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Fitch: Political Risks Threaten Global Growth Outlook
Oct 05,2016

Downside risks to advanced country economic growth have risen in recent months, according to Fitch Ratings latest bi-monthly Global Economic Outlook (GEO) report. With populism gaining traction in many countries, the risk of political shocks adversely affecting the outlook for private investment has increased. At the same time, the capacity of central banks to engender stronger growth appears to be diminishing.

Fitch has revised down its forecast for US growth in 2016 to 1.4% in todays GEO from 1.8% in the July GEO.

This year is likely to see the lowest annual growth rate for US GDP since 2009 as oil sector adjustments, weak external demand and the earlier appreciation of the dollar take their toll on industrial demand, said Brian Coulton, Chief Economist at Fitch.

With eurozone growth looking likely to have peaked in early 2016 and no significant changes to Fitchs UK and Japanese growth forecasts - despite significant monetary policy moves - the outlook for the advanced countries is best described as a low-growth, muddle-through path. Advanced country growth over 2016 to 2018 will be hardly any better than the lacklustre 1.5% annual average growth rate seen over 2011 to 2015. Moreover, downside risks to advanced country growth have increased.

The rise in populism seen in many advanced countries could be a precursor to increased trade-protectionism and growing fragmentary tensions in the eurozone, both of which would increase uncertainty and damage prospects for private sector investment, added Coulton.

Meanwhile, the capacity of central banks to counter adverse growth shocks may be falling. The implications of low and negative interest rates for bank profitability, the increasing complexity of central bank easing announcements, reductions in interest income for savers and market distortions are complicating the transmission of unconventional monetary easing to the economy. Furthermore, the historically unprecedented nature of negative nominal interest rates may be limiting the benefits of central bank easing announcements on inflation expectations.

Rising political pressures and concerns about the effectiveness of monetary easing have contributed to growing support among policy makers for fiscal stimulus as a means of restoring growth. A wider shift to fiscal easing is increasingly apparent in the numbers and while its effectiveness may be hindered in some countries by high and rising public debt levels, a co-ordinated fiscal reflation is likely to have growth benefits, at least in the short term.

The Fed is likely to be the only major central bank tightening monetary policy in the near term as it lays the groundwork for a December rate rise. With unit labour costs and core inflation measures suggesting underlying inflation close to the Feds target and the labour market holding up, the conditions look to be in place for a continuation of gradual normalisation in the Federal Funds Rate. The ECB is expected to extend its quantitative easing programme beyond its current scheduled end-date of March 2017, and will likely need to adjust the limits on bond purchases. The new monetary policy approach adopted by the Bank of Japan (BOJ) opens the door for further cuts in the policy rate, taking it deeper into negative territory. This will allow the BOJ to steepen the yield curve while it varies its asset purchases to hold 10-year JGB yields flat at around 0%. We now forecast the BOJ policy rate will fall to -0.5% by end-2017.

In the UK, the Bank of Englands (BoE) aggressive easing package in early August has had a positive impact on sentiment. With recent UK data slightly better than expected, the BoE is unlikely to follow through on forward guidance to cut rates again before year-end.

Having been the main source of downside risk for global growth over the last couple of years, emerging market growth pressures have eased somewhat recently.

It is too soon to say the BRICs are back, but the macro picture in the big emerging markets is certainly steadying, said Coulton.

Most importantly, Chinas efforts to stabilise growth in the face of a sharp slowdown in exports and private-sector investment look to have gained traction. Russias economy looks to be stabilising after massive import compression, real wage adjustment and fiscal tightening saw domestic demand plummet in 2015. In Brazil, the impeachment of President Rousseff and installation of a new leadership team have renewed focus on fiscal reforms, which should support confidence and help the economy stabilise by year-end.

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Indias gross domestic product is projected to expand 7.6 percent this year and next, the fastest pace among the worlds major economies-IMF
Oct 05,2016

Global economic growth will remain subdued this year following a slowdown in the United States and Britains vote to leave the European Union, the IMF said in its October 2016 World Economic Outlook.

n++Taken as a whole, the world economy has moved sideways,n++ said IMF chief economist and economic counsellor, Maurice Obstfeld. n++We have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world,n++ he said.

The report highlighted the precarious nature of the recovery eight years after the global financial crisis. It raised the specter that persistent stagnation, particularly in advanced economies, could further fuel populist calls for restrictions on trade and immigration. Obstfeld said such restrictions would hamper productivity, growth, and innovation.

n++It is vitally important to defend the prospects for increasing trade integration, Obstfeld, said. n++Turning back the clock on trade can only deepen and prolong the world economys current doldrums.n++

To support growth in the near term, the central banks in advanced economies should maintain easy monetary policies, the IMF said. But monetary policy alone wont restore vigor to economies dogged by slowing productivity growth and aging populations, according to the new report. Where possible, governments should spend more on education, technology, and infrastructure to expand productive capacity while taking steps to alleviate inequality. Many countries also need to counteract waning potential growth through structural reforms to boost labor force participation, better match skills to jobs, and reduce barriers to market entry.

The world economy will expand 3.1 percent this year, the IMF said, unchanged from its July projection. Next year, growth will increase slightly to 3.4 percent on the back of recoveries in major emerging market nations, including Russia and Brazil (see table).

Advanced economies: U.S. slowdown, Brexit

Advanced economies will expand just 1.6 percent in 2016, less than last years 2.1 percent pace and down from the July forecast of 1.8 percent.

The IMF marked down its forecast for the United States this year to 1.6 percent, from 2.2 percent in July, following a disappointing first half caused by weak business investment and diminishing pace of stockpiles of goods. U.S. growth is likely to pick up to 2.2 percent next year as the drag from lower energy prices and dollar strength fades.

Further increases in the Federal Reserves policy rate n++should be gradual and tied to clear signs that wages and prices are firming durably,n++ the IMF said.

Uncertainty following the n++Brexit referendum in June will take a toll on the confidence of investors. U.K. growth is predicted to slow to 1.8 percent this year and to 1.1 percent in 2017, down from 2.2 percent last year.

The euro area will expand 1.7 percent this year and 1.5 percent next year, compared with 2 percent growth in 2015.

n++The European Central Bank should maintain its current appropriately accommodative stance,n++ the IMF said. n++Additional easing through expanded asset purchases may be needed if inflation fails to pick up.n++

Growth in Japan, the worlds number 3 economy, is expected to remain subdued at 0.5 percent this year and 0.6 percent in 2017. In the near term, government spending and easy monetary policy will support growth; in the medium term, Japans economy will be hampered by a shrinking population.

Emerging market growth expected to accelerate

In emerging market and developing economies, growth will accelerate for the first time in six years, to 4.2 percent, slightly higher than the July forecast of 4.1 percent. Next year, emerging economies are expected to grow 4.6 percent.

However, prospects differ sharply across countries and regions.

In China, policymakers will continue to shift the economy away from its reliance on investment and industry toward consumption and services, a policy that is expected to slow growth in the short term while building the foundations for a more sustainable long-term expansion. Still, Chinas government should take steps to rein in credit that is n++increasing at a dangerous pace and cut off support to unviable state-owned enterprises, n++accepting the associated slower GDP growth,n++ the IMF said.

Chinas economy, the worlds second largest, is forecast to expand 6.6 percent this year and 6.2 percent in 2017, down from growth of 6.9 percent last year.

n++External financial conditions and the outlook for emerging market and developing economies will continue to be shaped to a significant extent by market perceptions of Chinas prospects for successfully restructuring and rebalancing its economy, the IMF said.

Growth in emerging Asia, and especially India, continues to be resilient. Indias gross domestic product is projected to expand 7.6 percent this year and next, the fastest pace among the worlds major economies. The IMF urged India to continue reform of its tax system and eliminate subsidies to provide more resources for investments in infrastructure, education, and health care.

Sub-Saharan Africas largest economies continue to struggle with lower commodity revenues, weighing on growth in the region. Nigerias economy is forecast to shrink 1.7 percent in 2016, and South Africas will barely expand. By contrast, several of the regions non-commodity exporters, including Cn++te dIvoire, Ethiopia, Kenya, and Senegal, are expected to continue to grow at a robust pace of more than 5 percent this year.

Economic activity slowed in Latin America, as several countries are mired in recession, with recovery expected to take hold in 2017. Venezuelas output is forecast to plunge 10 percent this year and shrink another 4.5 percent in 2017. Brazil will see a contraction of 3.3 percent this year, but is expected to grow at 0.5 percent in 2017, on the assumption of declining political and policy uncertainty and the waning effects of past economic shocks.

Countries in the Middle East are still confronting challenging conditions from subdued oil prices, as well as civil conflict and terrorism.

Overarching policy challenge

Given the still weak and precarious nature of the global recovery, and the threats it faces, the IMF underscored the urgent need for a comprehensive, consistent, and coordinated policy approach to reinvigorate growth, ensure it is distributed more evenly, and make it durable. By using monetary, fiscal, and structural policies in concertn++within countries, consistent over time, and across countriesn++the whole can be greater than the sum of its parts,n++ Obstfeld concluded.

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Private sector growth eases amid slowdowns in manufacturing and services: Nikkei India Services PMI
Oct 05,2016

The health of the Indian private sector economy improved in September, but to a lesser extent than in August. Output and new business increased at softer rates in both the manufacturing and service sectors. Meanwhile, prices charged were raised in line with higher cost burdens.

Reflecting softer expansions in activity at both service providers and manufacturers, the seasonally adjusted Nikkei India Composite PMI Output Index fell from Augusts 42-month high of 54.6 to 52.4 in September. Nonetheless, the latest above-50.0 reading was the fifteenth in as many months, highlighting ongoing growth in the country.

The headline seasonally adjusted Nikkei India Services Business Activity Index registered 52.0 in September. Down from Augusts 43-month high of 54.7, the latest reading pointed to a slower rate of expansion that was moderate overall.

The level of new business placed with Indian services firms increased moderately in September, following a solid rise in August. Panellists commented on sustained demand growth, but mentioned competitive pressures and unfavourable weather conditions as factors weighing on new work inflows. The upturn in order books at manufacturers also lost some momentum.

Outstanding business at Indian service providers rose for the fourth month running in September and at the quickest rate since July 2014. Goods producers saw a softer increase in work-in-hand, but one that remained solid.

Contributing to higher backlogs was broadly stagnant staffing levels at services firms and manufacturers, a trend that has been evident throughout 2016 so far. The respective indices recorded only fractionally above the crucial 50.0 threshold as the vast majority of panellists in each sector signalled unchanged headcounts.

Prices charged by Indian service providers increased in September, as was the case in August. The rate of inflation accelerated slightly, but remained marginal and below the long-run series average. Survey respondents attributed higher output prices to rising cost burdens. Factory gate charges also increased at a quicker pace that was, nonetheless, weak by historical standards.

Input prices facing service providers rose in September, having decreased in each of the previous two months. That said, the rate of cost inflation was moderate and weaker than the surveys historical average. Higher food and petrol prices were identified by panellists as factors contributing to the overall increase in average input costs. Purchase price inflation at manufacturers picked up, though remained below its long-run average.

Business optimism among Indian service providers fell in September, with the degree of confidence remaining below its long-run average. Challenging market conditions was frequently reported by panellists as a key factor weighing on sentiment. Those respondents anticipating activity growth over the next 12 months commented on improved marketing campaigns and hopes of a better economic environment.

Commenting on the Indian Services PMI survey data, Pollyanna De Lima, economist at IHS Markit, and author of the report, said: Service sector performance in India continued to improve relatively modestly in September, a trend that has been evident throughout the year-to-date. With manufacturing also on a softer footing, growth of private sector output and new orders eased in the latest month.

Over Q2 FY2016/17, however, the PMI Composite Output Index posted its highest reading since the Jan-Mar 2015 quarter, thereby suggesting a pick-up in GDP growth. This would be welcome by policy makers after the below-expectations figure of +7.1% y/y recorded in Q1.

The ongoing upturn in new work combined with muted employment growth led backlogs of work across the private sector to increase at the quickest pace in nearly two-and-a-half years. As a result of this, businesses may be more willing to take on additional workers as we head to the year end.

Food and petrol prices continued to climb in September, which placed pressure on operating costs. In response, private sector companies raised their own prices for the second straight month, although inflation remained relatively soft.

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Cabinet approves acquisition of 11 percent stake in JSC Vankorneft by ONGC Videsh
Oct 05,2016

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi, has given its approval to an acquisition by ONGC Videsh (OVL) for 11% stake in JSC Vankorneft from M/s Rosneft Oil Company (Rosneft), the National Oil Company (NOC) of Russian Federation (Russia). Rosneft operates Vankor fields, with Vankorneft, its wholly owned subsidiary.

OVL will be paying an amount of US $ 930 million for acquiring 11% stake in Vankorneft.

The acquisition of stake in Vankorneft will provide 3.2 Million Metric Ton of Oil Equivalent (MMTOE) to OVL by 2017. It will also provide an opportunity to Indian public sector Oil and Gas companies to acquire new technologies from Rosneft. The acquisition is in line the ONGCs stated objective of adding high quality international assets to Indias Exploration and Production (E&P) portfolio and thereby augmenting Indias energy security.

Recently, an Indian Consortium comprising of Oil India (OIL), Indian Oil Corporation (IOCL) and Bharat PetroResources (BPRL) acquired 23.9% stake in Vankorneft at a cost of US $ 2020.35 million which will give them 6.56 MMTOE. Earlier in May 2016, ONGC Videsh (OVL) completed the formalities on acquisition of 15% stake in Vankorneft at a cost of US $ 1.284 billion which gave OVL 4.11 MMTOE.

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Cabinet approves amendments to the HIV and AIDS (Prevention and Control) Bill, 2014
Oct 05,2016

The Union Cabinet under the Chairmanship of Prime Minister Shri Narendra Modi has given its approval to introduce official amendments to the HIV and AIDS (Prevention and Control) Bill, 2014.

The HIV and AIDS Bill, 2014 has been drafted to safeguard the rights of people living with HIV and affected by HIV. The provisions of the Bill seek to address HIV-related discrimination, strengthen the existing programme by bringing in legal accountability and establish formal mechanisms for inquiring into complaints and redressing grievances. The Bill seeks to prevent and control the spread of HIV and AIDS, prohibits discrimination against persons with HIV and AIDS, provides for informed consent and confidentiality with regard to their treatment, places obligations on establishments to safeguard rights of persons living with HIV arid create mechanisms for redressing complaints. The Bill also aims to enhance access to health care services by ensuring informed consent and confidentiality for HIV-related testing, treatment and clinical research.

The Bill lists various grounds on which discrimination against HIV positive persons and those living with them is prohibited. These include the denial, termination, discontinuation or unfair treatment with regard to:

(i) employment,

(ii) educational establishments,

(iii) health care services,

(iv) residing or renting property,

(v) standing for public or private office, and

(vi) provision of insurance (unless based on actuarial studies). The requirement for HIV testing as a pre-requisite for obtaining employment or accessing health care or education is also prohibited.

Every HIV infected or affected person below the age of 18 years has the right to reside in a shared household and enjoy the facilities of the household. The Bill also prohibits any individual from publishing information or advocating feelings of hatred against HIV positive persons and those living with them. The Bill also provides for Guardianship for minors. A person between the age of 12 to 18 years who has sufficient maturity in understanding and managing the affairs of his HIV or AIDS affected family shall be competent to act as a guardian of another sibling below 18 years of age to be applicable in the matters relating to admission to educational establishments, operating bank accounts, managing property, care and treatment, amongst others.

The Bill requires that No person shall be compelled to disclose his HIV status except with his informed consent, and if required by a court order. Establishments keeping records of information of HIV positive persons shall adopt data protection measures. According to the Bill, the Central and State governments shall take measures to:

(i) prevent the spread of HIV or AIDS,

(ii) provide anti-retroviral therapy and infection management for persons with HIV or AIDS,

(iii) facilitate their access to welfare schemes especially for women and children,

(iv) formulate HIV or AIDS education communication programmes that are age appropriate, gender sensitive, and non-stigmatizing, and

(v) lay guidelines for the care and treatment of children with HIV or AIDS. Every person in the care and custody of the state shall have right to HIV prevention, testing, treatment and counseling services. The Bill suggest that cases relating to HIV positive persons shall be disposed off by the court on a priority basis and duly ensuring the confidentiality.

There are no financial implications of the Bill. Most of the activities are being already undertaken or can be integrated within the existing systems of various Ministries under training, communication and data management, etc. The Bill makes provision for appointment of an ombudsman by State Governments to inquire into complaints related to the violation of the Act and penal actions in case of non-compliance. The Ombudsman need not be a separate entity, but any existing State Government functionary can be deputed or given additional charge.

There are approximately 21 lakh persons estimated to be living with HIV in India. Even though the prevalence of HIV is decreasing over the last decade, the Bill would provide essential support to National AIDS Control Programme in arresting new infections and thereby achieving the target of Ending the epidemic by 2030 according to Sustainable Development Goals.

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Cabinet accords permission to HLL Lifecare, to sub-lease 330.10 acres of Government land at Tamil Nadu for setting up Medipark
Oct 05,2016

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval to M/s. HLL Lifecare, a Mini Ratna PSU under Ministry of Health & Family Welfare to sub- lease 330.10 acres of land at. Chengalpattu, located in the outskirts of Chennai, to setup a medical devices manufacturing park (Medipark) through a special purpose Vehicle. The shareholding of HLL in the project would be above 50%.

The Medipark project will be the first manufacturing cluster in the medical technology sector in the country, envisaged to boost the local manufacturing of hi-end products at a significantly lower cost, resulting in affordable healthcare delivery, particular in diagnostic services to a large section of people. The proposed Medipark would contribute to the development of medical devices and technology sector and allied disciplines in the country, which is still at a nascent stage besides generating employment and give a boost to the governments Make in India Campaign.

Medipark will be developed in phases, spread over seven years for completion. In the first phase, physical infrastructure will be developed and plots will be leased from third year onwards. Knowledge management center will be developed in the second phase, with grants and assistance from departments, which funds similar initiatives. HLL will sublease the land to investors, through a transparent bidding process to investors desirous to set up manufacturing units for Medical equipment and devices. In the initial phase, the land cost to the qualifying entrepreneurs from Medical Device and Equipment, Manufacturing Industry will be at a subsidized rate so as to attract others and the rate will go up gradually as the demand picks up. Thus the Medipark project will play an important role in enhancing quality health care delivery in India.

The project will reduce the dependence on imports and create a strong base for the growth of indigenous and domestic industry by providing access to state of art infrastructure and technology. The domestic manufacturing of medical devices and equipment shall not only usher in a regime of assured and affordable health care delivery but also deepen and strengthen the penetration of quality health care services.

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Cabinet approves transfer of two acres of Indian Agricultural Institute land to Veterinary Council of India
Oct 05,2016

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has approved the proposal for transfer two acres of land from the Indian Agricultural Research Institute (IARI), New Delhi to the Veterinary Council of India (VCI) on lease basis for a period of 99 years at a total lease rent of Rs.8,01,278/- @ Rs. 1 per sq. meter per year.

The VCI will expand its activities related to upgradation of skill of in-service Veterinary professionals by conducting short courses on latest update in research areas of Animal Sciences. After establishing the facilities, VCI will start additional activities and benefits passed to rural population in the country which will spur economic growth and employment generation in the country.

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Cabinet approves Memorandum of Understanding with the African Asian Rural Development Organization in the field of rural development
Oct 05,2016

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval to the signing of a Memorandum of Understanding (MoU) between India and the African Asian Rural Development Organization (AARDO) for capacity building programmes in the field of rural development.

The MoU for the triennium 2015 - 2017 is being signed under which capacity building programmes for AARDO member countries will be organized every year during the triennium at various Institutions of Excellence in India such as National Institute of Rural Development & Panchayati Raj (NIRD & PR), institutions governed by the Indian Council of Agricultural Research (ICAR), Indian Institute of Management (IIM) and others. The duration of each training programme shall be of two to three weeks. The Post Graduate Diploma in Rural Development Management Course at NIRD & PR under this scheme is for one year.

Background:

The AARDO, which has its headquarters in New Delhi, is an autonomous, inter-Governmental organization established in 1962 with the objective of promoting cooperation among the countries of the African - Asian Region in the direction of eradicating thirst, hunger, illiteracy, disease and poverty in the region. India is one of the Founder Members of the Organization and is the largest contributor in terms of membership contribution of US$ 141,100 apart from contributing by way of providing 70 fully paid training scholarships for Human Resource Development Programme under the Indian Technical & Economic Cooperation Programme (ITEC) to the Organization. India has also provided a building for housing the AARDO Secretariat in Delhi and considerable financial assistance is given to AARDO for maintenance of the building. AARDO currently has 31 countries of the African - Asian Region under its fold.

Since the year 2009, India is continuing to provide an Additional Contribution of US$ 600,000 to AARDO for each triennium 2009-2011 to expand its scale and scope of the Capacity Building Programmes of AARDO for the benefit of Member Countries

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Cabinet approves MoU between India and European Union on water cooperation
Oct 05,2016

The Union Cabinet under the Chairmanship of Prime Minister Shri Narendra Modi has given its approval for the signing of MoU between India and European Union in the field of water resources.

The MoU envisages strengthening the technological, scientific and management capabilities of India and the European Union in the field of water management on the basis of equality, reciprocity and mutual benefit. It provides technical exchange on water issues, including on integrated water resource management plans within river basins and through study visits.

The MoU aims to identify key environmental issues and approaches to sustainable development where exchange of experiences and cooperation could be mutually beneficial to strengthen and further develop cooperation between India and the European Union in the field of water management. It envisions a more sustainable management of water resources in India with an objective of tackling the challenges posed by water management in the context of growing population, competing water demands and a changing climate. A Joint Working Group shall be formed to monitor the activities to be carried out in fulfillment of the MoU.

Background

The Ministry of Water Resources, River Development and Ganga Rejuvenation has been envisaging bilateral cooperation with other countries in water resources development and management through sharing of policy and technical expertise, conducting of training courses, workshops, scientific and technical symposia, exchange of experts and study tours. Keeping in view the success of the European Union in distribution of water resources, water pricing, water use efficiency by encouraging the changes in agricultural practices necessary to protect water resources and quality, such as switching to less water-demanding crops, etc., it has been decided to have an agreement with Israel to benefit from their experience and expertise. The EU States have adopted water pricing policies to provide adequate incentives for users to use water resources efficiently thereby contributing to environmental objectives.

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Centre approves a grant of Rs. 515 Crores for the development of Sagar Port Project in West Bengal
Oct 05,2016

The Central Government has given in principle approval to a grant of Rs. 515 crores to make the development of the proposed Sagar Port project in West Bengal financially viable. This is part of the continuous efforts by the Ministry of Shipping during the last two years for the development of this port. A Special Purpose Vehicle, Bhor Sagar Port Limited (BSPL) has been incorporated for the implementation of the project, with Kolkata Port Trust holding 74% equity and the Government of West Bengal holding 26% equity. IIT, Madras has been engaged to prepare a Detailed Project Report (DPR) for the port, involving studies for shore-protection, land reclamation and physical modeling for use of dredge material. The work of preparing the DPR is underway.

Work is also underway for developing port connectivity. A road-cum-rail bridge is proposed over the river Muriganga to connect the Sagar island to the mainland. National Highways and Infrastructure Development Corporation (NHIDCL) has prepared the Detailed Project Report (DPR) for this road-cum-rail bridge. The estimated cost of the bridge is Rs.1822 crores. Further, the connectivity of this road-cum-rail bridge to the National Highways network and the railway network has also been taken up in right earnest. The Ministry of Road Transport and Highways has agreed, in- principle, to take up widening of NH-117 to a four-lane road from Kakdwip to Joka and up to the rail-cum-road bridge to the Sagar Island. The Railway Board has sanctioned a survey for determining the alignment to connect the Port with the mainland rail network.

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Monetary Policy Committee (MPC) reduces policy repo rate by 25 bps to 6.25%
Oct 04,2016

On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:

n++ reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect.

Consequently, the reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75 per cent.

The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below

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Appetite for Bonds to Hold Up; Money Market Spreads to Stay Steady
Oct 04,2016

India Ratings and Research (Ind-Ra) says that attractive yields encouraged high-rated corporates to borrow directly from bond markets during June-August 2016, bypassing conventional bank financing due to elevated and sticky lending rates. As the issuances of state development loans (SDLs) increase in 2H and states explore funding plans across the yield curve, corporate bonds will be impacted by the trends in and quantum of SDL issuances. Proactive debt management by states will expand investors options and enhance overall competitiveness, given the top-rated bonds are presently trading at a spread of mere 20bp-30bp over comparable SDLs.

Appetite for Bonds to Hold Up: On the investors side, banks and mutual funds emerged as the largest investors - while foreign portfolio investors interest was tepid. Despite the limited room for a fall in rates hereon, appetite for corporate bonds could remain in place because: (1) the Reserve Bank of Indias purchase of G-sec through open market operations would free up appetite for other fixed income instruments (2) the falling term structure of rates in a slow growth environment will encourage investors to seek higher yields, nudging them to gradually explore alternatives down the credit curve.

Masala Bonds Offer Funding Diversification: With marquee issuers testing the masala bond market and RBIs recent proposal allowing banks to access this route for Basel III capital, the initial success of masala bonds is likely to encourage other domestic top-rated issuers to explore this route. Beyond the top issuers, however, the market for masala bonds is unlikely to pick up in a hurry.

Commercial Papers (CPs) Preferred Mode for Working Capital Funding: A faster and smoother transmission of falling rates in market-linked instruments than in loan products catalysed shift to CP market - a trend that is likely to persist in the near term. With the institutionalisation of a predictable liquidity framework, however, money market spreads are unlikely to change in the near term.

Ind-Ra presents its second edition of Indian Corporate Debt Market Tracker - a publication aimed at presenting a complete picture of developments in the domestic primary bond market in terms of sectoral composition, rating mix and commercial paper issuance trends. The study pertains to the June to August 2016 period, unless otherwise specified. The study has been conducted based on the data obtained from Prime Database and pertains to the private placement of corporate bonds. The actual issuance amount may vary.

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First MPC Policy to Set the Tone for Debt and FX
Oct 04,2016

The Reserve Bank of Indias (RBI) policy communique will be more critical than its rate action for the market to ascertain the future path of interest rates, says India Ratings and Research (Ind-Ra). The rupee will stay firm and could trade at 66.35/USD-66.85/USD (66.61/USD on 30 September) throughout the week, while the new 10-year G-sec yield trading range could be at 6.72%-6.85% (6.82% on 30 September).

Communication from RBI and MPC to be Supportive: Domestic bond yields appear to have factored in a rate cut of 25bp in the run up to the policy through the past week. Markets will look for clarity over a few issues: (1) the strategy of the newly-appointed RBI Governor and monetary policy committees (MPC) action on interest rates, (2) the stance and strategy of the RBI and MPC on liquidity, (3) the real interest rate trajectory and (4) MPCs take on the system-based rate setting approach.

Fluctuations in System Liquidity to Dominate: The system may exhibit frictional fluctuations in core liquidity. Ind-Ras estimates indicate that cash in circulation will increase by around 0.4% of NDTL, draining the interbank system. With the current surplus in system liquidity and RBIs proactive liquidity management, the agency does not envisage any pressure on overnight rates other than frictional volatilities. At the same time, further softening of money market instruments appears limited.

Rupee Volatility May Resurface: The rupee has remained steady barring weaknesses due to intensified tension at Indias international border. The rupee is likely to remain volatile through October. For this week, the rupee would largely be driven by sentiment in equity market as well as trade flows.

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Government IT Spending in India to Reach US$ 7.2 Billion in 2016: Gartner
Oct 04,2016

The government in India is on pace to spend US$ 7.2 billion on IT products and services in 2016, an increase of 2.4% over 2015, according to Gartner, Inc. This forecast includes spending on internal services, software, IT services, data center, devices and telecom services. Government comprises state and local governments and national government.

IT services (which includes consulting, software support, business process outsourcing, IT outsourcing, implementation, and hardware support) is expected to grow 9.3% in 2016 to reach US$ 1.8 billion - with the business process outsourcing sub-segment growing 21%.

Telecom services will be a US$ 1.6 billion market, with the mobile network services sub-segment recording the fastest growth with 5.2% in 2016 to reach US$ 909 million.

Government spending on software will total US$ 885 million in 2016, a 4.5% increase from 2015, said Moutusi Sau, principal research analyst at Gartner. The software market will be led by growth in applications.

Internal services will growth 5.8% in 2016 to reach US$ 1.5 billion. Internal services refer to salaries and benefits paid to the information services staff of an organization. The information services staff includes all employees that plan, develop, implement and maintain information systems.

The e-governance initiatives to simplify digital channels and data-driven initiatives are driving investments in the government and are anticipated to grow through 2020. The Digital India initiatives are making government processes streamlined and integrating the data repositories, said Ms. Sau.

Further information on government sector IT spending is available for Gartner clients in the report, Forecast: Enterprise IT Spending for the Government and Education Markets, Worldwide, 2014-2020, 2Q16 Update. The forecasts provide total enterprise IT spending, including internal spending and multiple lines of detail for spending on hardware, software, IT services, and telecommunications for vertical industries and 43 countries within seven geographies.

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More than 3740 MT pulses procured from farmers during ongoing Kharif season
Oct 04,2016

The Government agencies have procured 3740.47 MT pulses as on 02 October 2016 during ongoing Kharif Marketing Season (KMS).

The Central Government has directed FCI and NAFED to procure Kharif pulses from the farmers to ensure MSP for their crops. The agencies have set up 417 procurement centres in pulses producing states to ensure their reach to the farm gates for procurement of Moong and Urad. More centres will be set up if required on the arrival of Tur crop.

So far, FCI has procured 1075.34 MT and NAFED 2665.13MT pulses since the arrival of Kharif pulses during ongoing KMS 2016-17.

The Government has set up the procurement target of 50,000 MT Kharif pulses during current KMS for its buffer stock.

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