New Delhi, April 19
The finance ministry on Thursday operationalized the proposal to allow the cash strapped aviation sector to raise up to $1 billion in overseas borrowings. While the proposal to allow FDI in airlines is still hanging, this will come as a relief to several cash starved and loss ridden sector as it will allow access to easier and cheaper loans from banks and institutions.

The move has been necessitated because the rapid growth of the aviation sector in India has generated demand for additional finance for working capital and capacity expansion. High operating costs, particularly on account of high fuel costs, have put additional stress on the airline industry.

Finance Minister Pranab Mukherjee in his FY13 budget speech had announced that companies in the aviation sector would be allowed to avail of external commercial borrowings for a period of one year for working capital and refinancing of outstanding working capital rupee loans.

According to the ministry guidelines, the ECB made under this provision would have a maximum ceiling of $1 billion for the entire civil aviation sector. The limit for individual airline companies will be $ 300 million. This limit can be availed either in a lump sum or in tranches depending upon the utilization of the limit during the one year when the facility is available.

The RBI will consider proposals of individual companies under the approval route based on the parameters such as cash flows and the capacity of individual companies to repay these loans from their foreign exchange earnings. In order to increase access to ECBs, the RBI would consider relaxation in the average maturity period for ECBs above $20 million from five to three years.

This policy decision will provide an additional source of capital low cost to airlines and help them tide over their present financial crunch. The RBI will issue the notification giving effect to the announcement within seven days.

Recently, the finance ministry had announced further liberalization of the ECBs for refinancing of the rupee debt for the power sector. Power firms will now be able to raise ECBs for refinancing their rupee debt up to a maximum limit of 40%, provided the remaining 60% of the ECB raised is utilized for investment in a new project.

New Delhi, April 19
India’s exports crossed the $300 billion mark for 2011-12 but the trade deficit has also hit a record high on rising crude prices and gold imports. Commerce Secretary Rahul Khullar said Thursday India's exports rose 21% from the previous year to $303.7 billion, higher than the government’s target of $300 billion.

Imports rose faster at 32.1% to $488.6 billion, raising the trade deficit to $184.9 billion from $ 118.6 billion last year.

Khullar said the trade deficit is a matter of serious concern and is counting on lower crude and gold imports for it to come down this year. Pharmaceuticals, petroleum and engineering powered the export growth even though there was a slowdown in major markets like the US and Europe.

Federation of Indian Export Organizations (FIEO) president M. Rafeeque Ahmed said exports growth was achieved even though global trade took a hit in 2011 as compared to growth in 2010.

He said the record trade deficit of $184.9 billion was a cause of concern. “But looking at the profile of imports, very little scope is possible since the rising trade deficit is on account of large imports of petroleum, gold and silver and coal besides machinery and inputs”, he added.

While import of machinery and inputs, petroleum and coal would be necessitated for meeting domestic manufacturing and energy requirement, some respite in gold & silver import would be possible if other avenues of investments like stocks and real estate start giving good returns, he said.

On the burgeoning trade deficit, Assocham said there is need to de-regulate fuel prices, or else there will be a severe burden on external payments position. The gold imports figure must also decrease by encouraging substitution of gold purchases with alternatives from formal financial sector which will help in increasing the productive capacity of economy.

Mumbai, April 19
State-run banks are likely to give in to a government directive and lower lending and deposit rates within the next few days after the Reserve Bank of India made a deeper than expected cut to its policy rate on Tuesday.

Banks had been reluctant to cut their lending rates despite a reduction in their reserve requirements, saying tight cash conditions were keeping deposit rates high and deposit growth low, and are unlikely to match the full 50 basis point cut in the policy rate.

The RBI has lowered banks' cash reserve ratio (CRR), the share of deposits they maintain with it, by 125 basis point since January, releasing Rs 800 billion into the banking system.

However, a severe cash crunch on lagged government spending and large dollar sales by the RBI pushed the liquidity deficit to more than double the central bank's stated comfort zone this year, reducing banks' ability to cut lending rates.

Following the muted response from banks to its CRR easing, the RBI cut its policy interest rate by a deeper-than-expected 50 basis point this week, in part to spur faster monetary policy transmission and to give a stronger signal to banks.

As of Thursday morning, only state-run Punjab National Bank and IDBI Bank had announced cuts in their lending and deposit rates.

On Thursday afternoon, ICICI Bank, the country's largest private sector lender, said it was lowering its lending and deposit rates by 25 basis points each. — Reuters

New Delhi, April 19
The government on Thursday brushed aside the pressure being built by the global trade bodies in the Rs 11,000 crore Vodafone tax dispute case and asserted that the British telecom major cannot invoke the India-Netherlands investment treaty as the $11.2 billion deal was signed in Cayman islands.

"Trade bodies are no one to pressurise the government on what to tax and what not to. Similar retrospective amendment was made in the UK last month and Vodafone was made to pay tax there. Then why are they having problems in India?" questioned a senior finance ministry official.

Several global bodies have written letters to Indian Prime Minister Manmohan Singh and other ministers saying that the government's proposal to amend the Income Tax Act to bring into tax net Vodafone-type overseas deals involving domestic assets would hurt foreign investment.

They have asked US Treasury Secretary Timothy Geithner to raise the controversial issue at ongoing IMF-World Bank spring meetings in Washington, D.C. and also with Indian Finance Minister Pranab Mukherjee during the bilateral talks.

Referring to the recent threat of Vodafone to invoke bilateral investment treaty with the Netherlands on the tax issue, the official said the arbitration clause in the BIPA (Bilateral Investment Protection Agreement) cannot apply in Vodafone-Hutchison deal as it was signed in Cayman Islands.

The deal happened in Cayman islands and they are invoking India-Netherlands BIPA," the finance ministry official said, adding "while in the Supreme Court Vodafone said that the deal happened outside India, under BIPA it is saying it has made substantial investment in India."

Earlier this week the Dutch subsidiary of UK-based Vodafone served a 'dispute notice' to the government threatening international arbitration under the bilateral investment treaty between India and the Netherlands for retrospective amendment of the Income Tax Act. — PTI

Mumbai, April 19
The rupee slid to its weakest level in more than three months on Thursday, putting traders on alert for possible intervention from the central bank as the outlook on the currency stays bleak.

The widening current account deficit, caused in large part by rising oil prices, slowing growth, and fears of a spillover from the festering euro zone debt crisis are seen looming large for the rupee.

The reduced expectations for further interest rate cuts from the Reserve Bank of India due to inflationary risks are also weighing on the rupee, traders said. The central bank cut the repo rate by an aggressive 50 basis points this week.

"Overall outlook on the rupee stays negative. The main culprit remains oil," said S. Nagaraja, head of forex dealing at Al Rostamani International Exchange.

The rupee closed at 52.14/52.15 to the dollar, close to the intraday low of 52.165, a level last seen Jan.10. It had closed at 51.78/79 on Monday.

Some traders expect the RBI to sell some dollars near those resistance levels. "Even the hint of presence from the RBI is enough to scare the market and help rupee recoup some losses temporarily," said a currency trader. But some traders believe dollar sales by exporters looking to book profits may stem the losses in the rupee, reducing the need for central bank to act.

The one-month offshore nondeliverable forward contracts were at 52.13. In the currency futures market, the most-traded near-month dollar-rupee contracts on the NSE and the MCX-SX all ended around 52.22, on a total volume of $4.3 billion. — Reuters