Cabinet to consider easing FDI in defence production

As part of the drive to shore up investor confidence and give thrust to manufacturing, government will consider relaxing rules for foreign direct investment in defence production, Commerce and Industry Minister Kamal Nath said.

The issue would be taken up by the Union Cabinet in the near future, Kamal Nath said on Tuesday.


"India can become a great manufacturer of defence items. So, we will like to see some easing up there," the Minister told reporters on the sidelines of a meeting organised by business chambers with visiting Belgian King Albert II.


He said the Cabinet would consider options to provide new thrust to the manufacturing sector.



Besides, streamlining the procedures for FDI would be on the government agenda.



Currently, 26 per cent of FDI is permitted in the defence sector.


Nath said despite troubles in the world economy, India continued to attract FDIs and the target of USD 35 billion for 2008-09 fiscal would be achieved.


In September this year, FDI inflows went up by 259 per cent to USD 2.56 billion, against USD 713 million in the same month last year.



For April-September period this year, the inflows went up to USD 17.21 billion from USD 7.25 billion in the comparable period a year ago, showing a rise of 137 per cent.


The government has made concerted efforts in the last few weeks to limit the impact of shrinking global credit on the Indian economy.


The Reserve Bank has injected liquidity in excess of Rs 260,000 crore, besides reducing the overnight lending rates.



The prices of aviation turbine fuel have been cut along with scrapping of the import duty.


The banks are considering lowering interest rates as well.

Sensex recoups from early losses to end higher by 293 points

Stock markets rose for the fifth day in a row on Tuesday as the benchmark Sensex advanced further by over 290 points on strong buying support sparked by bankers' assurance to Finance Minster P Chidambaram on considering cutting lending rates.

Markets opened weaker by 221 points after a four-day gaining spree which saw the Sensex rising over 1800 points but the bellwether index not only recovered the losses but gained further to settle the day higher.


The 30-share Sensex finally ended at 10,631.12, up by 293.44 points, or 2.8 per cent.



Its total gains in five straight sessions are now nearly 2100 points, a stark contrast to relentless decline seen last month during which it tested lowest level in three years.


The wide-based National Stock Exchange index Nifty also gained 98.25 points, or 3.23 per cent at 3142.10.


Brokers said markets which were down were revived by reports of Finance Minister P Chidambaram's comments that banks have assured him that they would consider the demand for lowering lending rates.


Realty and banking sectors surged on expectations of boom on likely cut in interest rate and assurance of housing and SME sectors of adequate liquidity.


Meanwhile, country's largest public sector lender State Bank of India on Tuesday said it will consider cutting down the benchmark lending rate by up to 50 basis points on Wednesday.


Punjab National Bank and Union Bank have already lowered their benchmark prime lending rate following a series of monetary measures taken by the Reserve Bank.

EU to set stage for bank policy

The last so-called Ecofin meeting was in October and occurred at the zenith of the European phase of the financial crisis, with European governments frightened about which bank would need rescuing next.

At that time, Fortis and Dexia in Belgium, Unicredit in Italy and Hyporeal in Germany were all causing concern, on top of the woes of the British banks: HBOS and RBS.

For this meeting the mood, although hardly cheerful, is less emotionally charged.

The tactical response to the banking crisis has created a life support system for international banking, with capital injections and loan guarantees preventing a catastrophic collapse.

What next

In fact, it could be argued the European governments, led by President Sarkozy of France and by the British Prime Minister Gordon Brown, have mounted a strong rearguard action.

Now the debate has moved to the question of what happens next.

The French, who occupy the rotating presidency of the EU, are apparently leading the way.

Officials in Brussels are muttering about a document doing the rounds, which includes detailed proposals on the way banks are regulated.

Emergency summit

These proposals would not apply simply to European states, but all international banks.

Bear in mind that this Ecofin is taking place ahead of an emergency summit of European heads of state on Friday and a meeting of the G20 industrialised nations on 15 November.

The stated aim of this series of meetings is to create a new "financial architecture" to prevent the calamity of the past months re-occurring.

The French clearly want to shape the terms of any settlement that comes out of Washington, so are trying to create a consensus among their European partners before crossing the Atlantic.

However, a consensus is not always easy to achieve. Some other EU governments are wary of turning up in Washington with a clear set of proposals for fear of annoying non-EU members of the G20 who may feel cornered.

Sovereign lunch

While all these big questions are in play, there is an interesting lunch taking place during the day as representatives from three of the biggest sovereign wealth funds sit down with finance ministers.

Sovereign wealth funds are investment funds controlled by national governments - in this case, those of Norway, Abu Dhabi and Qatar.

With the gaping holes that have appeared in bank balance sheets, funds with lots of spare cash have suddenly become very interesting indeed to western leaders looking for financial help.

But clearly there are political difficulties with another country owning important national assets. This meeting is intended to find out how those difficulties can be overcome.

Tuesday's Ecofin may receive less attention than what happens in Washington in a couple of weeks.

But Washington's conclusions could be shaped by what happens in Brussels in the next few days.

Legal costs hit Mastercard profits

Credit card provider Mastercard, has reported a quarterly loss due to a large legal charge.

It lost $194m (£122m) in the third quarter, after paying a $515.5m charge related to an anti-trust settlement with rival Discover Financial Services.

Excluding the charge, Mastercard made profits of $322m, thanks in part to a rise in the number of transactions.

But the global slowdown and a recent strengthening of the US dollar are expected to hit Mastercard next year.

"We are in an economic crisis like I don't think we have seen in our lifetime," Martina Hund-Mejean, Mastercard chief financial officer, told the Reuters news agency.

"We are planning on a more prolonged downturn rather than something turning around in the next three to six months ... My main concern is how long this is going to last," she added.

Mastercard expects to meet its profit and revenue targets this year, but forecasts a slower revenue growth in 2009 than its long-term target of 12% to 15%.

Settlement

Credit card issuer Discover Financial Services filed an anti-trust lawsuit in 2004 against its rivals Mastercard and Visa.

It claimed the competitors had taken steps to limit its growth.

Last week Mastercard and Visa agreed to pay a combined $2.75bn to settle the lawsuit.

Swiss Re reports surprise deficit

Swiss Re, one of the biggest reinsurers in the world, has reported a surprise third-quarter loss, after being hit by the global financial crisis.

The firm reported a net lost of 304m Swiss francs ($263m, £164m) - analysts had been expecting a profit.

Shares in Swiss Re fell 6% in Tuesday morning trading in Zurich.

Swiss Re wrote down 572m Swiss francs on its investments and 289m Swiss francs on credit default swaps (CDS) for the quarter.

A CDS is a swap designed to transfer credit risk, in effect a form of financial insurance.

Swiss Re said it would suspend its share buy-back programme, but hoped to complete it by April 2010 if the situation on global financial markets improved.

The reinsurer maintained its forecast of a 10% earnings growth per share.

The company expects claims for hurricanes Ike and Gustav to reach $365m, which is a relatively modest figure in comparison with previous storms.

Brent oil price near $60 a barrel

The price of Brent crude fell to its lowest level in more than 20 months amid concerns about the US economy, before later edging back up.

Brent crude fell as low as $58.38 a barrel before rising back up to $61.10 a barrel by late morning in London.

US sweet crude oil traded at $64.86 per barrel, having dipped as low as $62.25.

Oil prices have slumped since hitting a record of $147 a barrel in July, as consumers have cut their spending and the chances of a global recession grow.

Members of oil cartel Opec have decided to cut output to boost prices.

"The overriding concern is the economy in the US," said Victor Shum, energy analyst at consultancy Purvin & Gertz.

Credit Suisse has cut its forecast for China's energy demand, predicting that it will remain unchanged in 2009.

Recent figures showed China's economic growth rate fell for the third quarter in a row, prompting fears of a wider downturn.

Growth slowed to an annual pace of 9% in the three months to September - down from 10.1% over the previous quarter.

There had been hopes that growth in developing nations such as China and India would help offset the slump in demand in US.

On Monday, poor US economic data underlined the degree of the slowdown in the world's largest economy.

The Institute for Supply Management said its manufacturing index dropped to 38.9 in October - its worst reading for 26 years. Any reading under 50 indicates contraction.

Australia lowers rates to 5.25%

Australia's central bank has cut its key interest rate from 6% to 5.25% in an attempt to boost the economy and avert a recession.

The reduction was larger than expected, with most analysts having predicted that the bank would make a half percentage point cut.

It was the third cut in as many months by the Reserve Bank of Australia.

Australia recently set out a 10.4bn-Australian dollar ($6.9bn; £4.4bn) stimulus plan to encourage growth.

"International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well," the bank's governor Glenn Stevens said in a statement.

The move by the Reserve Bank means that the key rate is now at its lowest level since March 2005.

Treasurer Wayne Swan said banks should pass on the cut in full to borrowers to help boost the economy.

"This is the additional rate relief that Australian families and businesses need in the face of the global financial crisis," he said during a press event in Canberra.

"It will strengthen our economy at a vital time."

Worldwide, the credit crisis has led commercial banks to be nervous about lending to each other which in turn had made it harder and more expensive for individuals and businesses to borrow.

Central banks across the world have been cutting rates in recent months in an attempt to stave off recession.