Nov 2011 Economy

The Union cabinet on 24 November 2011 approved 51 per cent foreign direct investment (FDI) in multi-brand retail. The Cabinet also decided to raise the cap on foreign investment in single-brand retailing to 100 per cent from 51 per cent. An estimated Rs 30-lakh-crore retail sector was thus opened to foreign investors by clearing a bill that allows 51 per cent investment in multi-brand retail. India currently allows 51 percent foreign investment in single-brand retailers and 100 percent for wholesale operations but no FDI in multi-brand retail.

The Union Cabinet agreed to partially allow foreign direct investment (FDI) to enter the pension sector to the extent of 26 per cent. The cabinet however refused to mention any sectoral cap in the proposed legislation. In its approval to amendments in the PFRDA Bill, 2011, the Cabinet turned down the Parliamentary Standing Committee's suggestion of providing a guarantee on assured returns on pension fund schemes. Though the government is of the view that the FDI cap in the pension (sector) should be at 26 per cent, on a par with the insurance sector, it would like to retain the flexibility of changing the cap of FDI as and when required.

The Reserve Bank of India (RBI) on 4 November 2011 announced that transfer of shares between Indians and non-resident Indians (NRIs) would not require its permission in several key areas such as financial services. RBI initiated measures to ease foreign direct investment (FDI) procedures with an objective to woo global investors. The central bank Amended the Foreign Exchange Management Regulations. It mentioned that prior permission would not be necessary where the company whose shares were being transferred was engaged in any financial service. The RBI permission had also been done away with for transfer of shares between residents and non-residents in cases where the Foreign Investment Promotion Board (FIPB) had already given its clearances and the SEBI guidelines were met.

Joint study by industry association FICCI and Ernst & Young predicted Indian mobile devices market to reach 350 million a year by 2020. The handset companies currently sell about 150 million mobile phones annually in India. According to this study, rural market will provide the next phase of growth for handset players. The study also stated that about 500 million handsets will be manufactured in India by 2020. However, this will be possible only if the country were to create a manufacturing ecosystem to produce handsets. India is the world's second-largest telecom market after China, with the total wireless subscriber base crossing 850 million at the end of June, 2011.

Global ratings firm Moody's on 9 November 2011 downgraded the entire Indian banking system's rating outlook from stable to negative indicating a deterioration in asset quality in the months ahead. In September 2011, Standard & Poor's (S&P) downgraded the country's largest lender, the State Bank of India, by one notch. The Moody's decision was announced at a time when the Eurozone financial system is in turmoil and a large number of European banks are in a crisis. The government rejected it claiming that the country's lending institutions are much healthier than their global counterparts. Indian bankers termed the move unwarranted and premature at this point of time.