General Awareness Updates – January 2010

Economy / Business:

India-U.S. To focus on 5 Es, says Dr. Singh

Economy, energy, environment, education and empowerment — the India-U.S. relationship will accord new emphasis to these areas, said the Indian Prime Minister Dr. Manmohan Singh, adding that ties in defence, security and counter-terrorism will be consolidated.

Dr. Singh is the first foreign leader to be hosted by the Obama Administration as the State Guest. During the four-day visit, he addressed the influential Senate Foreign Relations Committee and the Joint Business Forum besides meeting President Barack Obama, Vice President Joseph Biden, Speaker of the House of Representatives Nancy Pellosi and a host of other senior leaders.

Dr. Singh and Mr. Obama held talks at the White House during which they exchanged views on a range of issues, including terrorism, situation in the region, climate change, economic and business ties, agriculture and education. The Prime Minister registered India’s concerns over diversion of U.S. aid by Pakistan and pressed for ensuring accountability to prevent misuse of funds and equipment. He also conveyed India’s disappointment over non-cooperation by Pakistan in investigating the Mumbai attacks, in which over 180 people, including some American nationals, were killed. He also highlighted that terror infrastructure in Pakistan was still intact and the threat of more attacks like 26/11 persisted.

Addressing the Indian American community at a reception hosted by the Indian Ambassador to the U.S., Meera Shankar, Dr. Singh said the two had “met at a time when our relationship has matured into a strong strategic partnership of global dimension”.

“We had extremely good discussions on a wide range of bilateral, regional and global issues,” he said, telling the community about his first detailed discussion in a bilateral setting. “I found in him a great deal of respect for India and its values, and a strong commitment to this relationship.”

“We have, I believe, laid the foundation for consolidating the gains in our relationship. We are establishing new directions in the next phase of our relationship that will enable us to meet the challenges of the 21st century,” the Prime Minister said. “Our relationship will see a new emphasis on five Es — economy, energy, environment, education and empowerment — even as we further strengthen our ties in defence, security and counter-terrorism.” He further said, “We will also harness our natural synergies in science and technology, education and research to advance food security, improve healthcare, develop green technologies and create the human resources for the future. Relations with the United States will remain one of the important pillars of our foreign policy.”

India sees the United States as an important partner for meeting its national development goals and in creating a global environment marked by consensus, co-existence and cooperation.

“Our agenda of bilateral cooperation is extremely wide-ranging,” he said, as it derives “its vitality from recognition of the enormous potential for mutually beneficial cooperation and a sense of shared responsibility to work towards addressing global challenges.”

India to cut carbon emission intensity by 20-25 pc by 2020

A head of the Copenhagen summit on climate change, India has announced that it would reduce carbon emission intensity by 20-25 per cent by 2020 on the 2005 levels through a series of policy measures, including mandatory fuel efficiency standards on all vehicles.

Environment Minister Jairam Ramesh said if the Copenhagen Summit is successful in reaching a “comprenhensive and equitable agreement”, India would be willing to do more but only through voluntary measures.

“We are telling the world that India is voluntarily ready to reduce emission intensity by 20-25 per cent in 15 years from 2005,” he said replying to a debate in the Lok Sabha on impact of climate change.

Mr. Ramesh listed out a series of steps including introducing mandatory fuel efficiency standards on all vehicles by December 2011, model green building code and amendment of Energy Conservation Act to make it necessary for industries to have energy efficiency certificates.

Greater thrust will be given to generating electricity using clean coal technologies, he said adding that 50 per cent of all new capacity additions will be based on such source.

Marking the red lines for negotiators for Copenhagen meet that will take place from December 7-18, Mr. Ramesh said India will not accept legally binding emission cuts and not agree to any “peaking year” for its green house gas emissions. He said India was not ready to subject its domestically funded mitigation actions to international review.

However, India could be agreeable to international review for mitigation actions which are supported by foreign technology and finances, Mr. Ramesh said. The minister said the 20-25 percent emission intensity reduction has been arrived at by the Planning Commission which conducted a variety of exercises. He also announced that the 12th Five Year Plan will focus on low-carbon strategy for economic growth.

Mr. Ramesh noted that between 1990 and 2005 emission intensity in the country has gone down even as the GDP and population have gone up. “There has been a 17.6 per cent decrease in emission intensity from 1990-2005,” he said.

The Nationally Accountable Mitigation Actions (NAMA) will be voluntary and the government would report it to Parliament from time-to-time, he said. “We are accountable to Parliament and not to any international organisation,” the minister said.

India deepens nuclear engagement with Russia

In a step towards deepening of its ties with “traditional ally” Russia, India has signed wide ranging agreements in the areas of civil nuclear cooperation, defence, culture, energy, and trade.

The agreements, signed after the Annual Summit meeting between Prime Minister Dr. Manmohan Singh and Russian Presisdent Dmitry Medvedev (right) at the Kremlin in Moscow, also includes signing of a pathbreaking agreement for expanding civil nuclear cooperation between the two countries.

The agreement will give New Delhi the right to reprocess spent fuel, taking the pact “far beyond the 123 agreement” inked with the U.S.. Also, the pathbreaking civil nuclear deal signed commits Russia to transfer enrichment and reprocessing technologies to India. It also ensures uninterrupted uranium fuel supplies from Russia to nuclear reactors in India. “The agreement expands civil nuclear cooperation between India and Russia beyond just supplies of nuclear reactors, to cover research and development and an entire gamut of issues in nuclear cooperation,” Dr. Singh said.

The two countries also signed an agreement to cooperate in the peaceful use of nuclear technology and on increasing defence cooperation between them. The agreement, that runs from 2011 to 2022, commits Moscow to offer sales support to New Delhi for the defence equipment it sells to India.

An agreement for cultural exchange between the two countries till 2012 was also signed. They also inked a deal for cooperation between the two countries on the use of atomic energy for peaceful purposes. On the occasion, Dr. Singh and Mr. Medvedev also adopted a joint declaration for deepening of the strategic partnership between India and Russia to meet global challenges.

Said Dr. Singh: “We welcome greater Russian participation in the expansion of our nuclear energy programme. The successful conclusion of negotiations on an inter Governmental Agreement on cooperation in the peaceful uses of atomic energy is a major step forward in strengthening our existing cooperation in the field.”

Economy clocks robust 7.9 per cent in Q2

Proving all expectations too conservative, the Indian economy clocked a robust 7.9 per cent growth in the second quarter, catapulted by a stimulus packages-powered strong industrial growth.

The growth is not only higher than a mere 6.1 per cent in Q1, but also more than 7.7 per cent recorded in July-September 2008, when the economy did not come under the full impact of the then deepening global financial crisis.

Besides the industry, the services sector is on an upswing with community, social and personal services expanding by 12.7 per cent during the reporting quarter and the farm sector logging in a growth of 0.9 per cent against a contraction that was projected due to the weak monsoon.

The significance of the numbers could be gauged from the fact that the government as well as the Plan panel expected slower growth in the second quarter than in the first quarter and most economists pegged it in the range of 6.1-6.6 per cent.

For the first half, the economy grew by seven per cent against 7.8 per cent a year ago, prompting Finance Minister Pranab Mukherjee to expect over 7 per cent growth this fiscal. For the current fiscal, Prime Minister Dr. Manmohan Singh expects the economy to grow by 6.5 per cent, while the RBI expects it to grow at 6 per cent and the Planning Commission 6.3 per cent. “This performance does suggest that there may well have to be an upward revision in GDP growth of 6.5 per cent, which has been projected so far,” Planning Commission Deputy Chairman Montek Singh Ahluwalia said.

The Prime Ministers’ Economic Council chairman Dr. C. Rangarajan also said that the target of 6.5 per cent GDP growth for the current fiscal may have to be revised upwards following the robust second quarter numbers.

With this, the domestic economy continues to be the second fastest growing large economy in the world after China, which recorded 8.9 per cent in the July-September 2009.

As hopes of revival accentuate after the data, economists expect that the government may now think of withdrawing the fiscal stimulus. Manufacturing, which drew benefits of the stimulus package, expanded by a smart 9.2 per cent against 3.4 per cent in the preceding quarter and 5.1 per cent in the second quarter of the last fiscal.

From December 2008 through March 2009, the Centre had cut excise duty by six per cent and service tax by two per cent, besides stepping up plan expenditure to generate demand, which slowed down after the U.S. financial icon Lehman Brothers collapsed, dragging the whole world into the worst recession after the Great Depression of the 1930s. Positive growth in the farm sector also surprised economists. However, economists still maintain their under-seven per cent forecast for FY10.

With growth on the upswing, the moot question now is, “will the government and RBI now shift their focus on controlling inflation?”. Food inflation has already crossed 15 per cent during the second week of November.

While Mr. Ahluwalia said traditional monetary tools of the RBI may not be effective in curbing food inflation, Dr. Rangarajan believes that RBI may now focus more on reining inflation.

Construction, which has a cascading effect on economy, grew less this quarter at 6.5 per cent against 7.1 per cent Q1 and 9.6 per cent in Q2 last fiscal. But financial, business services and realty rose by 7.7 per cent against 8.1 per cent in Q1 and 6.4 per cent in Q2 FY09. Trade hotels, transport and communication, grew higher at 8.5 per cent than 8.1 per cent in Q1, but lower than 12.1 per cent in Q2 FY09.

However, electricity, gas and water supply at 7.4 per cent and mining and quarrying at 9.5per cent grew more than first Q1 of FY10 and Q2 of FY09.

India will be third largest economy in 2050

India will be the third largest economy in the world after China and United States by 2050, a report by the Carnegie Endowment for International Peace, a top U.S. think-tank, has said. The article “The G20 in 2050”, carried in November bulletin of the Carnegie Endowment for International Peace said, “China, India, and the United States will emerge as the world’s three largest economies in 2050. Their total GDP, in real U.S. dollar terms, will be over 70 per cent more than that of the other G20 countries combined.”

Other main findings include, China will become the world’s largest economy in 2032, and grow to be 20 per cent larger than the United States by 2050. Over the next 40 years, nearly 60 per cent of G20 economic growth will come from Brazil, China, India, Russia, and Mexico alone.

The article was written by Uri Dadush and Bennett Stancil. A Frenchman and former director of World Bank, Mr. Dadush is the director of the International Economics Programme at the Foundation, while Mr. Stancil is a Fellow at the Programme.

“In China and India alone, GDP is predicted to increase by nearly U.S.$60 trillion—the current world GDP—but the wide disparity in per capita GDP among these three will persist,” they noted.

India’s annual average GDP growth between 2009-2050 is predicted to be 6.19 per cent, and these emerging markets will not rise among the world’s richest countries in per capita terms – their average income in 2050 will still be 40 per cent below that of the G7 nations presently.

Stressing that the world’s economic powers are shifting dramatically, the economists noted that the “G20’s recent transformation into the world’s principal economic forum highlights the beginning of a more integrated and complex economic era”.

Over the next 40 years, the G20 GDP is expected to grow at an average annual rate of 3.6 per cent, rising from U.S.$38.3 trillion in 2009 to U.S.$161.5 trillion in 2050, in real U.S. dollar terms. Nearly 60 per cent of this U.S.$123 trillion dollar expansion will come from Brazil, Russia, India, China, and Mexico (BRIC+M). The experts also find that out of the G20 countries, “India is predicted to grow most rapidly, but its current modest size will prevent it from surpassing either China or the United States in real U.S. dollar terms”.

The authors observe that the growth could be even faster, but the low quality of education, infrastructure, governance, and business climate will hold back progress in developing countries. Technological convergence is expected to be lower in India and Indonesia than in China and Russia. India’s Purchasing Power Parity (PPP) will be 97 per cent as large as that of the United States by 2050. India is expected to become the world’s most populous nation in 2031—and an average exchange rate appreciation of 0.9 per cent per year will push annual GDP growth to an average of 6.2 per cent, according to the study.

“India’s U.S. dollar GDP will balloon to U.S.$17.8 trillion in 2050, sixteen times its current U.S.$1.1 trillion level,” the authors say.

On the future of Europe, the report stresses that “to retain their historic influence, European nations will increasingly need to conduct foreign policy under an EU banner, a shift implied by their recently ratified constitution”. It warns that the once great power Russia may be marginalised in the new economic order if it remains outside regional coalitions.

Currently, Germany, the UK, France, and Italy are the fourth through seventh largest economies in the world. By 2050, the UK, helped by demographic trends, will be the largest of the four, ranking seventh in the world. Italy will be the smallest, ranking fifteenth. PPP GDP in these four countries will be less than half of that in India and less than one-fourth of that in China, the report finds.

Corruption is fast eroding foundations of development

As the world economy begins to register a tentative recovery and some nations continue to wrestle with ongoing conflict and insecurity, it is clear that no region of the world is immune to the perils of corruption, according to Transparency International’s 2009 Corruption Perceptions Index (CPI), a measure of domestic and public sector corruption.

“At a time when massive stimulus packages, fast-track disbursements of public funds and attempts to secure peace are being implemented around the world, it is essential to identify where corruption blocks good governance and accountability, in order to break its corrosive cycle,” said Huguette Labelle, Chair of Transparency International (TI).

The vast majority of the 180 countries included in the 2009 index score below five on a scale from 0 (perceived to be highly corrupt) to 10 (perceived to have low levels of corruption). The CPI measures the perceived levels of public sector corruption in a given country and is a composite index, drawing on 13 different expert and business surveys. The 2009 edition scores 180 countries, the same number as the 2008 CPI.

Fragile, unstable states that are scarred by war and ongoing conflict linger at the bottom of the index. These are: Somalia, with a score of 1.1, Afghanistan at 1.3, Myanmar at 1.4 and Sudan tied with Iraq at 1.5. These results demonstrate that countries which are perceived as the most corrupt are also those plagued by long-standing conflicts, which have torn apart their governance infrastructure.

When essential institutions are weak or non-existent, corruption spirals out of control and the plundering of public resources feeds insecurity and impunity. Corruption also makes normal a seeping loss of trust in the very institutions and nascent governments charged with ensuring survival and stability.

Countries at the bottom of the index cannot be shut out from development efforts. Instead, what the index points to is the need to strengthen their institutions. Investors and donors should be equally vigilant of their operations and as accountable for their own actions as they are in demanding transparency and accountability from beneficiary countries.

“Stemming corruption requires strong oversight by parliaments, a well performing judiciary, independent and properly resourced audit and anti-corruption agencies, vigorous law enforcement, transparency in public budgets, revenue and aid flows, as well as space for independent media and a vibrant civil society,” Ms. Labelle said. “The international community must find efficient ways to help war-torn countries to develop and sustain their own institutions.”

Highest scorers in the 2009 CPI are New Zealand at 9.4, Denmark at 9.3, Singapore and Sweden tied at 9.2, and Switzerland at 9.0. These scores reflect political stability, long-established conflict of interest regulations and solid, functioning public institutions.

Overall results in the 2009 index are of great concern because corruption continues to lurk where opacity rules, where institutions still need strengthening and where governments have not implemented anti-corruption legal frameworks.

UAE’s mounting debt woes

The United Arab Emirate (UAE) has total debt amounting to U.S.$184 billion at the end of 2009, according to estimates by Bank of America-Merrill Lynch, which said the region faces a heavy redemption schedule until 2013.

Dubai’s shock announcement in November that it is seeking to suspend payments on debt of its state-owned conglomerate Dubai World and property subsidiary Nakheel has roiled global markets, raising fears that the emirate which funded a spectacular building boom on a mountain of debt could default.

BofA-Merrill Lynch said in a report that the restructuring undertaken by Dubai would be a serious blow to the Gulf region’s economic recovery prospects, adding that the scale of the region’s debt was now the issue.

“The lack of official debt data may add up to uncertainty and cause higher risk premiums,” it said. Of the U.S.$184 billion UAE debt, Dubai holds U.S.$88 billion while Abu Dhabi accounts for U.S.$90 billion. BofA-Merrill Lynch said the debt servicing cost will be higher than these estimates as their numbers only include

the principal payments. The bank said Dubai faces almost U.S.$50 billion of debt amortisation in the next three years - U.S.$12 billion in 2010, U.S.$19 billion in 2011, and U.S.$18 billion in 2012.

Urgent need to tackle urban chaos

Noting that urban chaos was becoming a way of life, Prime Minister Dr. Manmohan Singh emphasised on urban reforms, saying cities and towns are not an acceptable face of a rapidly modernising and developing economy.

“As infrastructure struggles to keep pace with demand, urban chaos is becoming a way of life. Our cities and towns are not an acceptable face of rapidly modernising and developing economy,” he said at the national conference of JNNURM, to mark the fourth anniversary of the flagship programme of the government. JNNURM stands for Jawaharlal Nehru National Urban Renewal Mission. He said the success of JNNURM was critical to tackling the problems that go with rapid urbanisation and the Centre has committed substantial funds for urban renewal along with the states and urban local bodies.

He said the two ministries of Urban Development and Urban Poverty Alleviation have approved projects worth Rs.1,03,462 cr for which the Centre has committed an assistance of Rs.55,625 cr.

“It is good that the focus of projects approved under the Mission has been on basic services like water supply, sewerage, drainage, solid waste management, improvement of slums and construction of houses for the poor,” he noted.

Stressing the government’s commitment to urban sector, he said JNNURM has created a “paradigm shift” in how the urban sector is viewed, both at state and city levels.

Economist Paul Samuelson (right) a Nobel Laureate and winner of the U.S. National Medal of Science, has died, aged 94. He was the author of ‘Economics – An Introductory Analysis’. He was one of the leading economists of the 20^th century and served as an adviser to American Presidents John F. Kennedy and Lyndon Johnson. He won the Nobel Prize in Economics in 1970.

Despite the economic recovery, the Central Government’s direct tax collections increased by a marginal 3.7 per cent to Rs.1.83 lakh crore in the first eight months of this fiscal compared to the same period a year ago.

There are just four months of this fiscal left to meet the target of Rs.3.7 lakh crore, almost double of the collected amount till November. The target was also revised to Rs 4 lakh crore later by Finance Minister Pranab Mukherjee. Corporate taxes grew by 3.17 per cent to Rs.1.13 lakh cr. as compared to Rs.1.09 lakh crore in the same period last year. In the personal income tax segment, the government collected Rs.70,262 crore, up 4.53 per cent.

In November, the tax collections were nearly similar to last year as the mop-up was Rs.10,375 crore compared to Rs.10,346 crore in the month last year. Corporate tax collections declined by about 30 per cent to Rs.3,214 crore against Rs.4,561 crore last fiscal.

Germany’s Volkswagen will buy 20 per cent stake in Suzuki Motor Corporation for $2.5 billion. Volkswagen is the No.1 car-maker in the world by the number of vehicles produced; in November 2009, it replaced Toyota of Japan. China (the world’s largest auto market) has said it wants to become the world’s No.1 automaker by 2018; goal it would reach if Suzuki became its subsidiary Martin Winterkorn (left) is the CEO of Volkswagen.

Exxon Mobil has agreed to acquire oil exploration firm XTO Energy for $41 billion. Exxon Mobil is one of the world’s largest energy companines while XTO is a leading U.S. unconventional natural gas producer.

Jamshetji Tata Award

The Jamshetji Tata Award instituted by the Indian Society for Quality (ISQ) has been conferred on K. Mahesh, Chairman & Managing Director, Sundaram Brake Linings, in recognition of his outstanding role in promoting quality management in his company and industry at large.

10th Lal Bahadur Shastri National Award

Sunil Bharti Mittal, Chairman, Bharti Enterprises, was presented the 10th Lal Bahadur Shastri National Award by the President of India, Pratibha Patil. The award is conferred on an individual for making ivaluable contribution in the fields of public administration, academics and management by the Lal Bahadur Shastri Institure of Management, Delhi.