India Fast Tracks Policy, Powers Remain Watered Down

The cabinet approved creation of a special panel yesterday, albeit with watered-down powers to speed up the notoriously slow implementation of big-ticket infrastructure projects. Amendments to the colonial-era Land Acquisition Act may help the government curb often violent protests that have stalled projects for industry and highways. The cabinet committee also allowed the establishment of an infrastructure panel and a 30% reduction in the sale of airwaves. The government hopes the new body will help to increase investment in an economy that is likely to slow in fiscal 2012/13 to its worst pace in a decade. Prime Minister Manmohan Singh’s chief economic adviser sees full-year growth of 5.5% to 6%, reports Reuters. The approvals add momentum to Singh’s policy agenda by addressing transportation and energy bottlenecks that have handicapped growth in Asia’s third-largest economy. The prime minister has already won support to open the economy to overseas retailers, the biggest embrace of foreign investment in a decade, as he bids to repair the government’s reform credentials before national elections in 2014. Prime Minister Manmohan Singh will head a new panel aimed at speeding up approvals of infrastructure projects. The prime minister is seeking $1 trillion in investments for highways, ports and power plants from 2012 to 2017 to spur development. The cabinet approved a 30% cut in the reserve price of mobile phone airwaves in four telecommunication zones, after carriers shunned last month’s auction in those zones saying the prices were too high. The cabinet also approved a ministerial panel’s proposal to set the auction reserve price of more efficient 900 megahertz band airwaves at twice that of the basic phone airwaves in the 1800 megahertz band.

India plans to take more steps in the next few weeks, which combined with the measures taken so far will help turn around the economy, the Finance Minister P. Chidambaram said today, however, did not elaborate on the planned measures. India- Asia’s third-largest economy is headed for the weakest full-year growth in a decade, at about 6%, far below the near double-digit pace before the global economic downturn. “I am confident that the steps we have taken, and some more steps that we will take in the next few weeks, will help turn the Indian Economy around,” Mr. Chidambaram said addressing the Delhi Economics Conclave.

Rating agency Standard & Poor’s warned again on Tuesday thatIndia’s credit rating faces a one-in-three chance of being downgraded to junk over next 24 months because of a heavy debt burden and pressure on the fiscal deficit, which is seen overshooting a target of 5.3% in the fiscal year ending in March.

India Sets up Panel – Powers Watered-Down
Infrastructure companies have pressed for the creation of such a board to speed up hundreds of delayed projects. Regulatory hurdles, such as delayed land acquisition and environmental clearances, have held up projects worth over 2 trillion rupees in the road, power, coal and mining sectors alone, according to government data. Due to opposition from within the government, the powers of the panel have been diluted and it will not be able to directly clear the projects. It will be up to individual ministries to approve projects, but where there are delays, the new panel will have the authority to intervene. It will not, however, be able to overturn any decisions made by the Environment Ministry. Environment Minister Jayanthi Natarajan had stalled the creation of the panel for months, calling it authoritarian. The watering down of the panel’s powers, which will likely disappoint investors, underscore the government’s struggle to push a reform agenda aimed at reviving growth. Red tape can delay projects for years or, in the worst cases, scupper them altogether. Bureaucracy and fights between industry and farmers over land have prevented India from plugging huge power shortages and upgrading its decrepit transport network. A typical infrastructure project requires clearances from 19 federal ministries and, on average, 56 authorizations on issues ranging from the environment to defense. The whole process takes up to 24 months.

Reserve Bank Of India Interest Rates
The Reserve Bank of India (RBI) is expected to keep interest rates unchanged on Tuesday, Dec 18, according to a new Reuters poll, with respondents split over whether it will cut the cash reserve ratio (CRR) for banks. The RBI has left rates on hold since a 50 basis point cut in April, and expectations for a further cut have been pushed from December into the first quarter of 2013 following guidance by the central bank in late October. The CRR – a tool the Reserve Bank of India has been using to ease a cash crunch and prod banks to loosen lending rates. At 4.25%, CRR is at its lowest since 1976. RBI Gov. Duvvuri Subbarao said in the October policy review there was a “reasonable likelihood” of further easing in the January-March quarter, when inflation is expected to trend down. The RBI is expected to review monetary policy in January and again in March.

New Rules From SEBI To Avoid Market Glitches/Flash Crashes
India Stock Market regulator, SEBI – Securities and Exchange Board of India unveiled a new set of measures, including reducing the trading band for a wide category of stocks and capping single orders at nearly $2 million, to prevent future flash crashes. The new set of rules come after an erroneous trade order of more than $125 million from a broker at Emkay Global Financial Services sent shares sharply lower in October. Read more on: Nifty Plunges on Glitch – Spooks Indian Equity Markets Traders

Under new guidelines from SEBI, Stock Exchanges will not be able to accept single orders for stocks, equity derivatives or exchange traded funds of more than 100 million rupees ($1.8 million) in value. The restriction applies to orders for stocks, exchange-traded funds, index futures and equity futures. In addition, the regulator narrowed the trading band for stocks that also trade on derivatives markets to 10% from 20%, although exchanges will be able to adjust the band in increments of 5% depending on market conditions. SEBI also directed brokerages to set internal limits on the cumulative value of un-executed orders, while directing them to reduce risk when 90% of the collateral for margin trading is utilized. All un-executed orders will be canceled once that threshold is reached, and all new orders will be checked for sufficiency of margins. Exchanges have a month to institute the new rules, and can set “more stringent norms based on their assessment,” according to the regulator. The NSE - National Stock Exchange of India Ltd., the nation’s largest bourse, controls more than 90% of India’s $28 billion equity derivatives market including the Nifty Index and handles 75% of stock trades. The exchange began trading equities electronically in 1994, prompting the 137-year-old BSE, which runs the BSE India Sensitive Index BSE-Sensex, to follow suit.

India Inflation Betters Forecast
India’s Inflation unexpectedly cooled in November to its weakest pace in 10 months. The wholesale price index (WPI), India’s main Inflation gauge, rose 7.24% from a year earlier, below expectations for a rise of 7.6% and below October’s 7.45%. An easing in annual fuel and manufacturing inflation helped rein in price pressures. The RBI though may not be impressed enough to cut interest rates next week as price gains still remain above its comfort level. The inflation data comes after a spike in industrial output in October and data indicating that infrastructure output and investment is picking up, raising hopes a long slide in India’s economic growth is coming to an end. RBI – Reserve Bank of India Governor Duvvuri Subbarao may wait for more evidence that inflation is on an easing trend before heeding Finance Minister P. Chidambaram’s call for cheaper credit to back a government policy overhaul.