Rupee dives to a lifetime low

The rupee experienced its biggest drop in nine months when it closed at an all-time low of 57.16 against the dollar – 1.5% lower than its previous close of 56.57. In intra-day, the local currency fell to a low of 57.33 following a rush for dollars from importers after rating agency Moody’s downgraded major international banks. Despite the steep fall there was no panic in the markets as the depreciation was partly offset by good news of oil prices continuing to be low. Oil constitutes almost a third of India’s import bill and demand from oil companies could subside once the Reserve Bank of India implements a government proposal which involves RBI selling dollars directly to State Bank of India which would in turn sell them to oil companies. Although this would deplete RBI’s forex reserves, it would bring stability into the forex market and may even reverse the sentiment vis-a-vis the rupee. Gold imports have collapsed, crude oil prices have crashed and NRI deposits have grown after RBI eased the ceiling on foreign currency deposits. 
Data released by RBI showed that foreign exchange reserves rose by $2 billion to $289.39 billion in the week to June 15. The increase in reserves was on account of appreciation of assets in non-dollar currency such as euro and UK pound, dealers said. Bankers also said that absence of dollar supply in the international market was forcing Indian companies to replace dollar loans with rupee debt as a result of which credit growth during the current fiscal up to (June 1) continued to be high at 18.3% . 
The rupee’s fall also took its toll on the sensex which closed 60 points lower at 16,972 after touching an intra-day high of 17,016. In the absence of capital flows and a continuing current account deficit, dealers are saying that there is no telling how low the rupee can go. Although foreign institutional investors have been net buyers this year in recent days they have been selling stocks. 
For India the bad news this week has been a warning from Fitch which revised the outlook for the country to negative. The Fitch action comes on the back of a warning from Standard & Poor’s that India could be downgraded to junk status. The rupee traded at 58.14 in the three-month forward market compared to 57.36 on Thursday. In the offshore non-deliverable forward market (where forward contracts on the rupee are settled in dollars) three month deals were struck at 58.34 indicating that foreign investors expect the currency to weaken further. 
 
Why is the rupee falling despite macroeconomic fundamentals remaining steady? The present weakening of the rupee is linked to a risk-averse sentiment. Importers are buying ahead of their requirement in the fear that the rupee could fall further. This is largely because of global factors with the dollar index near its all-time high; Moody’s downgrading global banks and Eurozone showing no signs of resolving. Investors are also disappointed that the US Fed has not announced a fresh round of monetary easing. 


When will the rupee steady? To a certain extent the fall already has a self-corrective element built in. Dealers say that all it needs is one positive development in the global markets to compel exporters to start booking profits. Such a turnaround could push the rupee back to 54-55 levels soon. Since every day the rupee sees a new fall, technically there are no new resistance levels. However, dealers feel that exporters and importers would review their position once the rupee hits 58. 


How does the fall impact the economy? As far as fuel costs are concerned, the recent depreciation in the rupee has been almost entirely offset by the fall in global oil prices, which constitutes nearly a third of the import. While in the short term the fall will add to inflationary pressures, in the medium term it will help in rebalancing the trade account by curbing imports and boosting exports. 


Which businesses lose and which ones benefit? Besides oil, the other large import items are gold, coal, diamonds and copper. The increase in price of coal will adversely impact the power and steel industry and push up prices for consumers. Auto and electronics industry with high import content will also be hit as the slowdown has reduced their ability to pass on cost increases. Businesses that benefit include IT, textiles, and engineering goods.

Free medicine for all

India’s ambitious policy to provide free medicines to all patients attending a government health facility across the country will be rolled out from October. Strongly backed by Prime Minister Dr Manmohan Singh himself, the free-medicines -for-all scheme — being referred to as the “real game changer” — has received its first financial allocation of Rs 100 crore from the Planning Commission for 2012-13. 
The entire programme, however, is estimated to cost Rs28,560 crore over the 12^th  five year plan. At present, the public sector provides healthcare to only 22% of the country’s population. The health ministry estimates that this will increase to 52% by 2017 once medicines are provided for free from 1.6 lakh sub-centres, 23,000 primary health centres, 5,000 community health centres and 640 district hospitals. 
The health ministry has sent the National List of Essential Medicines, 2011, (348 drugs which includes anti-AIDS, analgesics, anti-ulcers, anti psychotic,sedatives, anesthetic agents, lipid lowering agents, steroids and anti platelet drugs) to all the states to use as reference. The states, however, have been asked to create their own Essential Drugs List (EDL), keeping in mind the diseases that worst affect them. 
Around 75% of the funds under the scheme will be borne by the Centre, while the rest will be the state’s responsibility. Around 5% of the district funds will be allowed to purchase drugs outside the EDL. The Cabinet has approved the setting up of a Central Procurement Agency (CPA) for bulk procurement of drugs. The PMO has asked the health ministry to set up the CPA as early as possible. At present, 78% of the entire health expenditure in India is from out of pocket (OOP). Purchasing drugs alone accounts for 72% of this OOP expenditure.
Additional secretary in the ministry L C Goyal said a scientific committee will have to draw up the EDL list for the states. They have also been asked to devise standard treatment protocols in order to avoid unnecessary and irrational treatments. Goyal said, “The states will procure drugs directly from manufacturer or importer through an open tender. Companies applying for the tenders will have to have GMP compliance certificate, a no conviction certificate and should have a specified annual turnover. The drugs must carry a not-for-sale label printed on the packaging.” Goyal said a district-level state-ofthe-art warehouse will have to be set up by states to store the drugs and a passport-driven system will move the medicines to district hospitals, and CHCs and PHCs will then send the drugs to the sub centres. He added, “It is being made mandatory for all doctors in the public sector to prescribe generic drugs and salt names and not brands. Action will be taken against doctors found prescribing brands.” 
A Planning Commission panel had said around 39 million Indians are pushed to poverty because of ill health every year. Around 30% in rural India didn’t go for any treatment for financial constraints in 2004. In urban areas, 20% of ailments were untreated for financial problems the same year. About 47% and 31% of hospital admissions in rural and urban India, respectively, were financed by loans and sale of assets. States have also cut down on spending to purchase drugs, adding to aam aadmi’s woes. 

Total Sanitation Campaign

When Union rural development minister Jairam Ramesh put a reality check on the euphoria over missile tests by lamenting “India can launch Agni, but not provide toilets to its women”, little did he know that defence research body DRDO would be at his door with a bio-toilet. The RD ministry is set to press bio-toilets in its sanitation campaign, a move which would, besides providing proper toilets to rural folks, take the scheme’s objective from ending open defecation to waste management. 
The DRDO-designed toilets run on the technology that breaks down the waste into odourless solid and liquid, making drainage redundant. If the claim stands true, it may turn new rural toilets into urban drainage systems which don’t require handling of human waste. The new system would also end the dehumanizing practice of manual scavenging. 
Ramesh said, “Bio-toilets can do to rural sanitation what Agni has done to external defence of the country.” 
The research body held a meeting with the minister to introduce him to the new technology and desired it be adopted in the Total Sanitation Campaign (TSC). The two government arms would sign a MoU, which would pledge Rs 400 crore for bio-toilets under TSC.

HC junks Didi’s Singur land law

The Calcutta high court struck down an act Mamata Banerjee’s government had used to wrest control of the land that the Left Front had acquired for the Tatas for its Singur Nano project. The court ruled that the Singur Land Rehabilitation and Development Act, 2011, was unconstitutional and void. 
The Singur agitation is one of the issues that propelled Mamata to power in Bengal in 2011. Soon after she became CM, the Trinamool Congress government passed the Act and tried to take possession of the land on June 21. The next day, the Tatas moved the HC but failed to get a stay. On June 29, the Supreme Court directed the state government not to transfer the land to farmers till the matter is disposed of by the HC. 
On September 28, Justice I P Mukerji of the HC ruled in favour of the state government and directed Tata Motors to seek compensation. The order was challenged by the Tatas before a division bench of Justice Pinaki Chandra Ghose and Justice Mrinal Kanti Chaudhuri of the HC. 
The bench struck down the Act on grounds that certain provisions in it are in direct conflict with that of the Land Acquisition Act, 1894 and thereby repugnant to it. The state government should have taken prior permission from the President before promulgating the Act, the bench held. 
“The Singur Act is a law relating to acquisition and it appears to us that without having assent from the President, the act is hit by Article 254(1) of the Constitution. Certain provisions of the Act are in direct conflict with that of the Land Acquisition Act, 1894 and thereby repugnant to it,” the bench said. 
The bench didn’t buy the state government’s argument that it was reclaiming the acquired land to return a portion of it to “unwilling farmers”. The court held that the Act can’t be treated as for public purpose when the intention is to return land to the unwilling farmers. 
“We hold that the single judge, after holding that the intention of the legislature to pay compensation is vague and uncertain, had no power to insert or recast or rewrite the statute by inserting certain sections of the Land Acquisition Act, 1894. Therefore, the said part of the order is not sustainable in the eye of law and set aside,” the bench ordered. The bench granted the state government a couple of months to move a Special Leave Petition before the Supreme Court. For the next two months, status quo will have to be maintained in Singur. 
After the verdict, Justice Ghose told state lawyers: “My heart is with you but the law is against the Act.” The counsels who appeared for the state claimed that it was not sustainable verdict and said they would move SC. 

IKEA boost for investor sentiment

Swedish furniture and home accessories major IKEA sought government nod to invest euro 1.5 billion (over Rs 10,500 crore) in a single-brand retail venture in India. In the first phase, it plans to set up 25 stores with an investment of euro 600 million (around Rs 4,200 crore) and then pump in the remaining euro 900 million (around Rs 6,300 crore) in the wholly-owned Indian entity that will also undertake manufacturing work and set up restaurants, cafes, food markets, nursing rooms and publications. 
Commerce and industry minister Anand Sharma, who met IKEA’s global CEO & president M Ohlsson in St Petersburg, said the Swedish furniture major “has reaffirmed its commitment to India and also promised to step up sourcing for its global operations”. The company is planning to double the sourcing for its global operations to around $1 billion (nearly Rs 5,700 crore) by 2016, the minister said. 
IKEA is among a handful of firms that have so far filed applications to set up 100% single-brand retail stores after the government increased the foreign direct investment limit from 51% nearly six months ago. In these stores, companies are permitted to stock goods from one brand which is used globally. The entry also comes with the stipulation that at least 30% of the products have to be sourced from Indian micro, small and medium enterprises, which was a major area of concern for IKEA until recently. In fact, IKEA was expected to be among the first entrants, but the sourcing clause delayed its announcement. The company already works with 70 suppliers and 1,450 sub-suppliers, including many small industries, but still has worries over meeting the mandatory requirement. The commerce & industry ministry is trying hard to dilute the sourcing requirement and mandate that the procurement can be done from any Indian firm, and not necessarily from a small unit, as IKEA still has concerns. Even if the entire clause is not diluted certain modifications would be made to ensure that the foreign retailers stay interested. 
IKEA’s entry is sure to boost investor sentiment at a time when global players are wary of India in the wake of policy flip-flops in recent months. IKEA’s intent to invest comes at a time when the government is facing severe criticism on the grounds that its recent policy moves have hurt sentiments. The government, however, contests that. 

India's High Net Worth Individuals' number shrinks

Somewhere in New Delhi....

The formal agreement between the Delhi government and the Singapore Cooperation Enterprise for recycling and reuse of sewage in the capital was signed on Wednesday. The programme to recycle 40 million gallons per day at the Coronation Pillar sewage treatment plant will be funded by Temasek Foundation of Singapore which has given a grant of Singapore $463,149. Chief minister Sheila Dikshit at a cabinet meeting later in the day briefed her colleagues about the agreement and emphasized the need to learn from Singapore’s experience. She informed her ministers that the government needs to focus on water recycling so that water woes can be tackled better in future. The CM reinforced the need to expedite the water recycling project at the Coronation Pillar sewage treatment plant to generate 40MGD of water. 
Earlier in the day, an agreement was signed between Debashree Mukherjee, CEO of Delhi Jal Board, and Alphonsus Chia, CEO, Singapore Cooperation Enterprise. Mukherjee said: “This collaboration with Singapore Cooperation Enterprise and Temasek Foundation, Singapore, is the need of the hour. Singapore and Delhi have much in common in the water sector and reuse of water will help meet the growing needs of the city.” 
Sources said with the population of Delhi having increased from 9.4 million in 1991 to 16.3 million in 2011, there has been great pressure on existing water resources.