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A COMPLETE HANDBOOK TO EVERY ASPIRANT OF ALL COMPETATIVE EXAMINATIONS

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Financial inclusion
Financial inclusion is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. It is argued that as banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of public policy. The term "financial inclusion" has gained importance since the early 2000s, and is a result of findings about financial exclusion and its direct correlation to poverty. Financial inclusion is now a common objective for many central banks among the developing nations. The Reserve Bank of India has set up a commission (Khan Commission) in 2004 to look into financial inclusion and the recommendations of the commission were incorporated into the mid-term review of the policy (200506). In the report RBI exhorted the banks with a view of achieving greater financial inclusion to make available a basic "no-frills" banking account. In India, Financial Inclusion first featured in 2005, when it was introduced, that, too, from a pilot project in UT of Pondicherry, by K C Chakraborthy, the chairman of Indian Bank. Mangalam Village became the first village in India where all households were provided banking facilities. In addition to this KYC (Know your Customer) norms were relaxed for people intending to open accounts with annual deposits of less than Rs. 50,000. General Credit Cards (GCC) were issued to the poor and the disadvantaged with a view to help them access easy credit. In January 2006, the Reserve Bank permitted commercial banks to make use of the services of nongovernmental organizations (NGOs/SHGs), micro-finance institutions and other civil society organizations as intermediaries for providing financial and banking services. These intermediaries could be used as business facilitators (BF) or business correspondents (BC) by commercial banks. The bank asked the commercial banks in different regions to start a 100% financial inclusion campaign on a pilot basis. As a result of the campaign states or U.T.s like Puducherry, Himachal Pradesh and Kerala have announced 100% financial inclusion in all their districts. Reserve Bank of Indias vision for 2020 is to open nearly 600 million new customers' accounts and service them through a variety of channels by leveraging on IT. However, illiteracy and the low income savings and lack of bank branches in rural areas continue to be a road block to financial inclusion in many states. Apart from this there are certain in Current model which is followed. There is inadequate legal and financial structure. India, being a mostly agrarian economy, hardly has schemes which lend for agriculture. Along with microfinance we need to focus on Microinsurance too. In its platinum jubilee year, the Reserve Bank of India (RBI) wants to connect every Indian to the country s banking system.

- -INDIAN ECONOMY AND TERM 3 9/26/2011Created by ss - 3 -ss Page 3 9/26/2011 RBI is currently working on a three-year financial inclusion plan and is discussing this with each bank to see how to take this forward, KC Chakrabarty, deputy governor, RBI said. "Nearly forty years after nationalization of banks, 60% of the country's population does not have bank accounts and nearly 90% do not get loans," he pointed out . Despite heightened focus on financial inclusion, Indian banks still somewhat failed to bring the under- and un-banked into the mainstream banking fold. India has currently the second-highest number of financially excluded households in the world. Approximately, 40% of India s population have bank accounts, and only about 10% have any kind of life insurance cover, while a meager 0.6% have non-life insurance cover. According to UNITED NATIONS, "A financial sector that provides 'access to credit for all "bankable " people and firms and to savings and payments services for everyone . Inclusive finance does not require that everyone who is eligible use each of the services , but they should be able to choose use them if desired. REPORT OF THE COMMITTEE ON FINANCIAL INCLUSION IN INDIA (Chairperson : C. Rangarajan ) (2008) "The process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost." As per " TREASURY COMMITTEE , HOUSE OF COMMONS , UK , (2005) " Ability of individuals to access appropriate financial products and services . "

'Major Three Aspects Of Financial Inclusion' Make people to

Access financial markets Access credit markets Learn financial matters (financial education )

Financial Inclusion Includes Accessing Of Financial Products And Services Like,

Savings facility Credit and debit cards access Electronic fund transfer All kinds of commercial loans Overdraft facility Cheque facility Payment and remittance services Low cost financial services Insurance (Medical insurance) Financial advice Pension for old age and investment schemes Access to financial markets Micro credit during emergency Entrepreneurial credit

Financially Excluded People The financially excluded sections largely comprise :

- -INDIAN ECONOMY AND TERM 9/26/2011Created by ss - 4 -ss Page 4 9/26/2011 Marginal farmers Landless labourers Oral lessees Self employed and unorganised sector enterprises Urban slum dwellers Migrants Ethnic minorities and socially excluded groups Senior citizens Women The North East, Eastern and Central regions contain most of the financially excluded population. Factors affecting access to financial services

Legal identity : Lack of legal identity like voter id , driving license , birth certificates ,employment identity card etc Limited literacy : Particularly financial literacy and lack of basic education prevent people to have access from financial services . Level of income : Level of income decides to have financial access . Low income people generally have the attitude of thinking that banks are only for rich. 'Terms and conditions : While getting loans or at the time of opening accounts banks places many conditions , so the uneducated and poor people find it very difficult to access financial services . Complicated procedures : Due to lack of financial literacy and basic education , it is very difficult for those people who lack both to read terms and conditions and account filling forms . Psychological and cultural barriers : Many people voluntarily excluded themselves due to psychological barriers and they think that they are excluded from accessing financial services . Place of living : As the name suggests that commercial banks operate only in commercially profitable areas and they set up branches and main offices only in that areas .People who lived in under developed areas find it very difficult to go to areas in which banks are generally reside . Lack of awareness : Finally , people who lack basic education do not know the importance of the financial products like Insurance , Finance , Bank Accounts , cheque facility ,etc.

Consequences Of Financial Exclusion Major Two Threats : Losing opportunities to grow : In the absence of finance , people who are not connected with formal financial system lack opportunities to grow. Country's growth will retard : Due to vast unutilized resources that is in the form of money in the hands of people who lack financial inclusive services.

Other Consequences :

- -INDIAN ECONOMY AND TERM 5 9/26/2011Created by ss - 5 -ss Page 5 9/26/2011 Business loss to banks : Banks will loss business if this condition persists for ever due to lack of opening of bank accounts. Exclusion from mainstream society : The people who lacks financial services , presumed that they are excluded from mainstream society . All transactions cannot be made in cash : Some transactions can be made in cash . In this technological world everybody wants to have electronic cash system like debit and credit cards and also EFT . Loss of opportunities to thrift and borrow : Financially excluded people , may lose chances to save their some part of livelihood earnings and also to borrow loans . Employment barriers : Nowadays all salary and other financial benefits from various sources like Governments scholarships , any compensation , grants , reliefs , etc are paid through bank accounts. Loss due to theft : Banks provide various schemes of safety locker facility . It mitigates the risk due to thefts . Other allied financial services : People who do not have bank accounts may not go to bank as for as possible . So they lack basic financial auxiliary services like DD ,Insurance cover and other emergency need loans Etc .

Benefits Of Inclusive Financial Growth Growth with equity : In the path of super power we the Indians will need to achieve the growth of our country with equality . It is provided by inclusive finance. Get rid of poverty : To remove poverty from the Indian context all everybody will be given access to formal financial services . Because if they borrow loans for business or education or any other purpose they get the loan will pave way for their development . Financial Transactions Made Easy : Inclusive finance will provide banking related financial transactions in an easy and speedy way . Safe savings along with financial services : People will have safe savings along with other allied services like insurance cover , entrepreneurial loans , payment and settlement facility etc, Inflating National Income : Boosting up business opportunities will definitely increase GDP and which will be reflected in our national income growth . Becoming Global Player : Financial access will attract global market players to our country that will result in increasing employment and business opportunities .

Relationship between Financial Inclusion and Development Indicators Economic growth follows financial inclusion. In order to achieve the objective of growth with equity, it is imperative that infrastructure is developed with financial inclusion. savings and credit accounts - indicators of financial inclusion. per capita income - indicator of economic development Electricity consumption

and road length -indicators of infrastructure development.

- -INDIAN ECONOMY AND TERM 6 9/26/2011Created by ss - 6 -ss Page 6 9/26/2011 All the above influence economic development which follows adequate financial and credit facilities Expectations of poor people from financial system Taking into account their Seasonal Inflow Of Income from agricultural operations, Migration from one place to another, Seasonal And Irregular Work Availability And Income; the existing financial system needs to be designed to suit their requirements. Security and safety of deposits Low transaction cost Convenient operating time Minimum paper work Frequent deposits Quick and easy access Product suitable to income and consumption .

What is SLR Rate?

SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.

How is SLR determined?

SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand.

What is the Need of SLR?

With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a commercial bank. It is also helpful to control the expansion of Bank Credits. By changing the SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in government securities like government bonds.

CRR Rate in India.

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

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Relation between Inflation and Bank interest Rates.

Now a day, you might have heard lot of these terms and usage on inflation and the bank interest rates. We are trying to make it simple for you to understand the relation between inflation and bank interest rates in India. Bank interest rate depends on many other factors, out of that the major one is inflation. Whenever you see an increase on inflation, there will be an increase of interest rate also.

What is Inflation?
Inflation is defined as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are fewer Goods and more buyers; this will result in increase in the price of Goods, since there is more demand and less supply of the goods.

CRR Rate in India

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

What is a Reverse Repo Rate?

Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system. Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man.

What is Deflation?
Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period.

Effects of Deflation

- -INDIAN ECONOMY AND TERM 8 9/26/2011Created by ss - 8 -ss Page 8 9/26/2011 During deflation the price of goods and services is falling and consumers will tend to delay their purchases until prices fall further. This will cause for a lower production, lower wages and demand, which will lead to further decrease in prices. This is known as deflationary spiral.

What is Deflationary Spiral?

It is a situation when decrease in the prices leads to lower production, lower wages and demand, which can lead to further decrease in the prices. A deflationary spiral is when decrease in prices lead to a vicious circle (a trouble leads to another that aggravates the first).

What are IIP numbers?

Index of Industrial Production (IIP) - Indicator for India Incs growth IIP number or IIP data (Index of Industrial Production) is a measurement which represents the status of production in the industrial sector for a given period of time compared to a reference period of time. IIp number is one of the best statistical data, which helps us to measure the level of industrial activity in Indian economy. Please note that IIP data is a short-term indicator of our industrial growth till the actual results from Annual Survey of Industries (ASI) is published. IIP data is a very important indicator to the Government for planning purposes and is also used by various organisations like Industrial Associations, Research Institutes, Financial Institues and Academicians.

Tracking Growth using GDP & IIP data

GDP and IIP Numbers used by Indian Policy makers to track Growth A technical advisory group of the Reserve Bank of India (RBI) suggested using quarterly gross domestic product (GDP) and monthly index of industrial production (IIP) data to track economic growth. RBI set up Technical Advisory Group on "Development of Leading Economic Indicators for Indian Economy" in March 2006. This was in view of the need to frequently watch the movements of the Indian economy based on suitable method and international best practices.

Credit rating.

- -INDIAN ECONOMY AND TERM 9 9/26/2011Created by ss - 9 -ss Page 9 9/26/2011 A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by credit rating agency of the debt issuers likelihood of default.[1] Credit ratings are determined by credit ratings agencies. The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies analysts. Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience in determining what public and private information should be considered in giving a rating to a particular company or government. The credit rating is used by individuals and entities that purchase the bonds issued by companies and governments to determine the likelihood that the government will pay its bond obligations. Credit ratings are often confused with credit scores. Credit scores are the output of mathematical algorithms that assign numerical values to information in an individual's credit report. The credit report contains information regarding the financial history and current assets and liabilities of an individual. A bank or credit card company will use the credit score to estimate the probability that the individual will pay back loan or will pay back charges on a credit card. However, in recent years, credit scores have also been used to adjust insurance premiums, determine employment eligibility, as a factor considered in obtaining security clearances and establish the amount of a utility or leasing deposit. A poor credit rating indicates a credit rating agency's opinion that the company or government has a high risk of defaulting, based on the agency's analysis of the entity's history and analysis of long term economic prospects. A poor credit score indicates that in the past, other individuals with similar credit reports defaulted on loans at a high rate. The credit score does not take into account future prospects or changed circumstances. For example, if an individual received a credit score of 400 on Monday because he had a history of defaults, and then won the Powerball on Tuesday, his credit score would remain 400 on Tuesday because his credit report does not take into account his improved future prospects.

Corporate credit ratings

The credit rating of a corporation is a financial indicator to potential investors of debt securities such as bonds. Credit rating is usually of a financial instrument such as a bond, rather than the whole corporation. These are assigned by credit rating agencies such as A. M. Best, Dun & Bradstreet, Standard & Poor's, Moody's or Fitch Ratings and have letter designations such as A, B, C. The Standard & Poor's rating scale is as follows, from excellent to poor: AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC+, CCC,

- -INDIAN ECONOMY AND TERM 10 9/26/2011Created by ss - 10 -ss Page 10 9/26/2011 CCC-, CC, C, D. Anything lower than a BBB- rating is considered a speculative or junk bond.[3] The Moody's rating system is similar in concept but the naming is a little different. It is as follows, from excellent to poor: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C. A. M. Best rates from excellent to poor in the following manner: A++, A+, A, A-, B++, B+, B, B-, C++, C+, C, C-, D, E, F, and S. The CTRISKS rating system is as follows: CT3A, CT2A, CT1A, CT3B, CT2B, CT1B, CT3C, CT2C and CT1C. All t hese CTRISKS grades are mapped to one-year probability of default. Moody's LongShortterm term Aaa Aa1 Aa2 P-1 Aa3 A1 A2 A3 P-2 Baa1 Baa2 P-3 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Not prime Caa2 Caa3 Ca C S&P LongShortterm term AAA AA+ A-1+ AA AAA+ A-1 A AA-2 BBB+ BBB A-3 BBBBB+ BB BBB B+ B BCCC+ CCC CCCCC C D C CCC C Fitch LongShortterm term AAA AA+ F1+ AA AAA+ F1 A AF2 BBB+ BBB F3 BBBBB+ BB BBB B+ B B-

Prime High grade Upper medium grade Lower medium grade Non-investment grade speculative Highly speculative Substantial risks Extremely speculative In default with little prospect for recovery In default

DDD

Indian Economy Overview

- -INDIAN ECONOMY AND TERM 11 9/26/2011Created by ss - 11 -ss Page 11 9/26/2011 The overall growth of Gross Domestic Product (GDP) at factor cost at constant prices, as per Advance Estimates, was 8.6 per cent in 2010-11 representing an increase from the revised growth of 8.0 per cent during 2009-10, according to the Advance Estimate (AE) of Central Statistics Office (CSO). Overall growth in the Index of Industrial Production (IIP) was 3.6 per cent during February 2011. During April-February 2010-11, IIP growth was 7.8 per cent. The six core industries (comprising crude oil, petroleum refinery products, coal, electricity, cement and finished carbon steel) grew by 6.8 per cent in February 2011 as compared to the growth of 4.2 per cent in February 2010. During AprilFebruary 2010-11, these sectors grew by 5.7 per cent as compared to 5.4 per cent during April-February 2009-10. In addition, exports, in US dollar terms increased by 49.7 per cent and imports increased by 21.2 per cent, during February 2011. The domestic environment is conducive for growth and private final consumption expenditure is projected to grow by a healthy 7.5 per cent and gross fixed capital formation by 14.6 per cent, the Centre for Monitoring Indian Economy (CMIE) said in its latest monthly review of the countrys economy. On the back of such facts, Indias GDP is projected to continue to grow at a brisk pace of 8.8 per cent in 2011-12. In FY 12, the agricultural and allied sector is projected to grow by 3.1 per cent, on top of the 5.1 per cent growth estimated in 2010-11. The industrial sector, including construction, is projected to grow by 9.4 per cent during 2011-12, as compared to 8.5 per cent estimated in 2010-11. Growth in industrial production will be driven by a rise in consumption demand and investment demand, said the review. The Economic Scenario India is today rated as one of the most attractive investment destinations across the globe. The UNCTAD World Investment Report (WIR) 2010, in its analysis of the global trends and sustained growth of Foreign Direct Investment (FDI) inflows, has reported India to be the second most attractive location for FDI for 2010-2012. Moreover, India attracted FDI equity inflows of US$ 1,274 million in February 2011. The cumulative amount of FDI equity inflows from April 2000 to February 2011 stood at US$ 193.7 billion, according to the data released by the Department of Industrial Policy and Promotion (DIPP). The humungous increase in investment mirrors the foreign investors faith in the Indian markets. The services sector comprising financial and non-financial services attracted 21 per cent of the total FDI equity inflow into India worth US$ 3,274 million during April-February 2011, while telecommunications (including radio paging, cellular mobile and basic telephone services) attracted the second largest amount of FDI

- -INDIAN ECONOMY AND TERM 12 9/26/2011Created by ss - 12 -ss Page 12 9/26/2011 worth US$ 1,410 million during the same period. Automobile industry was the third highest sector attracting FDI worth US$ 1,320 million followed by Housing and Real Estate industry that garnered FDI worth US$ 1,109 million during the financial year April-February 2011. Betting high on the Indian market, foreign institutional investors (FIIs)have purchased stocks and debt securities worthUS$ 222 billion in the financial year ending March 31, 2011, as per the data available with the Securities and Exchange Board of India (SEBI). As on April 29, 2011, India's foreign exchange reserves totalled US$ 313.51 billion, according to the Reserve Bank of India's (RBI) Weekly Statistical Supplement. India's merchandise export during March 2011 reached US$ 29.13 billion, up 43.8 per cent over US$ 20.25 billion in the same month a year ago. With this, the countrys total exports in goods for 2010-11 reached US$ 245.29 billion, registering 37.5 per cent growthagainst US$ 178.75 billion in 2009-10, according to the foreign trade data released by the Ministry of Commerce and Industry. The ministry has now set a target of achieving US$ 500-billion exports by 2013-14 by strategising the countrys foreign trade through diversification of products and markets and technological enhancement. Foreign Tourist Arrivals (FTAs) during the Month of April 2011 was 417,000 as compared to FTAs of 354,000 during the month of April 2010 and 348,000 in April 2009. There has been a growth of 17.7 per cent in April 2011 over April 2010 as compared to a growth of 2 per cent registered in April 2010 over April 2009. FTAs during the period January-April 2011 were 2.15 million with a growth of 12.3 per cent, as compared to the FTAs of 1.92 million with a growth of 8.9 per cent during January-April 2010 over the corresponding period of 2009. India's GSM subscriber base grew by 2.61 per cent in March with the addition of 14.5 million mobile phone users. The total number of GSM subscribers in the country crossed 560 million as against 555 million in February, according to the data released by Cellular Operators Association of India (COAI). Further, the number of 3G subscriber connections in India is forecast to reach 400 million within four years, representing almost 30 per cent of the country's total mobile connections, according to a Wireless Intelligence study -- India 3G Rollout (forecasts and market shares 2011 - 2015). 3G connections are set to grow three-fold between 2011 and 2015 as operators ramp-up rollout of new 3G networks, according to the study. The average assets under management of the mutual fund industry stood at US$ 157 billion in February 2011 against US$ 154 billion in January, according to the data released by Association of Mutual Funds in India (AMFI).

- -INDIAN ECONOMY AND TERM 13 9/26/2011Created by ss - 13 -ss Page 13 9/26/2011 The Indian IT-BPO sector continues to be the fastest growing segment of the industry and is estimated to have aggregated revenues of US$ 76 billion in FY2011 by growing 19 per cent over the previous year, revealed software industry body NASSCOM. Further, NASSCOM predicts that the Indian IT-BPO revenues may touch US$ 225 billion by 2020. Indias auto market (domestic vehicle sales) grew at 26.17 per cent in 2010-11, according to the Society of Indian Automobile Manufacturers (SIAM). Passenger cars grew by 29.73 per cent, utility vehicles grew by 18.87 per cent and multipurpose vehicles grew by 42.10 per cent during the year 2010-11.

Jewellery exports in the financial year 2010-11 surged to US$ 43,139.2 million as against US$ 29,358.5 million in the previous year, according to the Gem and Jewellery Export Promotion Council (GJEPC). Passengers carried by domestic airlines during January-March 2011 were 14.3 million registering agrowth of 20.9 per cent, according to the Ministry of Civil Aviation. The HSBC Markit Business Activity Index, which measures business activity among Indian services companies, based on a survey of 400 firms, stood at 58.1 in March 2011.

Agriculture
The growth of Indian agriculture and allied sector was a top agenda in Budget 2011-12 presented by Finance Minister Pranab Mukherjee. He has estimated that the agriculture and allied sector would grow by 6 per cent this fiscal, a projection which should ease government's worries on food inflation of over 18 per cent. In the Union Budget 2011-12, Finance Minister Pranab Mukherjee made the following announcements for the agriculture sector:

Credit flow to farmers has been increased to US$ 105.81 billion and banks have been asked to step up direct lending to farmers Allocation under RashtiryaKrishiVikasyojna (RKVY) increased to US$ 1.75 billion. Banks have been consistently meeting the targets set for agricultural credit flow in the past few years. For the year 2010-11, the target has been set at US$ 81.47 billion US$ 66.83 million each allocated for vegetable initiative to achieve competitive prices, to promote higher production of nutri-cereals, to promote animal based protein and for Accelerated Fodder Development Programme to benefit farmers in 25,000 villages 15 more mega food parks during 2011-12 National food security bill to be introduced this year.

Growth Potential Story

- -INDIAN ECONOMY AND TERM 14 9/26/2011Created by ss - 14 -ss Page 14 9/26/2011 The data centre services market in the country is estimated to grow at a compound annual growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch close to US$ 2.2 billion by the end of 2011, according to research firm IDC Indias report. As per the Nasscom Strategic Review 2011, the Domestic BPO segment is expected to grow by 16.9 per cent in 2010-11, to reach US$ 2.8 billion, driven by demand from voice based services, in addition to adoption from emerging verticals, new customer segments, and value based transformational outsourcing platforms. The Q211 BMI India Retail Report forecasts that total retail sales will grow from US$ 395.96 billion in 2011 to US$ 785.12 billion by 2015. According to a McKinsey Global Institute (MGI) study titled 'Bird of Gold': The Rise of India's Consumer Market, the total consumption in India is likely to quadruple making India the fifth largest consumer market by 2025. Urban India will account for nearly 68 per cent of consumption growth while rural consumption will grow by 32 per cent by 2025. India ranks first in the Nielsen Global Consumer Confidence survey released in January 2011. India is one of the fastest growing markets in the world and the current consumer belief that recession would soon be a thing of the past has filled Indians with confidence, said PiyushMathur, Managing Director, South Asia, The Nielsen Co. With 131 index points, India ranked number one in the recent round of the survey, followed by Philippines (120) and Norway (119).

Exchange rate used: 1 USD = 44.99 INR (as on May 2011)

Foreign Direct Investment

The constant efforts of the Government of India in making the country an investor friendly destination are reaping dividends. Alongside the United Nations Conference on Trade and Development (UNCTAD) ranking India at second place in global foreign direct investments (FDI) in 2010, in its report titled, 'World Investment Prospects Survey 2009-2012' has added to the initiative to a great extent . The report further forecasts, India to be among the top five attractive destinations for international investors during 2010-12. FDI inflow rose by more than 100 per cent to US$ 4.66 billion in May 2011, which is the highest monthly inflow in 39 months, while the cumulative amount of FDI equity inflows from April 2000 to May 2011 stood at US$ 205.96 billion, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP). The service (including financial and non-financial) sectors attracted highest FDI equity inflows during April-May 2011-12 at US$ 910 million. India received maximum FDI from countries like Mauritius, Singapore, and the US at US$ 56.31 billion, US$ 13.25 billion and US$ 9.71 billion, respectively, during April 2000May 2011.

- -INDIAN ECONOMY AND TERM 15 9/26/2011Created by ss - 15 -ss Page 15 9/26/2011 India's foreign exchange (Forex) reserves have increased by US$ 2.29 billion for the week ended July 22, 2011, according to the weekly statistical bulletin released by the Reserve Bank of India (RBI). In the week under consideration, foreign currency assets went up by US$ 2.23 billion to US$ 284.53 billion. Furthermore, India may emerge as US Export Import Bank's (Ex-Im) largest market in next 12-18 months. During the last nine months, we have approved 173 transactions involving 100 companies and US$ 1.4 billion in financing of US exports to India, as per Fred P Hochberg, the bank's Chairman and President. Investment Scenario The total merger and acquisitions (M&A) and private equity (PE) (including qualified institutional placement (QIP)) deals in the first half of 2011 include 524 deals valued at US$ 32.48 billion, according to data released by Grant Thornton India. The global M&A activity has been increasing so far in 2011 (Jan-June 2011) clocking deals worth US$ 1.5 trillion. In addition, the total value of outbound deals-Indian companies acquiring businesses outside India-in the first half of 2011 was recoded at 86 deals worth US$ 5.89 billion. PE deals amounted to 203 deals worth US$ 5.09 billion in the first half of 2011 as compared to 125 deals worth US$ 2.95 billion during the corresponding period in 2010.

Some of the important FDI announcements:

The Government has approved a total of 31 FDI proposals worth US$ 871.71 million (Rs 3,844.7 crore). This includes US$ 226.80 million (Rs 1,000 crore) by Multiples Pvt Equity Fund-Scheme-1, Mumbai and US$ 170.10 million(Rs 750 crore) by Cox & Kings Ltd The Centre's approval to the Reliance-BP deal may provide the British oil major its long-desired footprint in the Indian exploration and production sector. The US$ 7.2 billion deal is the biggest ever FDI in India Granules-Omnichem Pvt Ltd, a joint venture (JV) of Granules India Ltd and Belgium-based Ajinomoto Omnichem, plans to set up its facility in Visakhapatnam (Vizag) at a cost of US$ 20 million. The facility will be ready by 2012, as per Krishna Prasad, Managing Director, Granules India Ltd In the fiscal year 2011, till date (July 18, 2011), the US Export Import Bank's (Ex-Im) has approved financing totalling about US$ 75 million for four solar power projects in India. It also has about US$ 500 million of India solar projects in the pipeline that will generate an estimated 315 mega watt (MW) of solar power. In addition, the Bank also announced that it will provide a US$ 16 million long-term loan to support the exports of First Solar Inc in Tempe Arizona to Azure Power Rajasthan Pvt Ltd in New Delhi

- -INDIAN ECONOMY AND TERM 16 9/26/2011Created by ss - 16 -ss Page 16 9/26/2011 The rise in the value of the deals so far this year was 52 per cent, as compared to the US$ 4,036 million raised in the year-ago period, as per data compiled by Venture Intelligence. Major investments so far this year include the US$ 828 million investment by GIC and Bain Capital investment in Hero Investments in March 2011, in addition to the US$ 375 million investment by iGate in Apax Partners in January 2011 With the single investment of US$ 500 million in Indian steel pipe manufacturer Welspun Group, the US-based Apollo Global Management, LLC has given a clear indication about the significance of India as an unavoidable destination for global PE majors. Apollos investment is the second-largest private equity investment in India by a single investor after Carlyles US$ 650 million investment in HDFC in 2007 Ford plans to set up its second factory at Sanand in Gujarat and bring in fresh investments worth US$ 907 million (Rs 4,000 crore). The firm plans to launch eight new models till 2015, as it works for a larger share of the fast-growing Indian car market The US-based industrial giant General Electric Companys subsidiary, GE India plans to invest around US$ 158.70 million (Rs 700 crore) to set up a multi-product manufacturing facility at Chakan near Pune German engineering conglomerate, Bosch Group announced the firms plan to invest US$ 566.89 million (Rs 2,500 crore) in India in the next two years, by way of setting up plants and to expand its capacity. The Group further plans to set up a manufacturing plant at Sanand in Gujarat.

Policy Initiatives It is the intent and objective of the Government to promote FDI through a policy framework which is transparent, predictable, simple and clear and reduces regulatory burden. The system of periodic consolidation and updation is introduced as an investor friendly measure. The Circular 1 of 2010 and Circular 2 of 2010 issued by this Department on March 31, 2010 and September 30, 2010 respectively, consolidated into one document all the prior policies/ regulations on FDI which are contained in FEMA, 1999, RBI Regulations under FEMA, 1999 and Press Notes/Press Releases/Clarifications issued by DIPP and reflected the current policy framework on FDI. The present consolidation subsumes and supersedes all Press Notes/Press Releases/Clarifications/ Circulars issued by DIPP, which were in force as on March 31, 2011, and reflects the FDI Policy as on April 1, 2011. According to the modified policy, foreign investors can inject their funds though the automatic route in the Indian economy. Such investments do not mandate any prior government permission. However, the Indian company receiving such investment would be required to intimate the RBI of any such investment. In a landmark decision, the Government has eased norms for investments by foreign companies that are present in India through a JV or a technical

- -INDIAN ECONOMY AND TERM 17 9/26/2011Created by ss - 17 -ss Page 17 9/26/2011 collaboration. Now, the foreign company will not have to seek a no-objection certificate from the Indian partner for investing in the sector where the joint venture operates. The Government has also relaxed norms for downstream investments and convertible instruments, giving foreign companies more powers. The aim is to check a decline in FDI inflows. The changes are part of the third revision of the Consolidated FDI Policy. The new norms came into effect from April 2011. The FDI policy unveiled by the DIPP brought out a clear picture on convertible instrument prices. DIPP announced companies would now have the option of prescribing a conversion formula, instead of specifying the price of convertible instruments. The instruments include compulsory convertible preference shares (CCPS) and compulsory convertible debentures (CCDs). The parties are free to either agree on a numerical price or a conversion formula, as long as the price at which the conversion takes place is not less than the floor price prescribed by RBIs pricing guidelines, as per DIPP. The Securities and Exchange Board of India (SEBI) has permitted both existing mutual funds and non-banking finance companies (NBFCs) to launch infrastructure debt funds (IDFs). The minimum investment into the fund would be US$ 2, 26,526 (Rs 1 crore). In addition, Sebi has announced that the limited liability partnership (LLP) firms should be considered as a body corporate and would be eligible to become members of stock exchanges. In a move to enhance India's retail trade, 51 per cent FDI in multi-brand retail has been allowed by the Committee of Secretaries (CoS), headed by Mr Ajit Kumar Seth, the Cabinet Secretary. This is awaiting approval from the Union Cabinet. Currently, these companies are only permitted to operate cash-and-carry format stores catering to wholesalers and business consumers. The Reserve Bank of India (RBI) has announced that the equity and preference shares could be issued to overseas parties, in cases dealt by the Foreign Investment Promotion Board (FIPB), for money payable for importing capital goods and pre-operative expenses. The RBI has also extended the time limit for buyback of foreign currency convertible bonds (FCCB) issued by Indian companies up to March 31, 2012, at discounted rates. The discount rates have been decreased from 15 to eight per cent for premature buyback under the automatic route and from 25 per cent to 20 per cent under the approval route. All the above initiatives by the Government of India outline the Governments focus on enhancing the FDI inflows, besides creating a conducive investorfriendly environment for the foreign players. Exchange rate used: US$ 1= Rs 44.10 (as on July 29, 2011)

- -INDIAN ECONOMY AND TERM 18 9/26/2011Created by ss - 18 -ss Page 18 9/26/2011 References: SEBI, Consolidated FDI Policy, Department of Industrial Policy & Promotion (DIPP), Press Information Bureau (PIB), Media Reports, UNCTAD Report.

Foreign Institutional Investor (FII) India - Brief Overview What is FII Foreign institutional investment signifies investments made by individual investors or companies in foreign lands. In India, entities and funds who are eligible to get registered as FII comprise Pension Funds, Mutual Funds, Insurance Companies, Investment Trusts, Banks, University Funds, Endowments, Foundations, and Charitable Trusts / Charitable Societies. Apart from these,entities proposing to invest on behalf of broad based funds are also eligible to be registered as FIIs. These comprise Asset Management Companies, Institutional Portfolio Managers, Trustees, and Power of Attorney Holders. Rising FII Activity - India has been witnessing a surge in FII activity since the opening of its capital markets. Owing to its high growth potential, India has become a favourite destination for FII activity. FIIs, convinced of Indias economic progress ad strong corporate earnings, are continuously investing in the country. At the macro level, India is still among the best macro stories in the world, according to JagannadhamThunuguntla, SMC Global Securities Ltd Strategist and Head of Research FII Activity Recent Developments

Fast GDP growth has made India a preferred destination for foreign investors post the 2008 financial crisis. In 2010 itself, India attracted nearly US$ 30 billion of net foreign inflows, which was just under 50 per cent of all inflows into emerging Asian markets, excluding China FII Trading Activity - Rising Investments in equity and debt markets Foreign investors have invested Rs 6,460 crore (US$1.45 billion) in Indian stock markets in just five trading sessions of July 2011 and the trend is expected to continue, according to analysts In the first six months of 2011, overseas investors infused around Rs 17,000 crore (US$3.82 billion) into the Indian market, including stocks and bonds. In the same period, FIIs made investments of Rs 9,948 crore (US$2.23 billion) in the debt market, with investments in stocks being Rs 2,670 crore (US$ 599.79 million) FIIs bought equities and debt securities worth Rs 26,004 crore (US$ 5.84 billion) till July 10, 2011, according to the data available with market regulator Securities and Exchange Board of India (SEBI).

- -INDIAN ECONOMY AND TERM 19 9/26/2011Created by ss - 19 -ss Page 19 9/26/2011 The number of FIIs registered with SEBI increased from 1,718 as of December 31, 2010, to 1,730 as of July, 2011. Moreover, the number of registered sub-accounts has risen from 5,503 in December 31, 2010 to 5,898 currently

FII Holdings/FII Trends International investors increased their stakes in most companies last quarter. FIIs holding was higher in 26 companies while it remained the same in 50 per cent of the 108 companies for which shareholding details were available with stock exchanges as on July 13, 2011. FII-supported outperformers include Talwalkars Better Value Fitness (TBVF), Lupin, Petronet LNG, GlenmarkPharma, ING Vysya Bank, MRPL and Castrol India. There is a growing trend of FIIs increasing their exposure towards consumer staple companies.FIIs have raised holdings in companies such as Sintex, Cadila Healthcare, Asian Paints, Lupin and Ranbaxy Labs in the quarter ended June, 2011.

FIIs have raised stakes in private sector lenders such as Kotak Mahindra Bank (0.60 per cent) and Development Credit Bank (3.39 per cent). For broking companies, FII stake has gone up in India Infoline, from 29.5 per cent to 35.71 per cent. FIIs raised their stake in Gujarat Pipavav Port to 23.09 per cent from 15.74 per cent in the previous quarter

FIIs have raised their ownership in India by 170 basis points to 20.4 per cent in 2010-11, through the purchase of depository receipts and through market operations.Overall, FIIs hold 25 per cent of market value of private sector companies and 7.7 per cent in government-owned companies. FIIs purchased a high Rs 110,100 crore (US$ 24.73 billion) worth of shares in 2010-11. Of the shares purchased, Rs 61,300 crore (US$ 13.77 billion) was through primary sources and Rs 48,800 crore (US$ 10.96 billion) from the trading platform of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). In 2010, FIIs had increased their holdings by 150 bps to 18.7 per cent. The Indian stock market has gained from the flow of FII money so far in July 2011. With lower inflation numbers reported, and concerns over Greece debt sliding, the risk desire of global investors has been in favour of emerging markets. Foreign investors infused more money in July in Indian equities than for the period between January and June.

- -INDIAN ECONOMY AND TERM 20 9/26/2011Created by ss - 20 -ss Page 20 9/26/2011 On the back of significant FII inflows, the Indian rupee has resumed its rise against the US dollar. On July 6, 2011, the rupee closed at 44.48/49 after being as high as 44.3350. This was the highest since May 3, 2011. Government Initiatives

SEBI has said that it has relaxed the reporting norms for FIIs coming to India.These reporting guidelines pertain to the lending of securities as part of short-selling. Till now, the FIIs were supposed to disclose their information on a daily basis. After the relaxation, they need to do it on a weekly basis. SEBI has allowed FIIs to invest US$25 billion a year in bonds issued by infrastructure companies as against the previous limit of US$5 billion. FIIs can now invest US$40 billion annually in corporate bonds. The Policy Guidelines on phase III expansion of private FM radio services, approved by the Cabinet, have raised the aggregate cap on FII to 26 per cent from the existing 20 per cent. Allowing 26 per cent will encourage foreign investors to invest as it gives them more leeway to participate actively in management, according to TarunKatial, Chief Executive Officer, Reliance Broadcast Network Ltd

Road Ahead Increased FII Activity - FIIs are expected to make more investments in the next six months, according to analysts. "In the long-term, FIIs will remain bullish on the Indian market. Moreover, in the next six months market will witness more inflows than last six-months", said Alex Mathews, Geojit BNP Paribas Research Head. Over the long term, strong domestic consumption-driven growth is expected to lead to significant positive cash flows into the country, according to AnandShah,CIO, BNP Paribas Mutual Fund. Exchange rate used: INR 1= US$ 0.02 (as on July 15, 2011) References: SEBI website, Media Reports, National Stock Exchange, EquityMaster, IndiaInfoline