Mumbai, March 15
The Reserve Bank of India has indicated it will be keeping its options open about the fiscal 2012-13 budget proposals to be announced on Friday before taking a call on reducing interest rates in the future.

RBI governor D. Subbarao warned inflation remained the biggest danger to monetary policy and thus determined interest rates. "Credible fiscal consolidation will be an important factor in shaping the inflation outlook," the central bank said in its message to the government in its monetary policy review released here on Thursday.

The central bank kept its policy repo rate on hold at 8.50%, as had widely been expected. It kept the cash reserve ratio unchanged at 4.75% after a 75 basis point-cut on Friday in a surprise off-cycle move to ease tight banking system liquidity.

While the market hopes had risen that the RBI would finally begin lowering rates after 13 increases between March 2010 and October 2011, it opted not to make a move before the budget release for the fiscal year starting April 1.

"Upside risks to inflation have increased from the recent surge in oil prices, fiscal slippage and rupee depreciation," the RBI said in its mid-quarter policy statement, adding that future actions will be towards lowering rates but refraining from giving a time frame.

Growth in Asia's third-largest economy slowed to 6.1 percent in the three months to December, the weakest in almost three years, and is on track to fall just short of 7% in the fiscal year that ends this month.

"Notwithstanding the deceleration in growth, inflation risks remain which will influence both the timing and magnitude of future rate actions," the RBI said.

The RBI's next policy review is April 17, and many economists and traders had expected it to cut rates then.

That outlook has been clouded by renewed worry about the government's ability to get its fiscal deficit under control after Wednesday's move to raise railway fares for the first time in eight years unleashed a political storm, underscoring the weakness of India's ruling coalition.

India is on track to miss its target of cutting the fiscal deficit to 4.6% of GDP in the current fiscal year by more than a percentage point, thanks to a sluggish economy and a ballooning subsidy burden under a populist-leaning Congress party government.

The RBI has said it would be constrained from cutting rates in the absence of credible fiscal consolidation.

"A rate cut in April depends on what the government budget delivers. If it is deemed expansionary/inflationary then chances of a RBI rate cut are reduced," said Jonathan Cavenagh, FX strategist at Westpac in Singapore. Bond and interest rate swap markets were disappointed with the RBI's focus on inflation, while India's benchmark stock index extended falls, dragged down by banking shares.

The 10-year benchmark bond yield rose 4 basis points to 8.34% immediately after the policy release while the benchmark five-year swap rate was 6 basis point higher at 7.55%, and the one-year rate 7 basis points up at 8.12%. "The RBI is not as dovish as expected. It has, rather, sounded cautious on inflation," said Vivek Rajpal, India rate strategist at Nomura in Mumbai.

The central bank raised rates 13 times between March 2010 and October 2011, a spree that extended well past the time central banks elsewhere were taking measures to revive growth.

New Delhi, March 15
Indian stock markets have given the second highest returns between 2003-04 and April-December of fiscal 2011-12 among the prominent Asian bourses over the past eight years, according to the Economic Survey for 2011-12, released on Thursday.

An analysis of major Asian countries' stock indices show that the 30-share Bombay Stock Exchange Sensex gave the second maximum cumulative returns, while the highest return was given by Indonesia's benchmark Jakarta Composite Index, the Economic Survey said.

Among selected Asian stock exchange indices, the Jakarta Composite Index posted a maximum cumulative return of 419.5 per cent in fiscal 2011-12 (April-December) over 2003-04 followed by the BSE Sensex Index (176.4 per cent), S&P CNX Nifty Index (161.0 per cent)...," the survey said.

Other indices compared are Japan's Kospi, Indonesia's Kuala Lumpur Comp, Hong Kong's Hang Seng, Taiwan's TSEC.

During the same period, the returns of other indices were the Kospi Index (107.4 per cent), the Kuala Lumpur Comp Index (69.7 per cent), the Hang Seng Index (45.4 per cent), the SSE Composite Index (26.3 per cent), and the TSEC weighted Index (8.4 per cent)," the Economic Survey for 2011-12, said. — PTI

Hyderabad, March 15
In a candid assessment of the Indian aviation industry, a top official of an international aviation trade body said the domestic aviation sector might not do well this year in the absence of any major structural changes.

“I don’t see this year getting any easier for Indian carriers than last year. Fuel prices have shot up. And, there have not been any major structural changes in the industry which can help offset that particular cost penalty,” International Air Transport Association (IATA) director general Tony Tyler said here on Thursday.

He was addressing the India Aviation 2012, the third edition of the international aviation conference and exhibition. Calling for urgent steps to address the critical areas of the ailing sector, he said the agenda to rebuild competitiveness in Indian aviation rests on four pillars of taxes, infrastructure, costs and investment policies.

Pointing out that the problems confronting Indian aviation sector were “severe and beyond the control of airlines”, Tyler said a team effort was required from all the government agencies to solve these problems. Though the civil aviation ministry had taken some steps in the right direction, the major changes were impossible to bring about without the support of the tourism, finance, environment and petroleum ministries and the Competition Commission.

"The situation in India today is critical and we must move forward urgently and through IATA, I can certainly pledge the resources of the industry to support the development of such a policy with the greatest amount of determination and speed," Tyler said.

Referring to foreign direct investments, the IATA chief said foreign airlines could own up to 49 per cent stake in an Indian domestic carrier if the aviation ministry proposed to lift restrictions. “The civil aviation ministry's proposals to lift restrictions would allow strategic tieups with foreign airlines cemented by an equity stake”, he added.

He pointed out such equity partnerships had strengthened airlines such as Lufthansa-Swiss-Austrian-Brussels Airlines, Air France-KLM-Alitalia, LAN-TaM and British Airways-Iberia.

Later, talking to reporters, Tyler said it was necessary to

suspend Kingfisher Airlines from its clearing house to protect the system. 

Chandigarh, March 15
With the budget proposals for fiscal 2012-13 all set to be tabled before Parliament on Friday, industry doyens in the region are hoping that Finance Minister Pranab Mukherjee will breathe some life into the stagnant economy of Punjab, besides helping develop that of economy (outside the National Capital Region).

With industry in Punjab passing through one of its worst phases, and investments fleeing from the state (to tax exempt states or states like Gujarat and Madhya Pradesh), people here are hoping for at least a freight equalization policy, development of cargo and perishable goods centres as well as allocations for better air connectivity. With the region being the food bowl of the country, there is hope that some budgetary allocations will be made for setting up a cold chain storage in this region and for promoting agro processing industry.

Satish Gupta, president of the Haryana Chamber of Commerce & Industry, told The Tribune one of the major reasons for business in this region not flourishing as much as in western states, was that both Punjab and Haryana are very far away from the ports. “Freight costs being very high, we lose our competitive edge to manufacturers located in the region nearer to the ports. We hope that the freight equalization policy is reintroduced, and instead of the earlier refund of one per cent of the value of goods, the new policy should allow for 1.5% refund of value of goods,” he said, adding that more inland container depots and airports be set up in the region.

Seconding his views on re introduction of freight equalization policy, R.S. Sachdeva, co-chairman of the Punjab committee of PHD Chamber, said he hoped a new agro processing policy would be introduced in the budget, which would give a fillip to the agro based economies of Punjab and Haryana.

“We also hope that, considering the huge debt burden on Punjab, the government gives a special relief by enhancing the state’s share from the central taxes to 50 per cent. This will give Punjab enough resources to improve its infrastructure and help resuscitate its economy,” he added. 

Mumbai, March 15
The BSE Sensex fell for the first time in five sessions as sectors sensitive to interest rates such as banks and real estate dropped after the central bank kept its policy rates unchanged, voicing a more hawkish stance than expected.

Though analysts had largely expected rates to stay on hold, especially on budget eve, the markets had not ruled out a surprise repo rate cut. — Reuters