains too were running on schedule. The Shiv Sena and Maharashtra Navnirman Sena (MNS) did not join the day-long bandh due to the nine-day Ganesh festival. Samajwadi Party workers held demonstrations in some parts of Uttar Pradesh and stopped trains in Allahabad in support of the bandh. Reports of similar protests also poured in from other UP districts.

Govt sees Rs 20bn loss from Bharat Bandh

Govt should not yield to political pressure on reforms: CII

Mulayam Singh says SP will support UPA govt

Mulayam Singh’s Samajwadi Party, seen as the friend of the Congress who bails out the government in sticky situations, has voiced its support to the UPA government, reports said. Samajwadi Party chief Mulayam Singh Yadav has said that he will support UPA government to keep communal forces at bay, reports added. SP’s support is crucial to the government after its key ally TMC has withdrawn support from the UPA government over the diesel price hike, LPG cap and and the government’s decision to allow FDI in multi-brand retail. After the TMC formally withdraws support, UPA-II will be left with 254 MPs, 17 lower than the half way mark of 271. If Mayawati's BSP decides to support the UPA, its strength in the Lok Sabha will go up to 275. If Mulayam Singh Yadav's Samajwadi Party decides to extend support, the UPA's strength will go up to 276. And if both parties bail out the government, then the UPA will be comfortable at 297. Add to that another four MPs of the RJD and the UPA safely crosses the 300 mark. For a simple majority, government needs the support of at least 273 MPs in a House of 545.

Third Rail Minister in a year as Mukul Roy set to quit

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