After US 'fiscal cliff' dive, no peace, just more battles
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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.

July

Maruti Suzuki shuts its Manesar plant after staff riot that results in death of a human resource executive. The management sacks over 500 permanent workers besides about 2,000 contract workers after the incident. Until now, only 145 workers have been charge-sheeted by the police and proceedings against them will start soon, according to a report in Firstpost in December. The company, however, has stayed firm on its stand of not taking back any of these sacked workers. The Special Investigative Team (SIT) probing the riot has insisted that the July incident was a planned conspiracy to kill management people present inside the plant at that time and workers came prepared to kill. But the report has still not been made public.

India suffered two power blackouts, on July 30 and 31, highlighting the severe infrastructure deficiencies that are impeding the country's growth. Half of the population had to do with no electricity for hours together. According to media reports, 22 states were affected.

August

P Chidambaram returns to North Block, raising hopes that he will end the state of indecision and inaction that marked the tenure of his predecessor, Pranab Mukherjee, who moved to Rashtrapati Bhavan.

Prime Minister's Economic Advisory Council lowers growth forecast, warns of a rating downgrade if the government does not act to bring down widening fiscal and current account deficit. The panel said it expected the economy to grow 6.7 percent, as against its earlier projection of 7.5-8 percent. It is much higher than projections by private economists, who see growth sliding to 5.5 percent, a 10-year low, according to a Reuters report.

Maruti Suzuki India reopens Manesar plant, which was shut after death of an executive in workers' violence. The loss of production is estimated to have cost the company over Rs 1,000 crore.

The government tables CAG report on coal block allocation in Parliament. It pegs the loss from giving away 57 coal blocks at Rs 1.87 lakh crore. Opposition calls for resignation of Prime Minister Manmohan Singh. The government and companies named in the report battle it out.

The Supreme Court orders Sahara group to repay investors about Rs 24,000 crore and an interest rate of 15 percent. Two group companies had raised the amount through optionally fully convertible debentures. The repayment was to be routed through Sebi. The order kicks off a legal battle between the capital market regulator and the group.

September

The government raises diesel prices, caps sale of subsidised LPG cylinders. The move is first in a series of reforms that the UPA unleashes. A day after the move, the government also opens up multi-brand retail for FDI, and allows foreign airlines to buy a 49 percent stake in Indian counterparts. The government gets both brickbats and bouquets for the reforms, which a section of the media term as Big Bang. The Trinamool Congress walks out of the UPA, protesting against the "anti-people policies" of the government. The BJP, the Left and other smaller parties join a strike protesting against the reforms.

With the exit of Trinamool Congress, the finance ministry decides to levy service tax on rail AC and freight services fares from 1 October. This in effect raises the fares by 3.7 percent.

October

Emkay Global Financial Services erratic orders sent the Nifty tumbling briefly, adding to doubts about the stability of trading systems globally. The incident, however, forced the capital market regulator to steps to prevent such crashes in future. In December, it directed the exchanges to reject orders above Rs 10 crore for trade execution on equity, exchange-traded funds (ETFs) and derivatives.

Anti-corruption activist Arvind Kejriwal, who later launched the Aam Aadmi Party, alleges sweet-heart deals between Sonia Gandhi's son-in-law Robert Vadra and realty major DLF. According to Kejriwal's allegations, DLF gave an interest-free loan and also sold property to Vadra in return for favours from the Congress. The Congress and Vadra denied any wrong doing, but the controversy snowballed into major controversy, embarrassing the Congress as it engulfed Haryana Chief Minister and union minister Salman Khurshid. Though no probe has been launched, the allegations laid bare the murky politician-builder-bureaucrat nexus.

Kingfisher Airlines declares partial lockout, which eventually results in the Director General of Civil Aviation suspending the airline's flying licence. Months of staff agitation for salary dues had brought its operations to a grinding halt.

Congress MP and industrialist Naveen Jindal, one of the accused in the coalgate scam, alleges two editors of Zee News of trying to exhort Rs 100 crore from him for not airing stories against his company. As argued in an earlier Firstpost article, the legal battle put "the spotlight firmly on the seamier side of the media business".

November

Diageo agrees to buy about 53 percent stake in United Spirits owned by Vijay Mallya. The deal is widely seen helping Mallya get the much needed funds. He, however, does not link the deal with Kingfisher Airlines and says he did not sell the family jewel, but only embellished it.

The enforcement directorate launches a probe into US retail giant Wal-Mart's investment in its joint venture with Bharti Enterprises. MP Achuthan, a CPI member of parliament, accused Wal-Mart of investing $100 million in 2010 in a multi-brand retail business. The investment was made when the government had not changed foreign investment rules for the sector.

The auction of 2G airwaves flops partially. The government managed to get bids worth just Rs 9,407 crore as against a minimum target of Rs 28,000 crore. The auction lasted for just two days. In comparison, the 3G auction lasted for 35 days and the government got Rs 67,719 crore. The high reserve price was the reason for the poor response. Later a ministerial panel on telecom lowered the base price by 30 percent for radiowaves in 1800 Mhz band in four circles. The government will conduct fresh auctions this fiscal year.

December

More questions over Wal-Mart's Indian investment after the company discloses in a report to the US Senate that it had paid $25 million over four years to lobby American lawmakers to help gain access to overseas markets, including India.

Bharti Infratel launches its IPO, the biggest in two years to hit the Indian primary market. The issue gets poor response from the retail investors. The shares got listed on the exchanges at a discount to the offer price.

With inputs Reuters, PTI

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by Firstbiz Editors

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