24.09.2010

Politics & the Nation

• Government gets a breather for a week
• The possibility of the Allahabad High Court pronouncing a judgement in the 60-year-old case relating to ownership of the disputed site at Ayodhya looked slim on Thursday, with a two-member Supreme Court bench asking the Chief Justice of India to constitute a larger bench to decide on the petition to defer the title suit verdict. The case will come up for hearing in the apex court on September 28. The SC bench made the suggestion after it was split on the petition by Ramesh Chand Tripathi for staying the HC verdict, which was scheduled to be delivered on Friday. While Justice HL Gokhale favoured a negotiated settlement, Justice RV Raveendran was sceptical about the intent of the petitioner.
• For the government, which is facing a string of bad news — troubles in the Kashmir Valley, heightened Maoist activities and the mess in the organisation of Commonwealth Games — the court’s decision was comforting.  It will give it a window to tone up its law and order efforts to deal with the fallout of the judgement.
• The curious case of Pathanamthitta
• If you are wondering what is or where is Pathanamthitta, be informed that it is a district in south Kerala which is facing a curious case of ageing.
• This is one district in India that is having more aged people than there are young people, the kind of demographic disadvantage that has so far been believed to be prevalent among rich countries.  Take a look at this story.  Makes an interesting reading.

Finance & Economy

• FIIs can invest $10 b more in bonds now
• The government has raised the ceiling for investment in government and corporate bonds by foreign funds, which will ease pressure on banks to raise rates with rising demand for loans to build roads, ports and power plants.
• The finance ministry revised the cap for investment by foreign portfolio investors in government securities from $5 billion to $10 billion, and in corporate bonds from $15 billion to $20 billion. The announcement appears to have been timed well since it came on a day when the borrowing calendar for the second half was unveiled, which led to yields easing.
• Foreign funds have almost exhausted their investment limits in government bonds and have for long been demanding that they be allowed to buy more gilts. But, the Reserve Bank of India has in the past discouraged excess flow of foreign money into government bonds, worried about the potential volatility in the market, in the event of these funds exiting swiftly. In the year to date, foreign funds have invested $16 billion in both corporate and government bonds, according to Sebi data. As per the data, FIIs’ exposure in debt instruments during the same period stands at $9.1 billion.
• The enhancement of the Fll investment cap will provide avenues for increased foreign investment in debt securities, help investment in the infrastructure sector, and the development of the government securities and corporate bond markets in the country.
• The move is in line with recommendations made by many expert panels. Key panels on financial sector reforms, including the high-level expert committee on making Mumbai an international financial centre, had recommended doing away with the ceiling altogether to develop India’s debt market, complete with vibrant markets in credit, currency and interest rate derivatives. A similar suggestion was also made by the Deepak Parekh committee on infrastructure as debt is the preferred way of financing for infrastructure. A more recent panel headed by UTI Asset Management Company chief UK Sinha had also suggested removal of the caps.

• A bit about the new rules that SEBI has laid down for foreign funds
• SEBI's new rules that will be kicking in from October 1, 2010 stipulate that FIIs and their sub-accounts have to ensure that the money they manage is raised from several offshore investors and not from a single or a few investors.
• The rule is aimed at curbing round tripping of money by rich Indians and NRIs who often use FIIs to play the Indian stock market.
• According to market circles and custodian sources, more than 500 sub-accounts have come under pressure.
• Under a broadbased structure, each sub-account must have at least 20 investors, and no investor can contribute more than 49% of the pool, unless there are institutional investors like pension funds, in which case the number can be less than 20. But, for years, several sub-accounts have been functioning as multi-class entities where each registered sub-account runs mutiple cells pursuing different investment strategies. There have been regulatory concerns that once a multi-class share entity is registered, it can add new cells that can be used for round tripping.
• Over the past one month, Sebi has also issued letters to FIIs and sub-accounts, reminding them to shut protected cell companies (PCC), which are similar to cells in a multi-class entity. They have been told that as PCCs, they cannot buy fresh securities. Under the circumstances, PCCs will have to reapply as new entities and may be forced to liquidate their investments if Sebi rejects their registration.
• Sebi, which felt that PCCs and multi-class structures not only went against the spirit of FII regulations but were ways to side-step rules, came out with the new directions in April, giving foreign investors six months to comply. But the latter need more time.
• There are about 1,732 FIIs and 5,553 sub-accounts registered with Sebi.
• According to a senior stock broker, the demise of multi-class entities and PCCs will drive offshore investors to buy participatory notes—instruments that allow offshore investors to trade in Indian shares.

• SEBI rejects MCX-SX's application for trading in equity, interest-rate derivatives and bonds
• Remember the dispute between the two that we have noted in our blog sometime back?  
• Now SEBI, as expected has rejected the application by MCX-SX to permit it to offer trading in equity, interest derivatives and bonds.  Look at this story in full to get a recap and update of the issue.

• Big role, big profit for states in shale gas policy
• The government is reportedly finalising a new policy for exploring shale gas that will provide states a share of the profit booty that exploration companies give as profit petroleum to the Centre.
• Profit petroleum is a part of the revenue earned by the exploration company when it sells oil or gas. Proposed to be called shale gas payment as opposed to profit petroleum, this revenue will be shared between the centre and the state.
• This new policy is being scripted to get proactive support from state governments in this new field of energy that is set to be a game changer. The profit share will be over and above the royalty that state government would earn from the oil company.
• It would be essential to get the state governments as a partner in the development of shale gas as this new unconventional gas involves exploration over large areas.
• The profit share for the state would incentivise states to help with the land acquisition as it is under the direct jurisdiction of the state governments. It is expected that the resource rich states would invest these revenues in the development of the region to avoid conflicts with local populace such as agitation against bauxite mining in Niyamgiri.    
• Shale gas is non-conventional natural gas found in non-porous rock and requires fracking technology to extract gas from shale. Global majors like Exxon, Chesapeake, Davon and Pioneer are the market leaders in shale gas.
• Fracking technology involves sending fluids down the well at ultra-high pressure to help oil flow in from rock formations.

• Bumper food crop expected
• The farm ministry’s first advance crop estimates for this kharif have projected a bumper output, which should help cool food inflation running at over 15%.
• Good rainfall across the country, barring a few states in the east, has led to a sharp increase in cropping that is expected to yield a substantially higher production of nearly all food items.
• The production of rice is projected to go up 6% to 80.4 million tonne while output of pulses is expected to rise 33% to six million tonne.
• Sugarcane production growth has also been pegged at 17%, spurring hopes of lower sugar prices.
• The country has so far received 4% more rainfall than the long-term average and the good soil moisture is expected to help the rabi crop as well. The planning commission expects the farm sector to grow 5-6% in the current year.

Language lessons

• press gang: Noun
• A detachment empowered to force civilians to serve in the army or navy