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Economy Dec 31, 2012

Scams, legal battles and more: Taking stock of 2012

By Firstbiz Editors

Year 2012 was in many ways eventful for Indian business and economy. The year started off with little hope and is ending on optimism. Here are a few key events that shaped the economic and political landscape of the country in 2012.

January

The aviation ministry offers a glimmer of hope for the debt-ridden aviation sector saying it would recommend that the government allow foreign airlines to buy up to 49 percent stake in Indian counterparts. The government eventually opened up the sector, but not before at least one major carrier was irreparably damaged.

Reuters

Vodafone wins the $2.2 billion tax case with the Indian government. The tax demand was over Vodafone's $11 billion deal to buy Hutchison Whampoa Ltd's Indian mobile business in 2007. The UK-based company had earlier lost the case in the Bombay High Court in 2010.

Analysts, according to a Reuters report, hailed the verdict and said it would encourage foreign investment and clear the way for the company's planned initial public offering in India. The IPO, however, turned out to be a non-starter as the company is waiting for regulatory clarity on various issues, according to a report in the Hindustan Times.

The Reserve Bank of India decides to cut banks' cash reserve ratio by 50 basis points, signalling a shift in its focus to growth. "The growth-inflation balance of the monetary policy stance has now shifted to growth, while at the same time ensuring that inflationary pressures remain contained," the RBI statement said.

February

In a landmark judgement, the Supreme Court revokes 122 telecom licences issued by former minister A Raja. The court said the allocation of the airwaves on the first-come-first-served basis was "unconstitutional and arbitrary".

March

Trinamool Congress Minister Dinesh Trivedi presents Railway Budget. The budget proposes an increase in fares, which angers party chief Mamata Bannerjee. Trivedi is forced to quit. The new minister Mukul Roy promptly rolls back the increase.

The government presents its budget for 2012-13. Finance Minister Pranab Mukherjee proposes to introduce the General Anti Avoidance Rules, aimed at curbing tax avoidance through foreign investments. Apart from this, another controversial proposal in the Budget was the amendment to the Income Tax Act, that would help the government overturn the Supreme Court order in the Vodafone tax case. The amendment would allow the government tax deals between foreign companies which involves in transfer of Indian assets.

Trading a big blow to the UPA government, Comptroller and Auditor General's draft report pegs the loss from not auctioning coal blocks at Rs 10.67 lakh crore. The Times of India report that broke the news listed Tata Group entities, Jindal Steel & Power Ltd, Electro Steel Castings Ltd, the Anil Agarwal Group firms, Delhi-based Bhushan Power & Steel Ltd, Jayaswal Neco, Nagpur-based Abhijeet Group, Aditya Birla Group companies, Essar Group's power ventures, Adani Group, Arcelor Mittal India, and Lanco Group among the major private sector beneficiaries of the government's lax policy. For many months to come, the coalgate haunted the Manmohan Singh government. In the final report, the loss figure was, however, cut to Rs 1.86 lakh crore.

The National Green Tribunal suspends the environmental licence for Posco's $12 billion steel project in Orissa. The tribunal wants an expert panel formed by the Ministry of Environment and Forest (MoEF) to visit the site and study the plant's impact on the local environment. According to a Business Standard report in August, the expert panel toured the region but "did not interact with villagers of Gobindpur, Nuagaon , Noliashai and Gadkujang and also avoided visiting Dhinkia village, the epicenter of anti-Posco agitation".

April

Standard & Poor's cuts India's credit rating outlook to negative from stable, raising concerns about the widening fiscal and current account deficits. "The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow in a weakened political setting," S&P said in a note. The domestic financial markets were rattled by the outlook cut. The downgrade to junk status has not yet happened, as the government has since taken a few steps in its bid to address the concerns raised.

RBI cuts its policy rate by 50 basis points, but indicates that it may be the last for the full year. Governor Subbarao managed to ward off the government and industry's pressure to further cut rates. Now there is wide expectation that the central bank may cut its rates in January-March 2013.

May

Minister of state for finance S S Palanimanickam says the government intents to review the double taxation avoidance treaty with Mauritius. The government is estimated to be losing about Rs 4,000 crore in tax revenue due to misuse of the treaty. As much as 39.5 percent of the total foreign direct investment flows into the country between April 2000 and February 2012 were channelled through Mauritius. According to a PTI report in September, quoting a disclosure in Parliament, both the governments have held eight rounds of discussions to find a mutually acceptable solution for addressing India's concerns.

Government delays implementation of GAAR by one year to April 2013, providing a major relief to foreign institutional investors.

June

The Competition Commission of India (CCI) penalises 11 cement firms, with about Rs 6,000 crore fines for cartelisation. Among the companies fined are UltraTech Cement, ACC, Ambuja Cement, India Cements and Lafarge India. "The act of these cement companies in limiting and controlling supplies in the market and determining prices through an anti-competitive agreement is not only detrimental to the cause of the consumers but also to the whole economy," the competition watchdog said in a statement.

The rupee falls below 57 against the dollar, hits record lows, as global risk-aversion prompts investor flight to safer assets like the dollar.

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by Firstbiz Editors

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