01.11.2007

• Now it is time for sterilization tax
• The RBI and the Finance ministry are working on imposing a sterilization tax on the ECBs.
• Another measure under consideration is the auctioning of foreign loans’ quota to help moderate the inflow of ECBs.
• Currently foreign borrowings are about $25 bn a year.
• I am sure you would remember that the RBI loses about 3% on sterilization. This 3% is the difference between what it earns by deploying the forex reserves in US treasury bills and the interest it pays in the domestic market for sucking out liquidity through the issue of government securities.
• What’s your take on this? What impact will it have on FII or FDI inflows and with what result? Think through and discuss in our shout-box.
• Related: Fiscal cost of maintaining foreign exchange rate
• Status of India’s nuclear power production
• India’s current nuclear power generation set-up is just about half of what the country’s domestic uranium reserves can support. At present, only 4,190 MWe of power is generated by nuclear plants, and another 1000 MWe capacity is under construction. The country reportedly has enough resources of natural uranium to support operation of 10,000 MWe of pressurized heavy water reactors (PWHR).
• It has been estimated that the existing uranium reserves in the country are approximately 78,000 tonnes, which is just sufficient to power 10,000 MWe capacity.
• India has 17 nuclear reactors, of which two are light water type and the remaining 15 are PWHRs.
• Latest uranium mining sites include: Chitrial in AP and Gogu in Karnataka.
• US economy’s expected performance
• It is forecast that the GDP growth will be about 1.5% for the current quarter and will be about 1.3% in the first three months of next year.
• Textile sector sops
• With a view to ameliorate the worsening conditions of the textile sector because of the appreciating rupee, the government is considering the following measures:
• Restructuring of the TUFS scheme
• 5% interest reimbursement
• 10% capital subsidy
• Why is textile industry the worst hit in a rupee appreciating scenario?
• Being competitive mainly on account of the labour cost arbitrage, this is highly vulnerable to exchange rate swings.
• About 85% of the trade is invoiced in dollars.
• The ripple effects will be felt in:
• Textile machinery industry
• Cotton farmers
• Foreign funds may be allowed in to our bond market
• At present there is a cap on FII investments in the bond market. It is pegged at $4.7 bn. Out of this $3.2 bn is for government securities and $1.5 bn is for corporate debt.
• Hope you understand what it means. It means that no foreign fund can hold more than $3.2 bn in our government debt. Sounds curious; isn’t it? While on one hand we want more money to bridge our deficits, we seem to be very choosy! A contradiction; isn’t it?
• Both the Tarapore committees have recommended scrapping of caps on FII investment in rupee-denominated debt.
• EPF interest question
• We all know that the government is afraid of taking a firm stand on declaring interest EPF corpus. Most of the EPF corpus (about 65% of it to be precise, amounting to about Rs. 95,000 crores) is invested in SDS. It earns 8% interest. But the EPF board announced 8.5% rate. The Trade Union leaders demand that the interest on SDS should be enhanced to 9.5% by the government.
• India’s Energy Exchange
• It is likely to commence operations from November.
• Short-term trading currently accounts for 3% of the total power market in India, which is close to Rs. 1.25 lakh crore. Globally the figure is between 30 to 40%.
• This power exchange will enable a customer having demand of more than 1 MW to buy power through the exchange.
• Size of India and China economies
• India: $906 bn
• China: $2.7 trillion
• Sovereign wealth funds
• These are huge pools of capital built up by a small group of mainly oil-rich countries to invest their assets around the world.
• They control an estimated $2.5 trillion investments across the globe.
• Many developed nations are getting uncomfortable with these funds as they fear that these funds will slowly take over the corporates in those countries. But experts say that these fears are unfounded. They argue that when this money is good for the foreign governments (as a lot of it is invested in their securities to finance their deficits) why should it be bad for the corporate sector?
• Research on fear
• In humans the fear hot-spot is the amygdala, an almond shaped part of the deep brain.
• It is not responsible for all of people’s fear response, but it is like the burglar alarm that connects to everything else.
• Asian Indoor Games at Macau
• Chatholi Hamza and Sinimole Paulose won gold in the men’s and women’s 1500 metres respectively.