21 states accept Rs 97,000 cr borrowing proposal to meet GST shortfall

Source: Financial Express, Sept 20, 2020

As many as 21 states, mostly ruled by BJP or parties which have supported it on various issues, have opted to borrow Rs 97,000 crore to meet the GST revenue shortfall in the current fiscal, sources said on Sunday.

The states and union territories (UTs) which have intimated their decision to the Centre are Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh.

Finance Ministry sources said Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal are yet to respond to the GST Council proposal to decide their options.

The states which do not submit their borrowing options before the due GST Council meet on October 5, 2020 will have to wait till June 2022 to get their compensation dues, subject to the condition that the GST Council extends the cess collection period beyond 2022, the sources said.

GST Council with full presence of states and UTs needs, as per the GST Act, only 20 states to pass any resolution, in case voting is required on any issue, the sources added. In the current fiscal, the states are staring at a staggering Rs 2.35 lakh crore Goods and Services Tax (GST) revenue shortfall.

Of this, as per Centre’s calculation, shortfall of about Rs 97,000 crore is on account of GST implementation and rest Rs 1.38 lakh crore is due to the impact of COVID-19 on states’ revenues. The Centre late last month gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from market, and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

The sources said few more states are also to intimate their borrowing option in a day or two. They added that Manipur, which had earlier opted to borrow Rs 2.35 lakh crore, later changed its preference to the Rs 97,000 crore option.

The non-BJP ruled states are at loggerheads with the Centre over the issue of funding shortfall. The chief ministers of six non-BJP ruled states — West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu — have written to Centre opposing the options which require states to borrow to meet the shortfall.

While these states want Centre to borrow to meet the shortfall, Centre has argued that the revenue accruing from GST compensation cess goes to the states and the Centre cannot borrow on the security of the tax it does not own.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods, and the proceeds from the same are used to compensate states for any revenue loss.

The Attorney General for India K K Venugopal had given his legal view on the compensation cess issue where he has opined that there is no obligation on the Centre under the GST laws to compensate for loss of revenue. He had opined that the GST Council has to find ways to meet any revenue shortfall arising out of GST implementation.

The payment of GST compensation to states became an issue after revenue from imposition of cess started dwindling since August 2019. The Centre had to dive into the excess cess amount collected during 2017-18 and 2018-19 to pay the states.

The Centre had released over Rs 1.65 lakh crore in 2019-20 as GST compensation.

However, the amount of cess collected during 2019-20 was Rs 95,444 crore.The compensation payout amount was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18. During April-July of current fiscal, the total compensation due to states stands at over Rs 1.51 lakh crore.

Govt decriminalises Companies Act to promote greater ease of doing business

Source: Business Standard, Sept 21, 2020

New Delhi: The Companies Bill has decriminalised 48 sections by removing or reducing penal provisions and omitting imprisonment for various offences that were considered procedural and technical in nature, a move that will help corporates in ease of doing business.

The Bill, passed on Saturday in the Lok Sabha, comes at a time when companies are reeling under stress due the Covid-19 pandemic. Finance and Corporate Affairs Minister Nirmala Sitharaman said decriminalisation of various provisions under the companies law will also help small firms by reducing the litigation burden on them.

The Bill has proposed doing away with imprisonment for nine offences, which relate to non-compliance with orders of the national company law tribunal (NCLT). These include matters relating to winding-up of companies, default in publication of NCLT order relating to reduction of share capital, rectification of registers of security holders, variation of rights of shareholders, and payment of interest and redemption of debentures.

In case of corporate social responsibility (CSR), if a company fails to transfer the amount to a specified fund, it shall be liable to a penalty twice the amount required to be transferred or Rs 1 crore, whichever is less. Also, every officer of the company, which is in default, will have to pay a penalty of one-tenth of the amount required to be transferred by the firm, instead of the earlier provision of three years imprisonment and maximum fine of Rs 5 lakh.

“These amendments are in furtherance of the objective of CAB 2020 to eliminate subjectivity in the adjudication process, which exists in such cases because the Act provides the adjudicating officer with the power to order either a punishment of imprisonment or impose a criminal fine, or both,” Pavan Kumar Vijay, founder of Corporate Professionals, said.

The Bill has also omitted the punishment of imprisonment prescribed under Sections 26(9) and 40(5) of the Act relating to the provision of public offering of securities by a company such as matters to be stated in the prospectus. However, the quantum of the monetary penalty under each of these provisions remains unchanged.

Imprisonment for non-compliance with procedure for buyback prescribed under Section 68 of the Act and also for various lapses in financial statements of the company are also to be done away with, according to the Bill. The government has also rationalised several penalties under the Act such as for delay in filing the financial statement with the registrar of companies.

The corporate affairs ministry has decriminalised sections where the complainant can enter into a compromise, and agree to have the charges dropped against the accused.

Such offences include, for instance, default with respect to the section 8 (11), which deals with formation of companies with charitable objects, section 26 (9) regarding matters to be stated in the prospectus. The punishment in these cases includes a fine as well as provision for imprisonment for the company’s directors or other individuals involved.

According to the new penal provision, if any person fails to make a declaration of significant beneficial ownership, the minimum penalty has been reduced by half to Rs 50,000 and in case of continuing failure Rs 1,000 each day up to a maximum level of Rs 200,000.

In the last amendment to the Companies Act, the government had decriminalised 16 sections. Most of them covered lapses such as prohibition on issue of shares at discount or failure to file a copy of financial statement with the registrar.

Lok Sabha passes bill to amend Factoring Regulation Act to support MSMEs

Source: Business Standard, Sept 21, 2020

New Delhi: Lok Sabha on Sunday passed a bill to amend the Factoring Regulation Act that seeks to help micro, small and medium enterprises by providing additional avenues for getting credit facility.

The Factoring Regulation (Amendment) Bill, which was introduced on September 14, was passed by voice vote after a brief discussion.

The Factoring Regulation Act, 2011 was enacted to provide for regulating the assignment of receivables to factors, registration of factors carrying on factoring business and the rights and obligations of parties to the contract for assignment of receivables.

Minister of State for Finance Anurag Thakur said it would greatly help the financial system.

“The amendments are expected to help micro, small and medium enterprises significantly by providing added avenues for getting credit facility, especially through Trade Receivables Discounting System.

“Increase in the availability of working capital may lead to growth in the business of the micro, small and medium enterprises sector and also boost employment in the country,” according to Statement of Objects and Reasons of the bill.

Trai issues fresh tariff disclosure norms to bring in transparency

Source: Business Standard, Sept 19, 2020

The Telecom Regulatory Authority of India (Trai) on Friday issued fresh norms for advertisement of tariff plans by mobile operators in order to bring in more transparency for users.

“It has been observed that measures adopted by telecom service providers are not transparent as they should be and some providers are not prominently highlighting additional terms and conditions. They are also collating the terms and conditions applicable to various tariffs on a single webpage and the relevant information either gets lost in the maze of detail or becomes ambiguous and incomprehensible to consumers,” the Trai directive said.

Trai has now directed telcos to publish, within 15 days, each tariff plan for postpaid and prepaid subscribers, service area wise. They must offer full information to subscribers at customer care centres, points of sales, retail outlets, websites, and apps with requisite disclosures. The operators have been asked to submit to Trai a compliance report within 15 days. They will also have to ensure continued compliance by way of self-certificate by the seventh of the month after each quarter ends.

On tariff advertisements, Trai has directed firms to prominently highlight additional terms and conditions.

Govt to impose 5% customs duty on import of open cell for televisions from Oct 1, 2020

Source: The Economic Times, Sept 20, 2020

India will impose a 5% customs duty on imports of open cell for televisions from October 1, 2020, as the government seeks to increase local manufacturing and value addition.

Government officials said that price increase due to this duty will not be more than Rs 250 per TV, dismissing claims of substantive price hikes being put forth by the industry.

“For how long such import duty sops can continue? The TV industry is well aware of the basic tenets of phased manufacturing. The sop was offered for a limited period of one year in anticipation that the industry would build capacity for manufacturing critical components in India,” a finance ministry official said.

“Leading brands are importing Open Cell for a basic price of Rs. 2700 for a 32 inch and about Rs. 4000 to Rs. 4500 for a 42 inch television. The impact of 5% duty on Open Cell would, thus, not be more than Rs 150-250 for a television,” the official said, terming claims of price hikes by companies as misleading.

Television makers have argued that prices of fully built panel have risen by 50% and customs duty of 5% on open cell – a major component for TVs – would lead to increase in sale prices by a minimum of Rs. 600 for a 32 inch television and Rs. 1200-1500 for a 42 inch TV and even higher for a large screen televisions.

The customs duty exemption given to open cell for a period of one year will end on September 30, such that industry can move towards value addition from mere assembling, but that has not taken place.
Domestic industry should invest more in local manufacturing since it has been given adequate protection with 20% customs duty on imports of fully made TVs since 2017 and certain categories of TV imports have been put in the restricted category since July this year, a second official said.

He noted that till last year televisions worth Rs 7000 crore were being imported.

“This cannot go on for long as assembly of television does not entail any significant value addition. Deepening of value addition in the domestic market must happen in phased manner,” he added.

The government feels that imports of television parts will rise, from Rs 7500 crore in a year, as imports of fully made TVs is curbed.

“Open cell capacity building in India would also help making panels for mobile phones which is a huge market,” the second official added.

E-tailers may log record $7 billion festive month sales

Source: ETRetail.com, Sept 17, 2020

BENGALURU: E-commerce companies are expected to post nearly 50% jump in gross sales to $4 billion this Diwali, a two-year high, during the five-day sale events of Flipkart, Amazon India and others, according to the latest estimates from market research firm Redseer.

With Covid-19 accelerating digital adoption and traditional offline shoppers moving online, the festive season is expected to see an over 70% jump in consumers with 45-50 million digital buyers. Of these, over 50% are likely to be from tier-II cities and beyond, Redseer estimates. The entire festive month is expected to clock gross sales of $7 billion in 2020 against nearly $4 billion last year, a 75% jump.

The date of the much-publicised sales are yet to be announced, but e-tailers have started working with brands, sellers and logistics players in the run-up to the event likely next month. Industry executives are also working with sellers and brands to overcome supply-chain and investment issues to meet the surge in demand.

“Technically, what demonetisation did to the payments space, Covid-19 has almost done it for the e-commerce space. We are expecting a higher number of shipments than what we are seeing currently. In peak time, it should be 7.5-8 million shipments a day. We have already planned for the season and now the implementation will happen,” said T A Krishnan, co-founder and CEO, E Com Express, a third-party logistics company catering to online platforms. According to him, the industry is currently shipping about 5-5.5 million items daily.

Last year, the average shipments during the festival season were under 5 million.

According to industry sources, grocery, FMCG and general merchandise will drive higher volumes due to Covid-induced demand. Typically, smartphones, electronics, small and large appliances and fashion dominate Diwali sales.

“The estimates are very realistic. There is a significant higher adoption of digital in non-metro cities. In terms of consumer behaviour during pre-Covid-19 era, we had seen some spurt in online penetration but this is the first time that there has been a sustained and significant movement towards digital — with e-commerce penetration jumping to 5% compared to 3% last year,” said Ujjwal Chaudhry, associate partner, Redseer.

This year’s sales are also likely to happen when there are signs of a gradual economic recovery compared to last year when overall spends were muted owing to the broader slowdown in the economy, Chaudhry added.

“I am diversifying into new categories like handicraft items, Diwali lights as there are supply issues in segments like electronic accessories,” a Delhi-based online seller said. Emails sent to Flipkart and Amazon India did not elicit any response.

Banking Regulation Amendment Bill, 2020 passed. What it means for banks, customers

Source: LiveMint.com, Sept 17, 2020

Lok Sabha on Wednesday passed Banking Regulation Amendment Bill, 2020 to bring the cooperative banks under the supervision of the Reserve Bank of India. In the wake of deteriorating condition of cooperative banks in the country, the central government amended the Banking Regulation Act, 1949.

“For the last two years, depositors of cooperative banks and small banks are facing problems. We are trying to bring this amendment in order to protect the depositors,” finance minister Nirmala Sitharaman said on Thursday in the Lok Sabha.

Commenting on the new Bill, Mandar Agashe, founder, managing director & vice chairman, Sarvatra Technologies said, “RBI can now leverage the existing and deep entrenched network of co-operative banks instead of creating a new one which will help offer services to the last mile in an efficient manner.”

The Bill will replace the the Banking Regulation (Amendment) Ordinance, 2020. In June, the union cabinet approved the ordinance to bring 1,482 urban and 58 multi-state cooperative banks under the supervision of the central bank.

All you need to know about the new Banking Regulation (Amendment) Bill, 2020:

1) The Bill allows the central bank to initiate a scheme for reconstruction or amalgamation of a bank without placing it under moratorium.

2) If the central bank imposes moratorium on a bank, the lender can not grant any loans or make investments in any credit instruments during the moratorium tenure, according to the Bill.

3) The co-operative banks will be allowed to issue equity, preference, or special shares on face value or at a premium to its members, or to any other person residing within their area of operations. The banks may also issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons. However, a prior approval from RBI is mandatory for such issuance.

4) No person will be entitled to demand payment towards surrender of shares issued to him by a co-operative bank, the Bill states.

5) The Bill mentions that RBI may exempt a cooperative bank or a class of cooperative banks from certain provisions of the Act through notification. These provisions are related to employment, the qualification of the board of directors and, the appointment of a chairman.

6) RBI may supersede the board of directors of a multi-state co-operative bank for up to five years under certain conditions. These conditions include cases where it is in the public interest for RBI to supersede the Board, and to protect depositors.

7) The Bill discards the provision of Banking Regulation Act, 1949 that cooperative banks cannot open a new place of business or change the location of the banks outside of the village, town, or city in which it is currently located without permission from RBI.

8) The changes will not affect the existing powers of the state registrars of co-operative societies under state laws. “This Bill does not regulate cooperative banks. The amendment is not for central govt to take over the cooperative banks,” Sitharaman said.

Exclusion: The Banking Regulation Amendment Bill, 2020 will not be applicable to a) Primary agricultural credit societies, b) Cooperative societies whose principal business is long term financing for agricultural development.

These two societies must not: a) use the term ‘bank’, ‘banker’ or ‘banking’ in their name or in connection with their business, b) Act as an entity that clears cheque.

Indian Railways to allow private players for bullet train projects

Source: Business Standard, Sept 18, 2020

New Delhi: The Indian Railways, in a major development, is set to have private players for constructing and operating its planned seven new bullet train projects.

The projects —Delhi-Varanasi, Mumbai-Nagpur, Delhi-Ahmedabad, Chennai-Mysore, Delhi-Amritsar, Mumbai-Hyderabad, and Varanasi-Howrah — are expected to cost around Rs 10 trillion. “All the seven new bullet train routes will be open for private players. We will be doing it on a public private-partnership model,” said V K Yadav, chairman and chief executive officer of the Railway Board. These routes will be in addition to the already planned Mumbai-Ahmedabad high-speed rail project.

This comes when the railways is trying to attract private players for its Rs 1-trillion station redevelopment and Rs 30,000 crore private train project.

User fees to be charged soon

Yadav said once the stations were in place, user fees would be charged from passengers using at least 15 per cent of the 7,000 railway stations in the country. They will be modernised in some form or the other. The move is likely to raise train fares at these stations.

On the other hand, for private trains, the operators will have the freedom to set rates, said Amitabh Kant, chief executive officer of the NITI Aayog. For these trains, the fixed haulage charges that railways will be getting will be indexed to the wholesale price index (WPI).

Private train bids are invited on the basis of 12 clusters covering 109 routes, on which 151 trains will be operated.

The last date of application for private investors is October 7. The Indian Railway Station Redevelopment Corporation has come up with a request for quotation for 10 stations.

Among the major stations include the Chhatrapati Shivaji Maharaj Terminal (CSMT) in Mumbai and New Delhi Railway Station. The CSMT is expected to see investments of around Rs 1,642 crore and NDLS around Rs 4,925 crore.

The last date for submitting bids for New Delhi is November 6 and for Mumbai October 22. Built in 1887, the CSMT was declared a UNESCO World Heritage Site in 2004 and has footfall of over a million a day during normal operations.

Indian economy staring at double-digit decline as Covid-19 cases spike

Source: Business Standard, Sept 18, 2020

India’s economic recovery prospects have gone from bad to worse after the nation emerged as a new global hotspot for the coronavirus pandemic with more than 5 million infections.

Economists and global institutions like the Asian Development Bank have recently cut India’s growth projections from already historic lows as the virus continues to spread.

Goldman Sachs Group Inc. now estimates a 14.8% contraction in gross domestic product for the year through March 2021, while the ADB is forecasting -9%. The Organisation for Economic Co-operation and Development sees the economy shrinking by 10.2%.

The failure to get infections under control will set back business activity and consumption — the bedrock of the economy — which had been slowly picking up after India began easing one of the world’s strictest and biggest lockdowns that started late March. Local virus cases topped the 5 million mark this week, with the death toll surpassed only by the U.S. and Brazil.

“While a second wave of infections is being witnessed globally, India still has not been able to flatten the first wave of infection curve,” said Sunil Kumar Sinha, principal economist at India Ratings and Research Ltd., a unit of Fitch Ratings Ltd. He now sees India’s economy contracting 11.8% in the fiscal year, far worse than his earlier projection of -5.8%.

Goldman Sachs’s latest growth forecast came last week after data showed gross domestic product plunged 23.9% in the April-June quarter from a year ago, the biggest decline since records began in 1996 and the worst performance of major economies tracked by Bloomberg.

While there are some signs that activity picked up following the strict lockdown, a strong recovery looks uncertain.

“By all indications, the recovery is likely to be gradual as efforts toward reopening of the economy are confronted with rising infections,” Reserve Bank of India Governor Shaktikanta Das told a group of industrialists Wednesday.

Lower Potential

The central bank will likely release its own growth forecast on Oct. 1 when the monetary policy committee announces its interest rate decision. In August, the RBI said private spending on discretionary items had taken a knock, especially on transport services, hospitality, recreation and cultural activities.

The plunge in GDP, as well as ongoing stress in the banking sector and among households, will curb India’s medium-term growth potential. Tanvee Gupta Jain, an economist at UBS Group AG in Mumbai, estimates potential growth will slow to 6% from 7.1% year-on-year estimated in 2017.

What Bloomberg’s Economists Say

India went into the Covid-19 pandemic already suffering a downward trend in growth potential. We expect a 10.6% contraction in fiscal 2021, rebound in 2022, and slower path for growth as scars from the virus recession drag on the remaining years of the decade.

Abhishek Gupta, India economist

In addition to that, corporate profits have collapsed, putting a brake on investments, which in turn, will curb employment and growth in the economy. India is “likely to see a shallow and delayed recovery in corporate sector profitability over the next several quarters,” said Kaushik Das, chief economist at Deutsche Bank AG in Mumbai, who has downgraded his fiscal year growth forecast to -8% from -6.2%. That will “reduce the incentive and ability for fresh investments, which in turn will be a drag on credit growth and overall real GDP growth,” he said.

Govt permits up to 74% FDI under automatic route in defence sector

Source: The Economic Times, Sept 17, 2020

NEW DELHI: The Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday issued a press note permitting foreign direct investment (FDI) in defence production above 74 per cent on the automatic route. This would be subject to access to modern technology or for ‘other reasons’ that needs to be recorded.

FDI in defence production is automatic upto 74 per cent, the department said.

Till now, 100 per cent foreign investments were permitted in the defence industry – 49 per cent under the automatic route and government approval was required beyond that.

The press note has stipulated that foreign investments in the defence sector would be subject to scrutiny on the grounds of national security and the government reserves the right to review any foreign investment in the sector that affects or may affect national security.

As per the Press Note 4 (2020 series), FDI up to 74 per cent under automatic route shall be permitted for companies seeking new industrial licences.

DPIIT also said that infusion of fresh investment up to 49 per cent in a company not seeking industrial licence or which already has government approval for FDI in defence, shall require “mandatory” submission of a declaration with the defence ministry in case change in equity/shareholding pattern or transfer of stake by existing investor to new foreign investor for FDI up to 49 per cent within 30 days of such change.
“Proposal for raising FDI beyond 49 per cent from such companies will require government approval,” it added.

The government has retained the condition that investee company should be structured to be self-sufficient in the areas of product design and development. “The investee/joint venture company along with the manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India,” it said.

Licence applications will be considered and licences given by the DPIIT in consultation with Ministry of Defence and Ministry of External Affairs.

The decision will take effect from the date of Foreign Exchange Management Act notification.