The Week in Review for 17 December 2010

The Week in Review for 17 December 2010

Recent visits of the US and French presidents may have boosted their countries’ ties with India, but Chinese Premier Wen Jiabao’s trip was a mixed bag. On the positive side, the two countries agreed to boost trade to $100 billion by 2015. And Wen Jiabao said his country would tackle the large trade imbalance between the two countries by providing more market access to some Indian firms. The Chinese side also indicated it supported Indian aspirations to play a greater role in the UN Security Council.

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But despite the bonhomie around Wen Jiabao’s visit, the two sides also played tit for tat on territorial issues. A joint communiqué issued on Thursday did not make the usual mention of Tibet being an integral part of China. Mint has learnt Tibet was omitted because China was issuing stapled visas to Kashmiris. Meanwhile, foreign secretary Nirupama Rao said Wen Jiabao had taken up the issue of stapled visas himself during discussions and that he said he took Indian concerns very seriously.

And switching back to domestic news, the Supreme Court says it will monitor the probe into the telecom licensing scandal. The court added that investigators would have to look into all licensing decisions made since 2001. On Wednesday, officials from the CBI raided the premises of Nira Radia’s company Vaishnavi Corporate Communications. They also searched the properties of some former telecom officials.

And while the investigations into the telecom scandal continue, Prime Minister Manmohan Singh came under increasing pressure. On Tuesday he tried to win back the confidence of corporate India. Singh pledged the government would ensure only authorized officials could access tapped phone conversations. His statement, of course, came in the backdrop of the leaked Nira Radia tapes.

Moving on, the 26-year old partnership that created India’s biggest motorcycle company has finally come to an end. On Thursday, Hero Honda’s board formally announced the two joint venture partners would go their separate ways. But Hero Honda CEO Pawan Munjal also hastened to assure shareholders their interests were secure. He said licensing arrangements would allow the company to both continue making existing bikes and introduce new ones. Munjal also said royalties would remain at current levels and would eventually go down. In 2009-10 the company paid royalties of 2.6-3%.

And the end of Hero Honda could signal a new beginning for the two companies that created it. While Hero Honda enjoys a 52% percent market share in India, the partnership constricted the Hero Group’s ability to expand outside the country.

Thursday’s split will also allow Honda Motor to follow its own ambitions in the Indian two-wheeler market.

And on the economy, the RBI finally took steps this week to ease liquidity. Its mid-quarter review on Thursday left the two main policy rates unchanged. Also left alone was the cash reserve ratio at six percent. But the RBI cut the statutory liquidity ratio or SLR by one percentage point to 24%. The SLR is the percentage of deposits that banks have to invest in government bonds. But Thursday’s cut may not have much of an impact because most banks already have SLRs of 28% or more. What’s likely to ease liquidity is the RBI’s decision to buy back bonds worth Rs48,000 crore over the next few weeks. Banks have been borrowing Rs1.04 trillion from the RBI everyday, since its last review, on 2 November.

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