It was an action packed week that began with a budget that announced no tax cuts or stimulus and ended with the CBI registering a case against former Satyam Chairman Ramalinga Raju.
Stand-in Finance Minister Pranab Mukherjee stuck to the rulebook and presented a matter of fact budget. He avoided the temptation to announce pre-election sops or a stimulus package, and also left the taxes untouched. Many called it a wasted opportunity. But Mukherjee said he did not have the mandate to go any further, perhaps indicating that after falling out with the Samajwadi Party, the UPA had to tread cautiously to get Parliament’s approval for the budget.
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Industry was disappointed that government did not bail out certain sectors. But for the record it said the finance minister’s compulsions were understandable.
Confusion over the new FDI norms announced by the government last week persisted this week as well. As per the new formula the FDI would now include in addition to direct FDI, investment by foreign institutional investors and equity raised from overseas shores. Mint reported that the changes would reclassify many Indian-owned companies as foreign-owned ones. Also, with indirect foreign holding not counted as FDI, there could be a breach of sectoral caps. New norms have also closed the automatic route for sectors like banking, insurance and air transport. In addition to seeking regulator approval they would now require a nod from the Foreign Investment promotion board.
The government finally gave its nod for the sale of tainted IT Company Satyam through an open competitive bidding process. L&T, Tech Mahindra, B.K.Modi’s Spice Group and the Hinduja Group have already expressed interest in buying stakes in the firm. The company law board has permitted the Satyam board to preferentially allot shares of at least 26 percent of its equity. It has also allowed the company to raise its authorized capital from Rs 160 crore to Rs 280 crore, through an issue of 600 million shares at a face value of 2 rupees each. Meanwhile, even as investigating agencies are trying to find out whether money was routed from Satyam to fund Maytas Infrastructure, the government has asked the CLB to dissolve the Maytas board.
While pink slips are being handed out across the country, state governments in India are in a state of denial. According to a report by Indicus Analytics, states in the south and the west states, which have a large number export-based industrial units have been hit the most by the global financial meltdown. “We have spoken to a few state governments and it seems that they have no idea as to what is happening on the ground. They do not know the extent of job losses and are yet to implement any measures”, says Laveesh Bhandari, Director, Indicus Analytics
And India’s inflation rate dropped to 3.92 percent for the first week of February, the lowest in 13-months. Just a day earlier RBI governor D.Subbarao had said that there was room for further rate cuts. All eyes are now on Reserve Bank.
Finally on the stock markets, trade was extremely volatile and negative through the week as the UPA government’s vote on account did not meet expectations and on fears of the US going into further recession. The Sensex closed the week down 8.5% while Nifty dropped 7.3%.