New Delhi, July 5
President of the Associated Chambers of Commerce & Industry of India (Assocham) Rajkumar Dhoot on Thursday met Planning Commission deputy chairman Montek Singh Ahluwalia and demanded that the contentious tax proposal of GAAR be put on hold till 2015.

Citing General Anti-Avoidance Rules (GAAR) as one of the tax proposals which has hit the investor sentiment, Dhoot strongly advocated for its postponement officially till 2015, while submitting a seven-point agenda to Ahluwalia when he called on him today.

The paper highlighted that despite global slowdown, India’s infrastructure story is intact. Dhoot said enough internal demand can be created and there is only a need to build consumer confidence and fire the imagination of Indian entrepreneurs.

Assocham said the government should clear the big ticket infrastructure projects in the next three months. Also, the Reserve Bank of India should not get misled by the headline inflation, which is around seven per cent. Core inflation is much lower clearly suggesting that there is a lot more scope to cut interest rates and generate demand in the system, the industry body added.

While the recent gross domestic product data suggests deceleration in the investment to GDP ratio at 29 per cent, this is an issue which requires medium to long term solution.

Assocham said the immediate solution would be to generate demand since the industry has unutilized capacity. Once that is achieved, consumer confidence will automatically boost investor confidence, adds the paper.

However, the apex chamber has asked the government to have a relook at the incentives being taken away from the special economic zones (SEZs), which can be huge investment drivers. This alone can act as a great multiplier.

The paper said that coal is of utmost importance that all the stakeholders, including the government and the industry should move with a much faster speed to ensure that enough coal is mined and dispatched to the thermal plants.

“It’s nobody’s case to defend any wrong doings. But to hold the entire sector, which is a lifeline to the economy, to ransom would deal a deadly blow to the industrial output and the overall economic growth”, said Dhoot.

Raising the issue of environmental clearances, Assocham said the environment ministry needed to work in close cooperation with the industry rather than being an adversary. It said the policies should be transparent and stable and should not change with the change of minister or secretary.

The chamber noted some of the major resources of the country have been held up due to environmental clearances issues in the power, mining of minerals and setting up of steel plants.

Frankfurt/Main, July 5
The European Central Bank cut interest rates to a record low on Thursday to breathe life into a deteriorating euro zone economy and back up measures agreed by government leaders last week to tackle the bloc's debt crisis.

The quarter-point cut in the ECB's main refinancing rate to 0.75% was in line with market expectations and followed a dire batch of economic data that show even eurozone powerhouse Germany is entering a modest downturn.

European shares extended gains on the news and the euro fell. Of 71 economists polled by Reuters, 48 had expected the bank to cut, most of them by 25 basis points, though some others forecast a larger decrease.

"This outcome is probably the one that is most acceptable to the ECB at this stage," said Nomura economist Jens Sondergaard, who had forecast a cut to 0.50% in the main rate.

The ECB's loosening of policy followed shortly after China and Britain did similar. In addition to cutting the main refinancing rate, the ECB also reduced its deposit rate, which acts as a floor for the money market, to zero from 0.25%.

This move could encourage banks to lend to each other rather than simply parking funds of up to 800 billion euros back at the ECB every night.

However, the rate cut is not seen as a panacea for the eurozone's problems. — Reuters

Singapore, July 5
DBS expects the rupee to trade at 56.20 to the dollar by the end of 2012, arguing the RBI will aim to keep the currency weak on real effective exchange terms as a way to reduce the trade deficit.

A weaker rupee, combined with falling commodity prices, has already narrowed the trade deficit to $13.5 billion in May, the Singapore-based DBS Bank estimates, compared with an average $18.5 billion in January-February.

"The lesson the central bank takes from the sharp 25 percent increase in the USD/INR exchange rate over the past year will be to limit the current account deficit so as to minimize the risk of large swings in the currency," DBS argues.

Meanwhile, the rupee fell for a second straight session on Thursday, consolidating after a recent rally as traders braced for an interest rate cut from the European Central Bank that, as expected, was delivered after the close of markets.

The ECB cut its main interest rate to a record low of 0.75 percent, sending the euro sharply lower against major currencies, and setting up the prospect of further weakness ahead for the rupee.

However, in an unexpected decision, China also cut interest rates on Thursday, helping the rupee cut losses late in the session as it was announced shortly before the close of domestic currency markets.

China's easing action should in theory be a potentially more positive factor for global risk assets given it could help revive growth in a key market for emerging countries, though traders said the impact could be blunted by the ECB.

"The rupee started recovering after the China move in late trade, but the gains will be short-lived, we can expect further weakness tomorrow," a senior dealer with a state-run bank said.

Global risk factors are likely to continue to determine the rupee's outlook in the near-term, with the US monthly jobs report on Friday now looming as the next key event. That is especially the case given the lack of obvious domestic drivers. Demand from oil firms tends to wane at the beginning of the month, only to pick up as the month progresses.

"Lack of dollar supplies and demand from oil firms hurt the rupee," said Hari Chandramgathan, a forex dealer with Federal Bank. — Reuters

New Delhi, July 5
Major global companies consider India their third most favoured destination after China and the United States, a UN report said on Thursday, and investment inflows could increase by more than 20 percent both this year and the next.

Foreign direct investment flows into India leapt 30% to nearly US $32 billion in 2011, though held back by slow pace of reforms, it still remains a long way down the league table of FDI recipients.

China drew $124 billion last year, while Brazil attracted nearly $67 billion and Russia $53 billion.

"FDI inflows into India can go up by 20-25 percent this year and by about 20 percent next year, if the present trend continues," said Nagesh Kumar, chief economist at the United Nations Economic & Social Commission for Asia and the Pacific, while releasing UNCTAD's World Investment Report 2012.

Some 179 global companies — from the manufacturing, services and primary sectors — were surveyed between February and May, on their favoured investment destinations for 2012 to 2014.

Kumar said FDI growth seems to be keeping its momentum in 2012, referring to furniture maker IKEA and Coca-Cola's recent announcements to pump nearly $5 billion combined into India over the long term. Though India's economic growth slowed to 5.3% in the March quarter, its slowest in nine years, its trends still compared favorably, Kumar said.

"Compared to many other places, India is doing better in terms of growth," he said, adding global investors were looking at the long term prospects and wide market in Asia's third largest economy.

The report said worldwide FDI flows exceeded the pre-financial crisis average in 2011, reaching around $1.5 trillion, despite turmoil in the global economy, and is projected around $1.6 trillion this year.

Global companies are sitting on hefty cash reserves and waiting for the eurozone situation to stabilize before investing, he said.

Earlier this year India allowed full foreign ownership of single brand retailers, although late last year it backtracked on a plan to allow in foreign supermarkets.

Many investors are hoping it revives that plan soon, after Prime Minister Manmohan Singh recently took over the finance portfolio. — Reuters

London/Sydney, July 5
Ratings agency Moody's downgraded Barclays Plc's debt rating outlook to negative from stable, citing the resignations of senior executives including chief executive Bob Diamond in the wake of an interest rate-rigging scandal.

Moody's said on Thursday the downgrade reflected concerns that the departures and the consequent uncertainty surrounding the bank's direction would be negative for bondholders.

The ratings agency said shareholder and political pressure on Barclays could lead to pressure on the bank to shift its business model away from investment banking and to reform perceived failures in its business culture.

"Although this could have potentially positive implications over the longer term, the uncertainty surrounding such a change in direction is credit-negative in the short term," Moody's said in a statement.

Barclays announced Diamond's resignation on Tuesday and his departure was followed hours later by that of chief operating officer Jerry del Missier. Chairman Marcus Agius has also announced his intention to leave once successors are found.

Moody's said Barclays could struggle to find a suitable candidate to step into Diamond's shoes. — Reuters