Aug-2011-National

NATIONAL AFFAIRS

Draft guidelines for new bank licences
On August 29, 2011, the Reserve Bank of India released its much-awaited draft guidelines for new banking licences, with the basic message that it is looking for companies with diversified ownership and less exposure to risky business such as broking and real estate.

The guidelines had been under discussion for more than a year. These allow business houses with successful track record and a minimum capital of Rs 500 crore to set up commercial banks. The draft also spelt out the framework for converting non-banking financial companies into banks.

The RBI has suggested a 49% limit on foreign shareholding and a two-year deadline to list shares for new banks.

According to the draft, new banks’ total exposure to their founding groups should be limited to 20%, with the exposure to a single entity capped at 10%.

Activities such as real-estate and broking, “apart from being inherently riskier, represent a business model and business culture which are quiet misaligned with a banking model,” said the central bank, which has historically been cautious about opening up the sector to more players due its apprehensions on controlling bad loans.

These conditions may make it difficult for keen aspirants such as Religare Enterprises Ltd., Indiabulls Financial Services Ltd. and Reliance Capital Ltd. to qualify, analysts said.

Companies like Larsen & Toubro Ltd., Mahindra & Mahindra Financial Services Ltd., with a reasonably diversified shareholding, have a fair chance to gain banking licenses.

The last time India issued a banking license was in 2004, to Yes Bank Ltd.

Sustainable Competitiveness Report 2011
Punjab, Himachal Pradesh and Haryana rank among the top 10 States in a report titled Sustainable Competitiveness Report 2011 for Indian States, released by Marcus Potter, executive director, developing markets, RICS. The report shows the ranking of Indian States in terms of the sustainability of their growth story.

The States have been divided into three categories based on the density of population and Delhi tops the sustainable competitiveness index in the high density States. Goa and Sikkim top the list for the medium and low population density States, respectively.

When seen as an overall ranking, the top three winners are Goa, Delhi and Sikkim, followed by Punjab, Himachal Pradesh, Haryana, Mizoram, Kerala, Gujarat and Arunachal Pradesh.

Among the laggards, West Bengal, Bihar and Jharkhand fared the worst. Heavyweight States such as Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra and Uttar Pradesh showed disappointing results.

The States sustainability competitiveness is accessed on four basic pillars, which include social inclusion, environment and climate change, economic development and resource availability and utilisation.

When seen against individual ranking parameters or categories, Delhi and Goa top the national rankings across the economic development and resource availability and utilisation categories, respectively.

On environment and climate change, it is Arunachal Pradesh that tops the national rankings, though overall the State ranks number 10. Mizoram ranks as the number one State nationally on social inclusion.

The IFC-RICS Sustainability Competitiveness Report seeks to raise awareness and promote inclusive growth amongst cities.

Growth prospects for 2011-12 subdued: RBI
While retaining economic growth estimates for 2011-12 at eight per cent, the Reserve Bank of India (RBI) has cautioned about emerging downward risks emanating from the uncertain global environment and domestic inflationary pressures. The central bank also said global commodity prices would shape its monetary policy stance in the future.

In its annual report for 2010-11, RBI had retained its growth projection at eight per cent for 2011-12 in its first quarter review in July. Overall growth in 2010-11 is estimated at 8.5 per cent, and is likely to be higher after factoring in the new index of industrial production series.

“Downside risks to growth have increased since our assessment in July. The decline in global commodity prices has not been significant, and despite all the financial market turbulence, oil prices are back to earlier levels,” RBI Deputy Governor Subir Gokarn said.

On global factors, RBI said high oil and commodity prices, even after some correction, remains high and could adversely impact growth. The central bank also painted an uncertain picture of the industrial sector, where it saw downside risks outweighing upside ones. According to RBI, the downside risks arise from falling business confidence in the wake of global uncertainties, political factors and firm commodity prices amidst high inflation and a weak response of supply side factors.

On inflation, the central bank has maintained its earlier stance that a moderation in prices can only be expected by the end of 2011-12.  RBI expects inflation to come down to seven per cent by March 2012.

Parliament yields to Anna’s demands on Lokpal Bill
On August 27, 2011, the extraordinary 12th day of Anna Hazare’s anti-corruption fast, the Parliament responded with extraordinary grace to show what it could do to honour a crusader’s urge.

After over eight hours of debate around the structure of the Lokpal Bill, the Government and the Opposition in both the Lok Sabha and Rajya Sabha came together to agree “in-principle” to the three major demands the activist had raised in his letter to Prime Minister Manmohan Singh as a condition to end his protest. In doing so, the Parliament paved the way for the Gandhian to end his fast.

Earlier, the two Houses agreed that the anti-graft law, to be effective, must cover corruption by lower bureaucracy through appropriate mechanisms; must have an inbuilt grievance redress system which Anna calls the citizens’ charter and should provide for enabling laws to establish Lokayuktas in States on the lines of the Lokpal at the Centre.

The debate ended amidst members thumping their desks to applaud the agreement which Finance Minister Pranab Mukherjee summed up as “the sense of two Houses” which would now be conveyed to the Parliamentary Standing Committee on Law and Justice for its consideration. The committee is already seized of the Lokpal Bill the government had introduced in Lok Sabha on August 4 and those prepared by the National Advisory Council member Aruna Roy and Dr Jayprakash Narain.

Except on the inclusion of judiciary and MPs’ conduct inside the Parliament under the Lokpal as Anna had demanded in the Jan Lokpal Bill, the BJP-led Opposition and the Government broadly agreed on all other issues, with Leaders of Opposition in both Houses steering the consensus, especially on conditional inclusion of the PM on matters except in issues of national security, public order and foreign policy.

The “Sense of the House” resolution reads: “This House agrees ‘in principle’ on the following issues: citizen charter, lower bureaucracy under the Lokpal through an appropriate mechanism, and establishment of the Lokayukta in the States; and further resolves to forward the proceedings of the House to the Standing Committee on Law and Justice.”

Delhi, Dhaka ink strip maps to mark border
On August 20, 2011, Bangladesh and India inked strip maps to demarcate over 4,000-kilometre international border between the two neighbours, in a bid to settle the long-standing frontier-related discord.

This signing of the strip maps containing the Bangladesh-India International border boundary line coordination point will end an outstanding issue which remained unresolved since 1947.

A strip map is an un-scaled drawing of a route to include critical points along the border, roadside features and town facilities on a simple flip-over style map. The map usually incorporates distances.

US warns India of Chinese build-up
The latest US assessment of the expanding military might of China paints a scary picture of the frenetic pace at which the 2.25-million People’s Liberation Army (PLA) is being modernized, in the backdrop of uncertainty over its long-term intentions.

Though the US report holds that thwarting any American intervention in Taiwan remains PLA’s “main strategic direction”, New Delhi can ill-afford to ignore China’s increasing trans-border military capabilities, its assiduous strategic encircling of India and hardening posture in the border talks.

The report itself notes PLA has replaced its older liquid-fuelled, nuclear-capable CSS-2 intermediate range ballistic missiles with the “more advanced” solid-fuelled CSS-5 medium-range ballistic missile systems along the Line of Actual Control (LAC) to “strengthen its deterrent posture” against India.

“A high level of mistrust continues to strain the bilateral relationship...India remains concerned over China’s close military relationship with Pakistan and Beijing’s growing footprint in the Indian Ocean, Central Asia and Africa,” says the report.

All this might not startle the Indian defence establishment, which also keeps a close tab on PLA, but the fact remains that China can now move over 30 divisions (each with over 15,000 soldiers) to the LAC within a month to outnumber Indian forces by at least three-is-to-one due to the huge military infrastructure build-up in Tibet.

India has taken some steps in recent years to counter China, which range from planning a new mountain strike corps (over 35,000 combat troops) in 2012-2017, after raising two new divisions (over 15,000 soldiers each) in Nagaland and Assam, to deploying Sukhoi-30MKI fighters, missile batteries and spy drones in the North-East.

But a lot more clearly needs to be done. China, after all, is fast steaming ahead with its projects to build its first stealth fighter, the J-20, and multiple aircraft carriers after its first, the 67,500-tonne Varyag acquired surreptitiously from Ukraine, began sea trials recently.

Moreover, China has a hyper-active ballistic and cruise missile programme to add to its already huge nuclear arsenal. They include missiles like the DF-21D ballistic missile to kill aircraft carriers or large ships over 1,500-km away, the road-mobile DF-31A capable of hitting targets 11,200-km away, and the JL-2 submarine-launched ballistic missile with a reach beyond 7,200-km. "China's nuclear arsenal currently consists of 55-65 ICBMs (intercontinental ballistic missiles), apart from (5-20) IRBMs, (75-100) MRBMs and (1,000-1,200) SRBMs," says the Pentagon report.

China, of course, also helps Pakistan to boost its military capabilities, with the clear intention to bog down India in South Asia. Pakistan remains China's primary customer for weapons, with sales ranging from JF-17 and F-7 fighters, F-22P frigates and early warning and control aircraft, tanks and missiles, says the report.