News 25th June

Ambanis agree terms on gas supply

Mukesh Ambani (RIL) will supply 28 million metric standard cubic metres a day of gas for 17 years toAnil Ambani (RNRL) at the government-set price of $ 4.2 per million metric British thermal unit (mmBtu) as per the GSMA (Gas Supply Master Agreement) signed on 25th June 2010.

Supreme Court explicit statement ‘Natural resource is National resource’ led to the GSMA agreement between the brothers and also the termination of previous non-compete agreement between RIL and RNRL, thus allowing them to enter into the arena of each others business except Gas-based power generation by RIL for another 12 years.

This will not only foster operational and financial flexibility but will also create an envoirnment of cooperation and collaboration among groups.

The effect of agreement is evident on BSE, as prices of RNRL and RIL moved up by 7.5 % and 0.7% respectively.

Yuan appreciation leading to a series of doubts

Chinese currency has risen by 0.5% against US dollar in last week after the formal announcement of revision to its exchange rate policy.

The increase in Yuan’s strength to 6.7971 from 6.8272 against 1 dollar on Friday, a significant change in terms of exchange rate has led to a series of questions. It is widely speculated as a step taken to ward off the exchange rate issue off the G-20 summit to be held on 26th-27th June which will put undue pressure on China from US and other participating countries.

Yuan also refered as Renminbi , it’s undervaluation was a boon for the Chinese market as it was simultaneously helping to export their goods to foreign markets and imposing a tariff on import of goods. In this scenario, yuan’s appreciation simply looks like a diplomatic step taken by the Chinese Government.


Deregulation of Petrol and Diesel Prices

The minister for Petroleum and natural gas, Murli Deora, announced that the prices of petrol and diesel would be market- driven , thereby accepting the recommendations of the group headed by the Planning commission member Kirit Parekh.The government agreed to increase the price of petrol by Rs 3.50 and that of diesel by Rs 2

The decision of price hike in fuels, thereby resulting in lowering the fuel subsidies, aims at correcting the fiscal deficit to 5.5% of GDP, followed by an increase of 0.9% in the wholesale price inflation. The inflationary pressure created by such a move would be taken care by RBI, by increasing the interest rates in its monetary policy next month. On one hand, it is lessening the burden on government’s part but simultaneously shifting the load of the burden upon the consumers.

By market-driven prices we mean that the consumers ought to pay price for petrol and diesel as per the international crude oil prices. But what if the volatility of the crude oil prices increase to a major extend? Would the consumers be able to bear the burden of such volatility of prices in the market? As in for now, the government has announced that it would intervene, if such volatility occurs in the market with regard to crude oil prices. But shouldn’t the government be more clear and transparent upon to what extend the intervention would be palpable. Shouldn’t the government set definite limits, so that in future we don’t see a tug of war between economics and politics?

Agenda G-20 Summit in Toronto

The G-20 summit to be held at Toronto on 26-27 June 2010, is being organized when there are a series of tribulations in the world economy after the Euro-zone crisis and when the emerging economies are in full swing
Agenda of G-20 Summit:
• to examine the global economic scenario with stress on the recovery process
• fiscal consolidation process of the economies
• reform of international financial institutions such as IMF
• issues related to resolving the eurozone crisis.