Centre tightens rules of grant allocation for transparency, efficiency

Source: Business Standard, Mar 31, 2021

New Delhi: The government has enforced new rules that will change the operating procedure for Centrally Sponsored Schemes (CSS). The new rules will tighten the procedure for grant allocation and increase the scrutiny on utilisation of funds disbursed, according to report in the Economic Times .

The Department of Expenditure order, dated March 23, vouches for “more effective cash management and bring more efficiency in public expenditure management”, said the report.

From July 1, 2021, all the state will have to set up a Single Nodal Agency for each Centrally Sponsored Schemes. The states will have to open with an account in a commercial bank to carry out their government business. If reqiued, separate SNAs may be created for sub schemes of an umbrella scheme.

All Union ministries and departments will release the central share for each CSS to a state government’s account held in the RBI for further release to this SNA account.

Then, the state governments will transfer the Central share within 21 days and release its own share within 40 days of the release of the Centre’s share.

CSS had become one of the largest financial outgo for the Centre. Several committees and finance commissions have recommended pruning and rationalisation to increase its effective. The time lag in release of grants, poor utilisation of funding and parking of funds in states for interest are among the issues red-flagged.

Discoms get Rs 46,321 crore under liquidity package so far out of total sanctioned loans of Rs 1.35 lakh crore

Source: The Economic Times, Mar 23, 2021

Power distribution utilities or discoms in the country have been sanctioned loans of Rs 1.35 lakh crore and disbursed Rs 46,321 crore so far under the liquidity infusion scheme, Parliament was informed on Tuesday. “So far, loans of Rs 1,35,497 crore have been sanctioned and Rs 46,321 crore have been released to states/DISCOMs by REC and PFC

(Power Finance Corporation),” Power Minister R K Singh said in a written reply to the Rajya Sabha on Tuesday.

The central government had announced a liquidity infusion scheme as part of AatmaNirbhar Bharat Abhiyan on May 13, 2020, in the backdrop of the outbreak of global pandemic COVID-19 in the country.

Due to the consequent nationwide lockdown, the revenues of the power distribution companies (DISCOMs) nosedived, as people were unable to pay for electricity consumed, the minister told the House.

Under the scheme, PFC and REC have extended special long-term transition loans at concessional rates to DISCOMs against the receivables of the discoms from the state government in the form of electricity dues and subsidy not disbursed, to enable them to clear their outstanding dues as existed on June 30, 2020 towards Central Public Sector Undertaking (CPSU) Generation (Genco) & Transmission Companies (Transcos), Independent Power Producers (IPPs) and Renewable Energy (RE) generators.

Further, to enable DISCOMs that do not have adequate headroom available under working capital limits of 25 per cent of last years’ revenues, as imposed under Ujwal DISCOM Assurance Yojana (UDAY), or do not have adequate receivables from the State Governments, Government of India has also approved a one-time relaxation to PFC and REC Ltd for extending these loans.

The minister told the House that this intervention enabled Gencos to pay for coal companies and meet their operational expenses. This has enabled continuation of uninterrupted power supply throughout the COVID period across the country. Further mitigation of liquidity issues enabled the power sector to cater to highest ever peak demand on 189.395 GW on January 30, 2021, he added.

“Transactions of power purchases and payment thereof is a continuous process. As per information available with this ministry, overall DISCOMs dues to Independent Power Producers (IPPs) including thermal power producers as on June 30, 2020 was Rs 40,635.57 crore,” the minister added.

In another reply to the House, the minister said, “Government has transformed India from power deficit in 2013 to power surplus. The installed generation capacity is around 379 Giga Watt which is more than adequate to serve the electricity peak demand of 190 GW.”

The government has also made plans to have sufficient generation capacity to meet future demand of electricity. The all India power generation installed capacity by the end of 2026-27 is estimated to be 6,19,066 MW which includes 2,38,150 MW coal, 25,735 MW gas, 63,301 MW hydro, 16,880 MW nuclear and 2,75,000 MW renewable energy sources to fully meet the electricity demand projected as per the 19th Electric Power Survey on All India basis, he added.

As per the recent study carried by Central Electricity Authority on Optimal Generation Capacity mix for 2029-30, the likely All India installed capacity in 2029-30 is estimated to be 8,17,254 MW which includes 2,66,911 MW coal, 25,080 MW gas, 71,128 MW hydro, 18,980 MW nuclear and 4,35,155 MW renewable energy sources, he informed the House.

The focus of government is to increase the share of renewable energy which is available in plenty within the country to meet the requirement of the country and also export to our neighbouring countries, he added.

In another reply, he also told the House that state-run NTPC Group has an installed capacity of 64,880 MW and the generation of more than 300 billion units (BUs) is expected during the year 2020-21.

NTPC plans to add 12,850 MW thermal capacity and 6862 MW renewable energy capacity by the year 2024.

As per the National Infrastructure Pipeline (NIP), investment planned during 2020- 2025 by NTPC is cumulatively about Rs 1,30,377 Crore.

Government to borrow Rs 20,000 crore less this fiscal; RBI cancels debt auction

Source: The Economic Times, Mar 22, 2021

The government has decided to cancel its Rs 20,000 crore borrowing scheduled for March 26 on review of position of cash balance, the Reserve Bank of India said on Monday. This means, the government would be borrowing Rs 20,000 crore less than its target of Rs 12.8 lakh crore announced in the Budget on February 1 for the current fiscal.

As per the revised Issuance Calendar issued on February 1, 2021 for Government of India Dated Securities, the next auction is scheduled to be held on March 26, 2021.

“On review of position of cash balance, the Government of India has decided to cancel the above scheduled auction,” the central bank said in a statement.

According to the Revised Estimate, the gross borrowing for the current financial year was raised to Rs 12.8 lakh crore as against the Budget Estimate of Rs 7.8 lakh crore, registering an increase of 64 per cent.

“The gross borrowing from the market for the next year (2021-22) would be around Rs 12 lakh crores. We plan to continue with our path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5 per cent of GDP by 2025-2026 with a fairly steady decline over the period,” Finance Minister Nirmala Sitharaman had said while announcing Budget for 2021-22.

The government raises money from the market to fund its fiscal deficit through dated securities and treasury bills.
As a result, net borrowing would come down to Rs 9.24 lakh crore for the next fiscal, while for the current fiscal it is estimated at Rs 10.52 lakh crore during 2020-21.

The Budget has pegged fiscal deficit at 6.8 per cent for the next fiscal, down from 9.5 per cent of the GDP in the current financial year. The fiscal deficit in RE 2020-21 is pegged at 9.5 per cent of GDP.

To fund infra, Cabinet clears DFI Bill with ₹20,000-crore initial govt equity

Source: The Hindu Business Line, Mar 16, 2021

New Delhi: The Cabinet on Tuesday approved bringing a Bill to set up a development financial institution.

The National Bank for Financing Infrastructure and Development (NaBFID) Bill, 2021 is expected to be tabled in the ongoing session of Parliament. “Through the Bill, we will have an institution and institutional arrangement, which will help in increasing long-term funds,” Finance Minister Nirmala Sitharaman told a press briefing after the meeting of Union Cabinet.

The DFI will get ₹20,000 crore as equity capital from the government. “With this kind of initial capital, I expect the institution to use it as lever to raise up to ₹ 3-lakh crore in the next few years,” she said, adding that it can access from the market funds otherwise not available.

Infrastructure financing

In Budget 2021-22, the Finance Minister had announced the setting up of a DFI.

“Infrastructure needs long-term debt financing. A professionally managed DFI is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, I shall introduce a Bill to set up a DFI,” she had proposed.

The institution will have a board with at least 50 per cent non-official directors. The chairman will be a person of repute in the field. “Emoluments will be as per the market standards. Higher age limit and longer tenure for MDs to be put in place,” she said, adding that its board can take call on merging existing institution like IIFCL. Sitharaman also mentioned that initially the company will be 100 per cent government owned. However, over a period, the government will gradually lower its equity. “In any case, the government’s shareholding will not be lower than 26 per cent,” she said.

Tax benefits

The Minister said that because of tax benefits. and tweaks to the Indian Stamp Act. , “we expect big pension and sovereign funds will come. The government is also planning to give it a certain security because of which the cost of funds will come down,” she said adding that there will be a positive impact on the bond market.

Later, a senior official said the DFI will not issue tax-free bonds but compensate the tax outgo of the institutions putting money in it. A grant of ₹5,000 crore is to be provided. The government will guarantee any overseas borrowing, and compensate the guarantee fee. The funds raised by the DFI will be used in infrastructure projects. The government has prepared the National Infrastructure Pipeline with an investment of ₹111-lakh crore.

India’s foreign exchange reserves surpass Russia’s to become world’s fourth largest

Source: Financial Express, Mar 14, 2021

India’s foreign-exchange reserves surpassed Russia’s to become the world’s fourth-largest, as the South Asian nation’s central bank continues to hoard dollars to cushion the economy against any sudden outflows. Reserves for both countries have mostly flattened out this year after months of rapid increase. India pulled ahead as Russian holdings declined at a faster rate in recent weeks. India’s foreign currency holdings fell by $4.3 billion to $580.3 billion as of March 5, the Reserve Bank of India said on Friday, edging out Russia’s $580.1 billion pile. China has the largest reserves, followed by Japan and Switzerland on the International Monetary Fund table.

India’s reserves, enough to cover roughly 18 months of imports, have been bolstered by a rare current-account surplus, rising inflows into the local stock market and foreign direct investment. Analysts say a strong reserves position gives foreign investors and credit rating companies added comfort that the government can meet its debt obligations despite a deteriorating fiscal outlook and the economy heading for its first full-year contraction in more than four decades.

“India’s various reserves adequacy metrics have improved significantly, particularly in the last few years,” Kaushik Das, chief India economist at Deutsche Bank, said before the latest data were released. “The healthy FX reserves position should give enough comfort to RBI for dealing with any potential external shock-driven capital-stop or outflows in the period ahead.”

The RBI bought a net $88 billion in the spot forex market last year, central bank data show. That helped make the rupee the worst performer among Asia’s major currencies last year and earned India a place on a U.S. Treasury watchlist for currency manipulation. A recent RBI report recommended further strengthening of foreign-exchange reserves, citing swings in the rupee around the time of the global taper tantrum in 2013. Governor Shaktikanta Das has said that emerging market central banks need to build reserves to prevent any external shocks, irrespective of being put on watch by the U.S.

India Inc’s overseas direct investment declines 31% to $1.85 billion in February

Source: The Economic Times, Mar 07, 2021

India Inc’s overseas direct investment fell by 31 per cent to USD 1.85 billion in February this year, the RBI data showed. Domestic companies made investments of USD 2.66 billion in their overseas subsidiaries and joint-ventures in the year-ago month, February 2020.

Of the total investment made by Indian companies in foreign markets, USD 1.36 billion was in the form of loan; USD 297.37 million comprised as equity investment and the rest of USD 183.82 million was by way of issuance of guarantee, according to the RBI data on outward foreign direct investment (OFDI) – February 2021.

However, total OFDI by domestic firms in February was higher than that of USD 1.19 billion in January 2021.

Among the major companies who invested in their overseas ventures during the month included Tata Steel (USD 1 billion in its wholly-owned subsidiary in Singapore), and Sun Pharmaceutical Industries — USD 100 million in a joint venture in the US.

ONGC Videsh Ltd invested a total of USD 96.15 million in various joint ventures/wholly owned subsidiaries in Russia, Mozambique, Myanmar, Sudan, Colombia, Vietnam and Azerbaijan.

JSW Steel made a collective investment of USD 62.85 million in its three WoS/JVs in the Netherlands and the US.

GMM Pfaudler Ltd, which is engaged in pharma equipment manufacturing, put in USD 45.33 million in its JV in Luxembourg; the Indian Hotels Company USD 33 million in Netherlands JV; L&T Hydrocarbon Engineering USD 37.55 million in a JV in Saudi Arabia and Millars Concrete Technologies invested USD 34.26 million in Luxembourg joint venture.

RBI said the data is provisional and is subject to change based on online reporting by the banks.

Amazon, Google vie for piece of India’s digital payments market

Source: LiveMint.com, Mar 03, 2021

Technology giants Facebook Inc., Amazon.com Inc. and Google and credit-card providers Visa Inc. and Mastercard Inc. are among those vying for unprecedented access to India’s burgeoning digital retail payments market.

The companies are part of four consortia preparing to apply for licenses to operate retail payments and settlement systems in the country, people familiar with the matter said. More companies could band together before a March 31 application deadline.

In a market where cash is still king, digital payments are quickly gaining ground as India’s 1.3 billion people are starting to embrace online shopping and services such as online gaming and streaming. With Credit Suisse Group AG predicting $1 trillion in online payments in India in 2023, the companies chosen to enable such transactions stand to reap lucrative commissions.

“India’s mobile digital payments is seeing huge growth in a post-pandemic world,” said Vijay Shekhar Sharma, founder and chief executive officer of New Delhi-based payment provider Paytm. “It’s a good time to open up more diverse payments solutions and keep the momentum going.” One of the consortia consists of Amazon, Visa, Indian retail banks ICICI Bank Ltd. and Axis Bank Ltd. as well as fintech startups Pine Labs and BillDesk.

Another group is led by billionaire Mukesh Ambani’s Reliance Industries Ltd. and its partners Facebook and Alphabet Inc.’s Google, which together agreed to invest more than $10 billion in Reliance’s digital services unit last year.

Sharma’s Paytm heads a group that includes ride-hailing startup Ola and at least five other companies. The fourth consortium consists of Tata Group, Mastercard, telecom operator Bharti Airtel Ltd. and retail banks Kotak Mahindra Bank Ltd. and HDFC Bank Ltd.

Sharma, a spokeswoman for Tata Group and a spokesman for Google declined to comment on the potential bidders. Amazon and Facebook didn’t respond to emailed questions.

The contest is fierce as regulator Reserve Bank of India is expected to give just one or two licenses, as implied in its notification inviting bids. The process to decide the winners could take at least six months and it could be a further year or more before the systems and solutions come into use.

The winners will take on National Payments Corporation of India, the sole pioneering umbrella organization backed by more than 50 retail banks. Its Unified Payments Interface, or UPI, protocol debuted in 2016 and set the digital payments arena afire by allowing users to link their phone numbers to their bank accounts. That made transferring and receiving money via apps as easy as sending a text message, allowing large scale and high volumes of transactions to happen at minimal cost.“The regulator probably doesn’t want concentration risk as the UPI backbone has become critical to the economy,” said Nandan Nilekani, who conceived and built a biometric identity database the system uses to identify users. “With more licensees and these systems presumably being able to operate seamlessly with each other, the aim seems to be to reinvigorate innovation and push digital payments even deeper into the country,” said Nilekani, co-founder and chairman of IT services company Infosys Ltd.

Though commissions on digital payments are thin, the volume is potentially huge as India tries to reduce its reliance on cash. Card and mobile payments represented only 21% of $781 billion in retail purchases at brick-and-mortar stores in 2019, according to an estimate by S&P Global Market Intelligence.

The new licensees could make money by charging businesses transaction fees. They can also break new territory by setting up and operating ATMs, point-of-sale systems, remittance services and new innovative payment solutions. “There seems to be a prime mix of regulatory support and innovation attracting investors to the space right now,” said Anis Uzzaman, general partner and chief executive officer of Silicon Valley-based Pegasus Tech Ventures, an investor in Robinhood and other fintech startups. “A new generation of entrepreneurs is grabbing the opportunity.”

Centre announces Rs 15,000 crore PLI for pharma, IT hardware sectors

Source: Business Standard, Feb 24, 2021

Mumbai/New Delhi: The Cabinet on Wednesday approved the Production Linked Incentive (PLI) Scheme worth Rs 15,000 for high value products in pharmaceuticals and about Rs 7,350 crore over four years for information technology hardware products.

Pharma sector

The scheme for the pharma sector is expected to promote the production of high value products in the country and increase the value addition in exports. “Total incremental sales of Rs 2,94,000 crore (Rs 2.94 trillion) and total incremental exports of Rs 1,96,000 crore are estimated during six years from 2022-23 to 2027-28,” the government said. The scheme is expected to generate employment for both skilled and unskilled personnel, estimated at 20,000 direct and 80,000 indirect jobs as a result of growth in the sector.

The duration of the scheme for pharmaceuticals will be from FY21 to FY29.

It has sanctioned a 10 percent rate of incentive (of the incremental sales value) for two categories of pharmaceutical products (including biopharmaceuticals, complex generics, patented drugs nearing expiry, bulk drugs, intermediates among others) for the first four years, and 8 percent for the fifth year and 6 percent for the sixth year of production.

Similarly, a 5 percent incentive has been announced for repurposed drugs, cancer drugs, psychotropic and cardiovascular drugs etc, which goes down to 4 percent in the fifth year and 3 percent in the sixth year of production under the scheme.

For the scheme, the government has decided to divide the pharma firms into three groups based on their turnovers – Group A with global turnover of more than or equal to Rs 5,000 crore in FY20, Group B comprising companies with turnover between Rs 500 crore and Rs 5,000 crore and Group C with companies having a turnover of less than Rs 500 crore. A sub-category for micro-small and medium enterprises (MSMEs) will also be made under Group C.

IT Hardware sector

“Domestic value addition for IT hardware is expected to rise to 20-25 per cent by 2025 from the current 5-10 per cent due to the impetus provided by the Scheme,” the government said.

For the IT hardware sector, the scheme is expected to lead to total production of up to Rs 3,26,000 crore by five global and 10 national companies. The government also expects that out of the total production in the next four years, more than 75 per cent are expected to be exports of the order of Rs 2.45 trillion. The scheme will bring an additional investment in electronics manufacturing to the tune of Rs 2,700 crore, the Electronics and IT minister Ravi Shankar Prasad said on Wednesday, while introducing the scheme.

This is part of a previously planned expansion of PLI Scheme’s success in mobile devices and electronic components, medical devices and active pharmaceutical ingredients. The Cabinet had, in November, earmarked Rs 1.46 trillion for the incentives to be expanded into ten industries- automobiles and components, telecom equipment, laptops and PCs, air conditioners, electric batteries and so on.

Industry response

Pharma majors like Lupin, Cipla, Dr Reddy’s Laboratories (DRL) have already shown interest to participate in the PLI scheme. Lupin, for example, has already applied under the bulk drug API scheme, and is looking to participate in the second round as well. Nilesh Gupta, managing director, Lupin told Business Standard recently, “The existing PLI scheme and the second version of the PLI scheme are powerful. We are looking at opportunities in the second round. We are looking at some of the products that fits in with our business and our overall plans. We have put in applications in the first PLI scheme too, but we can participate more meaningfully in the second round.” India’s third-largest pharma company Cipla has also indicated that it will be interested in participating in the second phase of the PLI scheme.

Kunal Chaudhary, Tax Partner, EY India said the expansion of the PLI scheme for IT Hardware will not only enable India to become an electronics manufacturing hub for the world, but also promises a substantial increase in value addition which will further the components ecosystems.

Spurred by the incentives provided under PLI last year, global brands such as Apple Inc, through its vendors, and Samsung lined up to participate in the scheme, which offered incentives of 4 to 6 per cent for five years on phones priced over $200, provided companies commit to incremental investment and production every year. It considers 2020 as the base year.

The government hopes to find similar success in other areas by providing similar incentives for boosting manufacturing of mobile devices.

Last year, the government had announced a Rs 6,940-crore PLI scheme to boost local manufacturing of bulk drugs (raw materials to make medicines), as India imports almost 70 per cent of its requirement of bulk drugs. Then in November, the Cabinet gave a nod to a Rs 15,000-crore scheme for pharmaceutical products and now the finer print of the scheme is out.

The idea is two-pronged — one reduces imports of high-value products like patented drugs, cell-based or gene therapy products, etc while the other boosts local manufacturing to a scale that India becomes a net exporter of these products. The government last week launched the PLI scheme for telecom and networking products, with an outlay of Rs 12,195 crore over five years.

PE-VC investments down 35% at $1.6 b in January

Source: The Hindu Business Line, Feb 18, 2021

Mumbai: Private equity and venture capital (PE/VC) investments in January 20201 stood at $1.6 billion across 80 deals, a 35 per cent fall from the same month last year, primarily on account of fewer large deals. From a sector perspective, e-commerce emerged as the top sector recording investments worth $689 million, the first time in over two years.

The investments were 77 per cent lower from December 2020 ($2.5 billion in January 2019 and $7.1 billion in December 2020). The reporting month also recorded three PE-backed initial public offerings (IPOs) worth $165 million, according to a report by Indian Private Equity & Venture Capital Association and EY (IVCA-EY).

The month recorded three large deals (value greater than $100 million) worth $680 million compared to five large deals worth $1.4 billion in January 2019 and 12 large deals worth $6.0 billion in December 2020. The largest deals saw a group of investors including Tencent, Lightspeed, Altimeter Capital invest $280 million in Udaan.com, an online B2B trading platform, followed by Tiger Global, Steadview, Fidelity and others investing $250 million in Zomato, a platform for online food ordering and delivery.

In January, growth investments were the largest deal segment with $717 million recorded across 17 deals ($1 billion across 14 deals in January 2019). Start-up investments recorded $599 million across 52 deals ($449 million across 50 deals in January 2019). Buyouts recorded $150 million in investments in one deal ($71 million across three deals in January 2019).

With about 15 deals, e-commerce accounted for 43 per cent of all investments in January and the second-highest value of monthly investments in the sector in the past 18 months.

Infrastructure was next in line with $177 million invested across four deals, followed by financial services with $176 million invested across 15 deals and then pharmaceuticals with $111 million invested across three deals.

Exits
The month recorded nine exits worth $313 million, 32 per cent lower than the value of exits in January 2019 ($461 million) and 70 per cent lower than the value recorded in December 2020 ($1 billion). IPO exits in January 2021 were highest at $165 million across three deals.

The largest exit in January 2021 saw Sequoia sell partial stake (8.8 per cent) in Indigo Paints for $87 million.

Fund-raise
The fund-raise in January stood at $854 million compared to $742 million during the same month of last year. The largest fund-raise was by Godrej Fund Management which raised $250 million in the first tranche of its $500-million fund to develop prime office buildings.

Outlook
“Looking ahead, the deal pipeline remains robust and investment teams of most large- and medium-sized PE funds are working flat out diligencing and negotiating multiple deals. In our view, the global macro has thrust the India investment opportunity in a favourable position and most PE/VC investors are inclined towards investing increased amounts in larger deals,” Vivek Soni, Partner and National Leader Private Equity Services, EY, said. “Notwithstanding the slow start to PE/VC investments in January, we expect things to pick up and retain our bullish outlook for 2021 for both PE/VC investments as well as exits,” he added.

Finance Ministry to infuse Rs 3,000 crore in general insurance companies this quarter

Source: The Economic Times, Feb 14, 2021

NEW DELHI: The Finance Ministry will infuse Rs 3,000 crore capital into state-owned general insurance companies during the current quarter in a bid to improve their financial health. Last year, the Union Cabinet headed by Prime Minister Narendra Modi cleared proposal to provide capital support to National InsuranceOriental Insurance and United India Insurance.

The cabinet had also decided to increase the authorised share capital of National Insurance Company Limited (NICL) to Rs 7,500 crore and that of United India Insurance Company Limited (UIICL) and Oriental Insurance Company Limited (OICL) to Rs 5,000 crore each to give effect to the capital infusion decision.

Recently, the government sought Parliament nod for gross additional expenditure of Rs 6.28 lakh crore for 2020-21 as part of second and final batch of supplementary demands for grants.

This included Rs 3,000 crore for providing additional funds towards recapitalisation of insurance companies.

The infusion will be done after the supplementary demands for grants is passed by Parliament which will reconvene on March 8.

The capital infusion will enable the three public sector general insurance companies to improve their financial and solvency position, meet the insurance needs of the economy, absorb changes and enhance the capacity to raise resources and improve risk management.
Finance Minister Nirmala Sitharaman in the Budget announced privatization of two public sector banks and one general insurance company in 2021-22 beginning April.

In 2017, state-owned companies New India Assurance Company and General Insurance Corporation of India went public.