Pages

Friday, 20 April 2012

US Corporate Imperialism is quite impatient with Economic Reforms in India which it considers Emerging Market.The Finance minister Pranab Mukherjee is right in Washington to appease the Big Boss. On the other hand, Reflecting its disenchantment over


US Corporate Imperialism is quite impatient with Economic Reforms in India which it considers Emerging Market.The Finance minister Pranab Mukherjee is right in Washington to appease the Big Boss. On the other hand, Reflecting its disenchantment over the investment climate in India, corporate America has told the White House there is a "vacuum" at the Centre and political power is devolving to strong state leaders.he import of coal, fertilisers and vegetable oil surged from $23.1 billion in 2010-11 to $38.3 billion in 2011-12, adding more than $15 billion to India's import bill and widening the trade deficit.Total merchandise imports went up by 32.1 per cent at $488.6 billion and exports grew by 21 per cent to $303.7 billion, resulting in a trade deficit of $184.9 billion last year.
Troubled Galaxy Destroyed Dreams, chapter 766

Palash Biswas

http://indianholocaustmyfatherslifeandtime.blogspot.com/


http://basantipurtimes.blogspot.com/


US Corporate Imperialism is quite impatient with Economic Reforms in India which it considers Emerging Market.The Finance minister Pranab Mukherjee is right in Washington to appease the Big Boss. On the other hand, Reflecting its disenchantment over the investment climate in India, corporate America has told the White House there is a "vacuum" at the Centre and political power is devolving to strong state leaders.he import of coal, fertilisers and vegetable oil surged from $23.1 billion in 2010-11 to $38.3 billion in 2011-12, adding more than $15 billion to India's import bill and widening the trade deficit.Total merchandise imports went up by 32.1 per cent at $488.6 billion and exports grew by 21 per cent to $303.7 billion, resulting in a trade deficit of $184.9 billion last year.

The rupee slid to its weakest level in more than three months on Thursday, putting traders on alert for possible intervention from the Reserve Bank of India (RBI) as the outlook on the currency stays bleak.ndia's rupee dropped to the weakest level in more than three months on concern inflation will accelerate, damping demand for the nation's assets. The consumer-price index climbed 9.47 percent in March from a year earlier.

Ironically, despite surrendering Economic Sovereignty, India flexes its Muscle as it launched AGNI Five.The government today brushed aside the pressure being built by the global trade bodies in the Rs 11,000 crore Vodafone tax dispute case and asserted that the British telecom major cannot invoke the India-Netherlands investment treaty as the $ 11.2 billion deal was signed in Cayman islands.Former Defence Research and Development Organisation (DRDO) chief M. Natarajan Thursday hailed the successful Agni-V test, noting that the 5000-km range missile will "adequately meet" India's nuclear deterrence needs.International Monetary Fund (IMF) on Wednesday said India would need to accelerate economic reforms to achieve its potential growth rate even as it expressed concern over high inflation.A subtle shift in tone has occurred at the International Monetary Fund (IMF) since Christine Lagarde took over as managing director from the disgraced Dominique Strauss-Kahn nine months ago.First, the bail-out fund no longer appears to be scared of spooking the markets with honest analysis. And second, and perhaps more importantly, it has begun toning down its austerity rhetoric.On the face of it, Tuesday's World Economic Outlook (WEO) should have been a cause for celebration. After downgrading growth in January, the IMF revised its forecasts back up a little. Global growth will be 3.5% this year, not 3.3%, and 4.1% in 2013, a marginal improvement on the 4% predicted in January.

Finance Minister Pranab Mukherjee will today meet his American counterpart Timothy Geithner who is expected to raise concerns of the US corporate sector over doing business in India.

The meeting, on the sidelines of the Annual Spring session of the International Monetary Fund and World Bank, will happen within a couple days of about a dozen US industry associations writing to the US Treasury Secretary to take up the controversial move by India to amend the Income Tax Act with retrospective effect.

They have raised concerns over the impact of Mukherjee's Budget proposal to amend the IT Act with retrospective effect to bring into tax net Vodafone-type merger and acquisition deals involving assets in India.

UK-based Vodafone, which in 2007 bought Hong Kong-based Hutchison's telecom business that included India assets for around $11 billion, has attracted tax of Rs 11,000 crore.

Mukherjee, on his part, is expected to raise several bilateral issues.

On his arrival from New York late in the afternoon on Wednesday, Mukherjee held a series of meetings with his officials and Indian diplomats in Washington in preparation of the meeting.

Mukherjee is scheduled to kick-off official engagements with a bilateral with the South Korea Foreign Minister, following which he would drive down to the Treasury Department to meet Geithner.

He is also scheduled to attend the Finance Ministers meetings of BRICS (Brazil, Russia, India, China and South Africa) countries.

Besides, Mukherjee will chair a meeting of the G-24 countries.

Later, he will speak on "Global Economy andFramework" in the first session of G-20 Finance Ministers and Central Bank Governors' meeting. India and Canada are currently co-chairing the working group on global framework.

In a statement issued after its Article IV Consultation with India, the IMF said that Reserve Bank of India (RBI) should be ready to increase rates to check any further rise in inflation.

The statement comes a day after RBI reduced interest rates by 0.50 per cent to arrest declining growth.

"A major challenge will be to bring growth back to potential and ensure its inclusiveness, while further lowering inflation... This will require a reinvigoration of structural reforms and fiscal consolidation," IMF said after its annual discussion with the Indian government termed as Article IV Consultation.

Indian economy was growing at over 9 per cent before the global financial crisis in 2008 pulled it down to 6.7 per cent in 2008-09. The growth rate in 2011-12 touched a 3-year low of 6.9% on account of factors like high commodity prices, slowdown in domestic demand and RBI's tight money policy.

"Growth risks are to the downside. The main domestic risk is a further weakening of private investment if government approvals do not accelerate, reform efforts are not reinvigorated, and inflation remains high and volatile," the IMF said.

In its World Economic Outlook released yesterday, the IMF has projected a moderation in the GDP growth of the world economy and said that Indian economy will grow by 6.9 per cent in the calendar year 2012.

"Fiscal consolidation is crucial to crowd in private investment and lower inflationary expectations, IMF said adding there was need to increase infrastructure and social sector spending.

The IMF also called for rationalisation of fuel and fertiliser subsidy and encouraging tax reform, especially the introduction of the goods and services tax (GST) which is hanging fire.

Indian government has not been able to push through long pending reforms in insurance, pension, banking and retail sector because of political reasons.

"Financial sector development and reforms are needed to improve access to credit and diversify funding sources. Addressing skill mismatches, increasing labour market flexibility and improving agricultural productivity are crucial to support formal job creation and reduce poverty," IMF said.

It said that India's financial system is stable and encourages close monitoring of asset quality and provisioning.

Industry body CII has asked Prime Minister Manmohan Singh to fast track economic reforms, which in turn would boost investments and accelerate growth, chamber's new President Adi Godrej said today.Adi Godrej, chairman of the Godrej Group, has been elected as the president of Confederation of Indian Industry (CII). He succeeds Tata Steel managing director B Muthuraman.

"The trade bodies are no one to pressurise the government on what to tax and what not to. Similar retrospective amendment was made in UK last month and Vodafone was made to pay tax there. Then why are they having problems in India ?" questioned a senior Finance Ministry official.

Several global bodies have written letters to Prime Minister Manmohan Singh and other ministers saying that the government's proposal to amend Income Tax Act to bring into tax net Vodafone-type overseas deals involving domestic assets would hurt foreign investment.

They have asked US Treasury Secretary Timothy Geithner to raise the controversial issue at ongoing IMF-World Bank Spring Meetings at Washington and also with Finance Minister Pranab Mukherjee during the bilateral talks.

Referring to the recent threat of Vodafone to invoke bilateral investment treaty with the Netherlands on the tax issue, the official said the arbitration clause in the BIPA (Bilateral Investment Protection Agreement) cannot apply in Vodafone-Hutchison deal as it was signed in Cayman islands.

"We met the Prime Minister yesterday and discussed with him about taking the reforms process forward. This will help in improving perception about India's image, attract more investments and revive the growth," Adi Godrej said at a CII press conference in New Delhi.

He, however, did not mention about the Prime Minister's response in this regard.

The chamber's main agenda is to restore growth, which could be done through reforms and better governance practices, he said.

"Both these areas will be concentrated upon. We will work closely with central government, state government and opposition to form a consensus on reforms, including allowing FDI in multi-brand retail," Godrej said.

In November last year, the Cabinet had approved allowing 51 per cent FDI in multi-brand retail. But the government had to put its decision on hold following protests from political parties mainly Trinamool Congress and DMK.

On the economic growth, Godrej said with GDP growth at 6.9 per cent in 2011-12 vis-a-vis 8.4 per cent in the previous two years, the Indian economy is currently in the midst of a slowdown.

"Given the current status of the economy, we have ahead of us the Herculean task of reviving economic growth to the pre-crisis (economic slowdown of 2008) level of over 9 per cent. This needs structural reforms both at the central as well as the state level," he said.

The government expects the growth rate to rise to 7.6 per cent during 2012-13 from the 6.9 per cent in the previous fiscal.

Godrej said to revive investment sentiment, the RBI needs to cut the interest rates by 100 basis points by December, 2012.

After a gap of three years, the Reserve Bank slashed the short-term lending rate (repo) by 0.50 per cent to 8 per cent.

RBI had raised lending rates 13 times between March, 2010 and October, 2011 to contain inflation that had been hovering near double-digit. This had led to clamour by industry to cut rates and spur industrial and economic growth that has slowed down considerably during the past few quarters.

U.S. business groups are urging U.S. Treasury Secretary Timothy Geithner to press India's Finance Minister Pranab Mukherjee this week on proposed changes to India's tax law they fear could badly damage their investments in the fast-growing economy.

"These proposed amendments will have a significant negative effect on our companies, customers and shareholders, and investors in India," the U.S. Chamber of Commerce, the U.S.-India Business Council, the Financial Services Forum and nine other groups said in a letter on Tuesday to Geithner.

Mukherjee is in Washington for the annual spring meetings of the World Bank and the International Monetary Fund, and is expected to meet with Geithner both in a bilateral setting and the large Group of 20 leading economies meeting.

India's budget last month outlined a proposal to enable the tax authorities to make retroactive claims on overseas corporate deals and bring in new anti-avoidance measures. Both moves have been criticized as making India less attractive for foreign investment.

"The Finance Bill 2012 includes two dozen amendments that would retroactively create tax liabilities, some for periods of up to fifty years. Despite assertions by Indian officials that these retroactive provisions are in accordance with global tax practices, the amendments are much broader in scope and extend for a far longer period of time," the U.S. groups said.

Treasury spokeswoman Kara Alaimo declined to say whether Geithner would raise the issue with Mukherjee or had concerns about India's tax proposals, which were also raised by an international coalition of business groups in a March 29 letter to Indian Prime Minister Manmohan Singh.

Commercial ties between India and the United States flourished after India's economic liberalisation in 1991, but a number of bilateral spats have flared in recent months.

The United States in March began dispute settlement proceedings at the World Trade Organization against India's barriers to U.S. poultry and egg exports.

Last week, India started similar action at the WTO against U.S. import duties on certain Indian steel products, a 2010 increase in U.S. work visas fees and a recent spike in Indian visa applications being turned down.

U.S. and international business groups have also complained to Singh about new rules covering Indian government technology purchases they fear could shut them out of the market.

The U.S. groups, in the letter to Geithner, noted President Barack Obama's administration has identified India as a priority growth market as it works to double exports by 2014.

"Failing to address this (India tax) proposal would undercut the administration's goals of increasing exports and job creation," they said.

Coal imports went up by a staggering 80.3 per cent to $17.6 billion from $9.8 billion. Similarly, fertiliser imports grew by 59 per cent to $11 billion from $6.8 billion. Vegetable oil imports went up by 47.5 per cent to $9.7 billion from $6.5 billion. This is an addition of $ 15.1 billion as compared to 2010-11.

India has already seen a huge jump in the cost of oil and gold imports, mainly due to a nearly 40 per cent increase in crude prices and rising preference for gold as an asset. Petroleum imports stood at $155.6 billion, up $50 billion over the preceding year. Bullion imports were $61.5 billion, an addition of $19 billion over the previous year.

"The high imports of coal, fertilisers and edible oil are linked to domestic policy. The nodal ministries should work towards fixing the coal problem, increasing the domestic supply of vegetable oil and bring in a fertiliser pricing policy to address the issue at the earliest or else the problem will accelerate," commerce secretary Rahul Khullar said on Thursday after releasing trade data for 2011-12.

In truth, the centre may have very limited options to check import of the three commodities, given the huge coal requirement of the expanding power sector, the need to keep farmers supplied with fertilisers and to keep vegetable oil prices from shooting. Curbing gold imports by raising imposts was easier.

In his budget last month, finance minister Pranab Mukherjee doubled the import duty to 4 per cent on gold in a bid to curb its import. According to Khullar, high imports last year pushed the current account deficit beyond the comfort zone at nearly 4 per cent of GDP. He hopes that this will range between 3 and 3.5 per cent in 2012-13. "We can expect some moderation in imports in the current financial year as I do not expect crude prices to go up by 40 per cent again this year. Moreover, with inflation dampening, I expect demand for gold as a storage asset will also come down. Besides, the import duty of 4 per cent will also act as a deterrent," he said.

Exports rebound last month after a deceleration since October, hinting at a healthy revival in the first quarter of the current year, as the lag effect of nominal exchange rate has kicked in. While exports were 16.67 per cent higher in March at $28.7 billion than in the month before, they were 7.11 per cent below the March 2011 level. Khullar attributed this to collapse in export destinations since September.

"The trade deficit of $184.9 billion that is the highest ever and is a cause of concern. But looking at the profile of imports, very little manoeuvring is possible since the trade deficit has widened mainly on account of large imports of petroleum, gold and silver and coal, machinery and inputs. While import of machinery and inputs, petroleum and coal would be necessary for meeting domestic manufacturing and energy requirements, some respite in gold and silver import would be possible if other avenues of investments like stock market and real estate start giving good returns," Rafeeque Ahmed, president of the Federation of Indian Export Organisation, said.

The US India Business Council (USIBC), the apex body of American corporates doing business in India, in a secret memorandum sent to the White House, however noted that there is a silver lining reflected in the recently held assembly election, which shows that Indian people are hungry for progress.

"What is apparent is that political power is devolving to strong state leaders, and the vacuum at the Centre is allowing forces in government to move on issues that are harmful to India's investment climate," the USIBC Chairman Harold 'Terry' McGraw III, said in a letter to Mike Froman, deputy national security adviser to the US President, Barack Obama.

"The Compulsory License case, the Procurement bills, the effort to expand the Essential List of Medicines are all examples where there is little political benefit, which indicates that the bureaucracy has a hand in moving these initiatives," he wrote soon after his return from India where he recently led the Council's executive mission.

A copy of the letter dated March 26 has been obtained by the PTI, whose existence has been confirmed by multiple sources.

Conceding that the US corporate sector is disappointed, an Indian diplomat said that it has been quite some time now that they have been conveying to New Delhi the sentiments of the private sector here, which played a key role to ensure the passage of the India-US civil nuclear deal, despite heavy odds.

Meanwhile,Public sector coal behemoth Coal India's (CIL) board on Monday gave its nod to the much-awaited fuel supply agreement (FSA) to be signed with power utilities for assured supply of the fuel in wake of presidential directive for signing fuel supply pacts. The final decision came following eight hour long deliberations in Kolkata on Monday. The FSA draft was earlier vetted by the legal wing of CIL. Addressing media after the board meeting Coal India chairperson Zohra Chatterji said, "One of the important agendas in today's meeting was implementation of the government directive and deliberations on the FSA draft document. We have agreed upon a document and we will be signing the FSAs before April 20, the time limit given to us which is within 15 days from the issue of the directive."

Significantly, the FSA, which the CIL board agreed on, has nearly done away with the risk of penalty that Coal India will have to pay in case of shortfall below 80 per cent of the contracted amount of supply to power plants. In the new scheme of things, the extent of penalty will be brought down to just 0.01 per cent from the earlier level of 10 per cent, of the shortfall amount. And that's not all. Henceforth, the penalty clause will only get triggered after three years from the date of signing of the FSAs.

"We have decided to keep the penalty clause at a minimum, at 0.01 per cent, and it should be made operational after three years," Chatterji said. She, however, refused to elaborate the rationale behind keeping a three-year moratorium on the penalty clause.

The UPA government had earlier issued a presidential directive on April 3 to Coal India to commit a minimum of 80 per cent of fuel supply to power producers, failing which the PSU would be subject to paying a penalty. The directive was issued to the PSU, as it did not meet the deadline of March 31, set by the prime minister's office for CIL to enter into agreements with power producers, which were facing fuel crunch.

CIL board has also decided that there wouldn't be any cutback on the amount of coal put to e-auction and sold at prices, significantly higher than what is charged from customers like power and steel producers. "e-auction will continue at the present level for the time being," Chatterji said.

Planning Commission Deputy Chairman Montek Singh Ahluwalia today said states can play a big role in improving the investment climate in the country, as a large number of policy matters fall in their domain.

"... Very large part of what would constitute a good investment climate depends entirely on state governments," Ahluwalia said while addressing CII's annual meet here.

He listed a number of areas where states can play a big role to improve overall investment climate, including power, land, labour, state levies administration, roads, agriculture marketing and linkage and water.

"In the 12th Plan, we want to focus on what are the central government's responsibilities in policies and what are the ones that are pretty firmly in the hands of the state governments. The number is quite large," he added.

Emphasising that the role of states in fuelling the growth of the national economy has become very significant over the past few years, he suggested to bring out a survey -- 'Ease of Doing Business'-- for each state, which would encourage competitiveness amongst them.

He was of the view that the initiative (survey) should also bring out successful experiments carried out at state levels for adoption by others.

Ahluwalia pointed out that it is not true that the economic reforms have benefited only "well-off" states.

"Many people used to say that economic reforms will only benefit well-off states and states that are backward won't benefit...But this is not true," he added.

India's move to amend the Income Tax act retrospectively is not Vodafone-specific and won't hurt the country's investment climate, the visiting Commerce and Industry Minister Anand Sharma has said in London.

"The clarificatory amendment is retrospective in character and it was not Vodofone-specific. I don't see, in any manner, the investment climate will be hurt," Sharma said at a media briefing here last evening, after meetings with Britain's Chancellor of Exchequer George Osborne and Secretary of State for Business Innovation and Skills Vince Cable.

"India remains one of the best investment destinations. Returns on investment in India is the highest in the world," he added.

Sharma said the issue was discussed when Chancellor Osborne met Finance Minister Pranab Mukherjee in Delhi.

"We have a very stable tax regime and policy regime which is judicious," Sharma said, adding that the Finance Minister will respond to debate in Parliament on the issue.

UK-based mobile operator Vodafone purchased Hong Kong- based Hutchison's telecom business, which included operations in India, in 2007 for about $11.2 billion.

Indian income tax authorities said the deal will attract tax on it and sought Rs 11,000 crore from Vodafone, which challenged the move.

The Supreme Court ruling held that Vodafone wasn't liable to pay tax on the deal, following which the government has proposed to amend the tax laws retrospectively to bring in the net such deals.

On Pakistan's move to grant India the Most Favoured Nation (MFN) status, Sharma said, "In the last one year there has been much forward movement. There is a growing realisation that economic engagement can yield positive dividends."

He said, however, that it is well below the potential -- given the trade between the two countries, the formal trade is less than $3 billion, while informal trade through 3rd countries is close to $10 billion.

On the issue of UN sanctions against Iran, Sharma said, "India has taken correct and consistent view of this issue. We have respected every UN resolution. We are not in violation of the UN resolution."

Exuding confidence that India will be able to come out of every difficult situation, Finance Minister Pranab Mukherjee on Tuesday said the country needs to be ever ready to respond to external shocks on real time basis.

Addressing CII's Annual General Meeting and National Conference here, he said that like in the past three financial years, India could confront any situation successfully in the future.

"However, at the same time, we shall have to keep in mind, complacency can turn out to be our worst enemy. We need to be ever ready to confront external shocks and also respond on a real time basis to all the issues which may come in way," he said.

Global recovery, amid the ongoing sovereign debt crisis in some European nations, has been weak and uncertain.

Post 2008, Mukherjee said, global recovery is turning out to be harder than expected.

"We are not yet completely insulated from the evolving global economic scenario," he said, pointing out that there has been moderation in FII inflows in the country, which in turn has affected stock markets and depreciation of the domestic currency.

The global financial crisis, which surfaced in September 2008, had also impacted India's economic growth. However, with the help of three stimulus packages, India managed to record 8.4 per cent economic growth in 2009-10 and 2010-11 and clocked an estimated 6.9 per cent GDP expansion last fiscal.

"Given the overall fundamentals, the estimated growth of GDP of 6.9 per cent in 2011-12 appears to disappointing," Mukherjee said while attributing the slowdown to poor performance by the industrial and agriculture sectors.