India’s current account deficit is expected to show some improvement in the January-March period at 4-4.5 per cent of GDP, but is likely to worsen again in the current quarter due to sluggish exports, high gold demand and seasonal rise in imports, Nomura has said.

After hitting a record high of 6.7 per cent of GDP in Q4 2012, in the first quarter of this year CAD is likely to narrow to 4-4.5 per cent of the GDP, owing to some improvement in trade deficit, the Japanese firm said in a research note.

 CAD represents the difference between inflows and outflows of foreign currency. >> Read More

Mario Draghi, president of the European Central Bank, tackled the political debate surrounding Britain’s EU membership on Thursday night, telling a City of London audience that Europe needed “a more European UK”.

Mr Draghi’s comments in a speech at the City of London Corporation, reflect unease in continental Europe about the damaging effects to the bloc that might arise from a British exit from the EU.

“I cannot say which of the two sets of arguments is stronger, the economic or the political ones, neither am I going to enter into a domestic policy debate, but what I can say is that Europe needs a more European UK as much as the UK needs a more British Europe,” Mr Draghi said. >> Read More

Income Tax Department slaps Rs 582 crore tax demand notice on Infosys

 Income Tax department has slapped a fresh $106 million (about Rs 582 crore) tax demand notice on Infosys, for 2009 fiscal, adding to the tax woes of India’s second largest IT firm. 

The Bangalore-based software services exporter is already contesting additionalIncome Tax demands of $214 million (about Rs 1,175 crore) for four fiscals years beginning 2005 and said it will take legal recourse against the fresh tax demand notice as well. 

“The company has received the assessment order from the Income tax authorities for fiscal 2009 on May 2, 2013 along with a demand order for an amount of $106 million,” Infosys said in a filing to the US Securities and Exchange Commission (SEC) last week. 

In the filing Infosys added, “As the company is contesting this position like earlier years, the appellate authority would be approached within the time limit prescribed under the relevant law.”  >> Read More

Foreign exchange reserves were down by $616.4 million to $293.69 billion for the week ending May 10, the Reserve Bank of India (RBI) data showed on Friday.

Foreign currency assets, a major component of the forex reserves, were down by $568.1 million to $263.16 billion.

Foreign currency assets expressed in terms of US dollar include the effect of appreciation or depreciation of the non-US currencies, such as  pound, euro and yen, held in the RBI reserves.

The gold reserves were at $23.97 billion. >> Read More

To vaguely paraphrase Mike Tyson, “everyone has a plan for a socialist utopia, until they run out of toilet paper.”

This is just what happened to Venezuela, where in the image vacuum left following the death of leader Hugo Chavez, things are rapidly falling apart for the oil-rich country. And just like in the US, it’s Bush’s fault, or at least the local such equivalent.

AP reports: “First milk, butter, coffee and cornmeal ran short. Now Venezuela is running out of the most basic of necessities — toilet paper. Blaming political opponents for the shortfall, as it does for other shortages, the embattled socialist government says it will import 50 million rolls to boost supplies. That was little comfort to consumers struggling to find toilet paper on Wednesday. “This is the last straw,” said Manuel Fagundes, a shopper hunting for tissue in downtown Caracas. “I’m 71 years old and this is the first time I’ve seen this.” One supermarket visited by The Associated Press in the capital on Wednesday was out of toilet paper. Another had just received a fresh batch, and it quickly filled up with shoppers as the word spread. “I’ve been looking for it for two weeks,” said Cristina Ramos. “I was told that they had some here and now I’m in line.” >> Read More

• India’s high growth and sizeable foreign currency reserves support the sovereign credit ratings.
• The country’s weak fiscal position and level of economic development weigh on the ratings.
• We are affirming the ‘BBB-’ long-term and ‘A-3′ short-term unsolicited sovereign credit ratings on India.
• Although we see signs of improvement, risks to India’s credit growth from stalled reforms in parliament still tilt the credit risks to the downside.
• Therefore the outlook on the long-term rating remains negative, indicating that there is at least a one-in-three chance that we will lower the ratings in the next 12 months. >> Read More

 Fitch Ratings has upgraded Greece’s Long-term foreign and local currency IDRs to ‘B-’ from ‘CCC’. The Short-term foreign currency IDR has also been upgraded to ‘B’ from ‘C’ and the Country Ceiling upgraded to ‘B’ from ‘B-’. The Outlook on the Long-term IDRs is Stable.

KEY RATING DRIVERS
The upgrade of Greece’s sovereign ratings by one notch to ‘B-’ reflects the following factors:

The Greek economy is rebalancing: clear progress has been made towards eliminating twin fiscal and current account deficits and ‘internal devaluation’ has at last begun to take hold. The price has been high in terms of lost output and rising unemployment and the capacity for recovery is still in doubt. Nonetheless, sovereign debt relief and an easing of fiscal targets have lifted Central Bank measures of economic sentiment to a three-year high and the risk of eurozone exit has receded.

The Economic Adjustment Programme (EAP) is on track amid a semblance of political and social stability. The current administration has displayed much greater ownership of the EU-IMF funded EAP than its predecessors, committing to further upfront fiscal consolidation and a renewed push on structural reforms. Still, tangible economic recovery remains elusive, while resistance to reform is high, underlining the continuing risks to implementation.

Greek primary fiscal adjustment of over 9% of GDP in 2009-12 (excluding one-off support to the financial sector), and around 16% in cyclically adjusted terms, ranks as the most ambitious instance of fiscal consolidation among advanced economies in recent times. The current account deficit has also shrunk from 10% of GDP in 2011 to 3% in 2012. The revised EU-IMF programme gives Greece two additional years (2015-16) to attain a primary surplus of 4.5% of GDP. This relaxation is reflected in Fitch’s expectation of a milder economic contraction of around 4.3% in 2013 (-6.4% in 2012) and a weak recovery in 2014.

Structural reforms are progressing. The financial system has stabilised: EUR16bn-EUR17bn of time deposits have returned to the system since mid-2012 and bank recapitalisation is well advanced. Meanwhile, a small, but significant milestone was passed earlier this month with the completion of the first major privatisation since the EAP began. Considerable progress has also been made with labour market reforms and 80% of the earlier loss of competitiveness has been clawed back. However, product market reform remains a major challenge: progress in this area will be important to support a sustainable recovery and for the success of the EAP. >> Read More

 Fitch Ratings has revised India-based Bharti Airtel Limited’s Outlook to Stable from Negative. Its Long-term Foreign Currency Issuer Default Rating (IDR) has been affirmed at ‘BBB-’.

Simultaneously, Fitch has assigned a foreign-currency senior unsecured rating of ‘BBB-. The agency has also affirmed Bharti Airtel International (Netherlands) B.V’s USD1.5bn 5.125% guaranteed senior unsecured notes due 2023 at ‘BBB-’.

Key Rating Drivers

Improved balance sheet: Bharti’s funds flow from operations (FFO)-adjusted net leverage will improve to below 2.5x in 2014 (end-March 2013: 3.0x) following an equity injection of USD1.26bn from Qatar Foundation Endowment. Bharti will use the equity proceeds to reduce its net debt to USD10.5bn, compared with USD11.7bn at end-March 2013 and USD12.7bn at end-March 2012.

Regulatory risk is reducing: Fitch believes that Bharti’s regulatory payments are manageable despite on-going uncertainty over spectrum pricing in India. The Indian government now has these payments phased over the life of the licence, instead of up-front lump-sums previously. Fitch estimates that Bharti can absorb a maximum of USD1bn annual cash outflows at its current rating, which should be sufficient to cover two key regulatory issues – one-time fees on excess spectrum (over 6.2MHz) and future spectrum fees. >> Read More

The Bank of China has stopped doing business with a large North Korean bank, falling into line with a US-led sanctions push to restrict funding for Pyongyang’s nuclear programme.

The decision to close the bank account follows an increase in tensions on the Korean peninsula and may be a sign that Beijing is willing to place more pressure on Pyongyang.

The US Treasury hit the Foreign Trade Bank, North Korea’s main foreign exchange bank, with sanctions in March, saying it was “a key financial node” in North Korea’s nuclear and missile proliferation activities. The bank had not been named among the institutions targeted for asset freezes by expanded UN Security Council sanctions introduced in January and March.

Other countries such as Japan and Australia have since joined the US in applying sanctions against Foreign Trade Bank, but co-operation from banks in China, North Korea’s closest economic partner, is essential in the efforts to choke off cash flows. >> Read More

The government aims to bring down current account deficit (CAD) to about 2.5 per cent of the GDP by March 2017, Planning Commission Deputy Chairman Montek Singh Ahluwalia said today.

“..current account deficit, which (we aim to bring down) from 4 per cent of GDP going down to about 2.5 per cent by the end of 12th Plan (2012-17),” he said while speaking on ‘Mobilising Long Term Financing for Infrastructure’ on the concluding day of 46th Annual Meeting of the Asian Development Bank (ADB) here.

CAD represents the difference between inflows and outflows of foreign currency. It had touched a record high of 6.7 per cent in the December quarter of last fiscal year. The CAD in 2012-13 fiscal is likely to be around 5 per cent of the GDP.

Describing the high CAD as “by far the biggest risk to the economy”, RBI had last week said in its annual monetary policy for 2013-14 that “monetary policy will also have to remain alert to the risks on account of the CAD and its financing, which could warrant a swift reversal of the policy stance”. >> Read More