INDIAN ECONOMY

1.NTPC-BHEL to set up unit in Andhra Pradesh

1. NTPC-BHEL Power Projects Pvt. Ltd. (NBPPL), a 50:50 joint venture

between NTPC and BHEL, t would set up its first power equipment
manufacturing plant with an outlay of Rs. 6,000 crore at Mannavaram in
Chittoor district in Andhra Pradesh.
2. To be fully operational by 2014,
3. The new plant, billed as the country’s first integrated plant making
turbines, generators and boilers at one place, will have an annual capacity
to manufacture up to 5,000 MW of equipment.

NTPC-BHEL Power Projects Chairman and Managing Director C. P. Singh,

2. New series of WPI-based inflation soon

CURRENT PRACTICE

1. The rate of inflation based on the movement in WPI is measured on a

weekly basis.
2. In the existing series based on 1993-94 prices,
3. The weight of primary articles in the WPI is 22.02 per cent
4. While the share of manufactured products is 63.75 per cent.
5. The balance of slightly over 14 per cent is accounted for by the fuel,
power, light and lubricants category in the index.
IMPORTANT CHANGES

These changes are based on the recommendations of a working group headed

by Planning Commission Member Abhijit Sen, after November 14.

1. The Central Government decided to shift the base year for Wholesale
Price Index (WPI) based inflation from 1993-94 to 2004-05
2. The release of comprehensive data on a monthly basis.
3. However, the price movement of primary articles, including food items,
and fuel will continue to be released every week, as at present.

BENEFITS

1. The release of WPI inflation data on a monthly basis would project

accurately the fluctuations in prices of manufactured goods and even in
those items where the changes were minimal.
2. The monthly release of WPI was a widely followed international
practice and the change was expected to improve the quality of the WPI
assessment.
3. The monthly data on inflation would lead to informed decisions by
investors in the capital market and curb needless volatility.
4. The response to change in prices each week is will get better particularly
from the manufacturing sector.
5. With the changes in the base year and periodicity of release coming into
force, the government will henceforth issue two sets of inflation
numbers — one on a weekly basis for primary articles and fuel items ,
which are sensitive in nature and another comprehensive data on a
monthly basis which will include manufactured goods.
 3 ANTI DUMPING DUTY

Where any article is exported from any country or territory to India at

less than its normal value then upon the importation of such article to
India the central Govt. may be notification in the official gazette impose
an anti dumping duty not exceeding the margin of dumping in relation to
such article.

1. For purpose of identification, assessment and collection of Anti Dumping

Duty on dumped articles and for determination of injury, the Govt. has
appointed Additional Secretary to the Govt. of India Ministry of
Commerce as designated Authority for purpose of above rules.
2. It is to be understood that imposition of Anti Dumping Duty is based on
Commodity to Commodity, country to country and suppliers in Exporting
countries.

FACT FILE OF ANTI DUMPING DUTY

1. Unlike safeguard duty, which is levied in a uniform way, anti-dumping duty

varies from product to product and country to country.
2. Both duties are allowed under the multilateral trade rules after
investigations to stand the World Trade Organisation (WTO) scrutiny.
3. India has slapped anti-dumping duty on several items such as yarn,
fabrics, some of the stainless steel products and chemicals imported from
China and other nations.
4. A recent WTO report had said that India was second only to Argentina
among the G-20 nations in initiating anti-dumping investigations during
January-July 2009. India had started 15 anti-dumping investigations in the
first seven months of 2009, while Argentina accounted for 19.

RECENT DECISION

1. India has imposed anti-dumping duty on imports of a certain type of fibre

board to protect the domestic industry from cheap shipments from
countries like China, Malaysia and Thailand.
2. The duty ranged between $308.7 per cubic metre and $395.5 per cubic
metre. Plain medium density fibre board is widely used for partitions,
furniture and cabinets,.
4. MONETARY POLICY REVIEW (month oct )

POINTS TO REMEMBER

1. The central bank’s action in keeping its policy rates — the repo and the
reverse repo rates as well its key reserve ratio, the CRR — unchanged
2. Economic growth, though picking up, is still far from robust. Professional
forecasters surveyed by the RBI had lowered their GDP forecast for 2009-
10 to 6 per cent from 6.5 per cent, estimated three months ago. The RBI
too has not changed its July forecast of 6 per cent with an upward bias.
That was more pessimistic than some other recent official forecasts. For
instance, the Prime Minister’s Economic Advisory Council had projected a
rate of 6.5 per cent just a few days ago.
3. The RBI notes certain trends that are not so positive. Agriculture is
expected to register a decline due to poor monsoons. While the industrial
sector has shown clear signs of revival in recent months,
4. the two major demand components of the GDP — private final
consumption expenditure and gross fixed capital formation — have
continued to decelerate, following a trend that began last year.
5. Despite abundant liquidity in the system, non-food credit has dropped
significantly, with its growth rate falling to 11.2 per cent from 29.4 per cent
recorded last year.
6. The RBI expects headline inflation to climb to 6.5 per cent by the end of
the year. This is sharply higher than the five per cent it forecast three
months ago.
7. Food inflation is a big challenge to policy makers. The consumer price
index (CPI) remains stubbornly in double digits.

WHY IT IS SO

1. Making the trade-off between supporting growth and reining in inflation

expectations, a perennial dilemma of monetary policy, was particularly
pronounced as the Reserve Bank of India unveiled its second quarterly
review.
2. Moreover, the base effect that artificially depressed the headline inflation
figures will soon start working in the opposite direction.
STEPS TO BE TAKEN

1. The precise challenge for the RBI is to support the recovery process
without compromising on price stability.
2. A related challenge is to manage the exit strategy from easy money.
3. Pointing out that India is among the few large emerging economies with
such large fiscal and current account deficits, the RBI has once again
urged fiscal consolidation.
4. The exit debate here will have to be quantitatively and qualitatively
different from that in many other countries because of the unique
macroeconomic features.
5. Growth drivers warrant a delayed exit, while inflation concerns call for an
early exit.
6. The RBI has already taken some steps towards the exit: it has tightened
bank provisioning norms and made lending to commercial real estate
more expensive. More than ever before, monetary policy will have to strike
a deft balance among several conflicting objectives.

TERMINIOLOGY

What is Bank rate? Bank Rate is the rate at which central bank of the country
(in India it is RBI) allows finance to commercial banks. Bank Rate is a tool, which
central bank uses for short-term purposes. Any upward revision in Bank Rate by
central bank is an indication that banks should also increase deposit rates as well
as Prime Lending Rate. This any revision in the Bank rate indicates could mean
more or less interest on your deposits and also an increase or decrease in your
EMI.

What is CRR? The Reserve Bank of India (Amendment) Bill, 2006 has been
enacted and has come into force with its gazette notification. Consequent upon
amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs
of securing the monetary stability in the country, can prescribe Cash Reserve
Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. [Before
the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the
Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and
20 per cent of total of their demand and time liabilities].
RBI uses CRR either to drain excess liquidity or to release funds needed for the
economy from time to time. Increase in CRR means that banks have less funds
available and money is sucked out of circulation. Thus we can say that this
serves duel purposes i.e. it not only ensures that a portion of bank deposits is
totally risk-free, but also enables RBI to control liquidity in the system, and
thereby, inflation by tying the hands of the banks in lending money.

What is SLR? Every bank is required to maintain at the close of business every
day, a minimum proportion of their Net Demand and Time Liabilities as liquid
assets in the form of cash, gold and un-encumbered approved securities. The
ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity
Ratio (SLR). Present SLR is 24%. (reduced w.e.f. 8/11/208, from earlier 25%)
RBI is empowered to increase this ratio up to 40%. An increase in SLR also
restrict the bank’s leverage position to pump more money into the economy.

What are Repo rate and Reverse Repo rate?

Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to
the banks. When the repo rate increases borrowing from RBI becomes more
expensive. Therefore, we can say that in case, RBI wants to make it more
expensive for the banks to borrow money, it increases the repo rate; similarly, if it
wants to make it cheaper for banks to borrow money, it reduces the repo rate

Reverse Repo rate is the rate at which banks park their short-term excess
liquidity with the RBI. The RBI uses this tool when it feels there is too much
money floating in the banking system. An increase in the reverse repo rate
means that the RBI will borrow money from the banks at a higher rate of interest.
As a result, banks would prefer to keep their money with the RBI

Thus, we can conclude that Repo Rate signifies the rate at which liquidity
is injected in the banking system by RBI, whereas Reverse repo rate
signifies the rate at which the central bank absorbs liquidity from the
banks.
INFLATION

Inflation is the "rate of change" of prices.

If for a certain week, the inflation figure is at 12%, it means the price index is
12% higher than compared to the corresponding week in the previous year.
Example to explain base-effect:

Week 30 2007 - index was at 100 (100 is just an example).

Week 31 2007 - index was at 98.

Week 30 2008 - index is at 112.

Thus, inflation is 12% (12% increase in prices).

Week 31 2008 - index is at 112.

Thus, inflation will be at 14.29%.

The index didn't move up, but the inflation went up as corresponding base was
lower.

This is the base-effect for inflation.