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.

Public, private sector banks disburse loans worth Rs 1.42 trn under ECLGS

Source: Business Standard, Feb 08, 2021

Public and private sector banks have disbursed loans worth over Rs 1.42 trillion under the Emergency Credit Line Guarantee Scheme (ECLGS).

About Rs 1.98-trillion loans have been sanctioned by the banks to MSMEs, Parliament was informed. The government had allocated Rs 4,000 crore as assistance to National Credit Guarantee Trustee Company for 2020-21, and the expenditure has been Rs 4,000 crore as of January 22, MoS Finance Anurag Thakur said. Under the Aatmanirbhar Bharat package, the government has provided 274,000 metric tonne of foodgrains to 54.8 million migrants and 16,751 metric tonne channa to 16.7 million migrants through state and union territories.

17 Rafale jets by March: Rajnath

India will have 17 Rafale jets by March this year and the entire fleet of the fighter aircraft bought by the country will reach by April 2022.

In 2016, India had signed an inter-governmental agreement with France to procure 36-Rafale jets for Rs 59,000 crore.

Black money

The government, as of December 31, 2020, has issued notices in 475 cases under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, involving undisclosed foreign assets and income of over Rs 14,300 crores.

Undisclosed income of over Rs 8,460 crores has been brought to tax and penalty of more than Rs 1,290 crores has been levied in deposits made in unreported foreign bank accounts in HSBC cases. In the Panama Paper leaks investigations, undisclosed foreign investments amounting to over Rs 1,700 crores have been detected.

Unclassified bad loans surge to ₹42,000 cr at top pvt banks

Source: LiveMint.com, Feb 04, 2021

The 10 largest private sector banks in India have bad loans worth over ₹42,000 crore that are still to be classified due to the court-ordered asset quality standstill, showed data compiled by Mint.

Yes Bank Ltd reported the highest unclassified bad assets of over ₹8,000 crore in the December quarter. While lenders have set aside sufficient provisions under the Reserve Bank of India’s (RBI) guidelines, the loans, once classified, will add to the existing burden of NPAs on their books.

Banks have classified such loans as proforma bad loans in notes to accounts, but they are not part of the gross non-performing asset (NPA) numbers.

RBI estimates bad loans to touch a near 22-year high under a baseline stress scenario. That said, most bankers are concerned about retail and small business loans, considering that only a fraction of retail borrowers has submitted debt recast requests. For instance, Axis Bank Ltd reported 84% of its gross slippages under the extant guidelines originating from the retail portfolio.

“Retail slippages that we have talked about are equally split between unsecured and secured, with most of the post-moratorium pain absorbed this quarter,” Amit Talgeri, chief risk officer, Axis Bank, told analysts on 27 January. He said the bank’s inability to take legal action against customers of secured products such as mortgages for not repaying their dues, following the Supreme Court order over non-classification of NPAs, has had an impact on recovery for the private sector lender.

On 3 September, the apex court ordered an interim stay on classifying bad loans if not declared so by 31 August, and banks were expected to use this relaxation till the final orders were passed.

According to S&P Global Ratings, India has the highest non-performing asset (NPA) ratio among the major economies in the Asia Pacific, estimated at around 10% for the next 12 months. However, the country’s share is less than 3% of all loans in the region.

Bankers said the rate of accretion of fresh bad loans was slower in the December quarter, than what was initially anticipated. Most expect the March quarter to be better than Q3 in terms of asset quality, but the final picture will emerge only after the Supreme Court delivers its verdict. That said, lenders are still hesitant about forecasting slippages for the coming quarters owing to the uncertainty.

“We will be in a better position after the Supreme Court’s decision is sort of clear and final. But let us see one more quarter of real payments, real post standstill clause being lifted kind of payment, but it looks reasonably okay, given that the SMA-1 and 2 for this segment look quite encouraging,” Shyam Srinivasan, chief executive, Federal Bank told analysts on 20 January.

The central bank has been concerned about the fallout of the prolonged standstill on banks’ asset quality and appealed before the Supreme Court in October. It said that the court’s order will have huge implications for the banking system if it is not lifted immediately and undermines RBI’s regulatory mandate. To be sure, banks are also recovering loans from this pool of bad assets, apart from giving them the benefit of debt recast under the one-time restructuring window.

With off-budget borrowings, FY22 fiscal deficit rises to 6.9%: Report

Source: Business Standard, Feb 02, 2021

The fiscal deficit target will go up by 10 basis points to 6.9 per cent of the GDP if the extra-budgetary borrowings of Rs 30,000 crore, which is massively down from Rs 1.3 lakh crore this fiscal, is added, according to a report.

The budget has pegged fiscal deficit at 9.5 per cent for FY21 and 6.8 per cent for FY22 excluding the off-budget borrowings of Rs 1.3 lakh crore and Rs 30,000 crore, respectively.

But if we included these numbers, the deficit numbers would rise by 70 basis points to 10.2 per cent for FY21 and 6.9 per cent of GDP for FY22, according to a SBI Research report.

At 6.9 per cent for the centre and 4 per cent for the states, the combined market borrowings next fiscal will be Rs 23.3 lakh crore. Of this, the centre’s net borrowings are seen at Rs 8.9 lakh crore and gross borrowings at Rs 12.05 lakh crore in FY22. Read the rest of this entry »

Budget 2021 Highlights

Source: Times of India, Feb 01, 2021

NEW DELHI: Union finance minister Nirmala Sitharaman presented the Union Budget 2021 in Parliament on Monday.

The finance minister provided a major boost to healthcare and infrastructure in Union Budget 2021. However, there was no change in Income Tax slabs this year.

In her speech, the finance minister mentioned that this year’s budget proposals rest on six pillars — health and well-being, physical, financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D and minimum government and maximum governance.

Prime Minister Narendra Modi on Monday said that the Union Budget 2021 has been presented amid unprecedented circumstances. He added that it is a proactive, not reactive budget and will boost India’s self-confidence. Read the rest of this entry »

Govt may go for higher external financing

Source: The Hindu Business Line, Jan 28, 2021

New Delhi: The Budget is expected to turn to external financing of the fiscal deficit during FY22. The gross marketing borrowing, however, is likely to be less than the enhanced amount for the current fiscal.

Loans from multilateral agencies such as the World Bank, IMF, ADB and the bilateral JICA will constitute the external financing. These funds are mainly used for long-term financing and carry much lower interest rates. A sovereign bond issue overseas is not a priority now.

External financing is one of the tools to bridge the fiscal deficit gap and is expected to be in the range of ₹60,000-65,000 crore, while the gross borrowing is likely to be around ₹10.5-11 lakh crore. The Budget Estimate for external financing for FY21 was ₹4,622 crore while the enhanced gross borrowing number is ₹12-lakh crore.

All-time high

The amount raised through external financing during the first eight months (April-November) in FY21 touched ₹38,495.5 crore, which is 833 per cent of the Budget Estimate.

This is an all-time high. During the corresponding period of last fiscal (FY20), it was actually an outflow, of 240 per cent of Budget Estimate. Government officials said considering the requirement of the infrastructure sector and due to limited long-term funding facility, higher external financing would be a better option. “Domestic borrowings is through G-Secs which have maturity period of 1-40 years. But as the needs for various schemes and programmes especially health, defence and education are very high, domestic borrowing will first be preferred there,” a senior government official said.

Devendra Kumar Pant, Chief Economist with India Ratings & Research (Ind-Ra), feels external financing of deficit could touch ₹55,000 crore. “Similar to FY21, Ind-Ra expects external financing of fiscal deficit to the tune of ₹67,050 crore, which is 5 per cent of the estimated fiscal deficit. He said the World Bank and its group committed $5.13 billion to India in 2020 from an average of $3 billion during 2017-2019. In 2021, the World Bank group has already committed for $1.04 billion.

Gross borrowing

To bridge the deficit (the gap between the expenditure and the income of the government), gross borrowing in FY22 is expected to be more than the Budget Estimate of ₹7-8 lakh crore but less than the revised borrowing of ₹12-lakh crore during the current fiscal. “No doubt more and more resources are required, but some good numbers from tax revenue and non-tax revenue are expected. This will have an impact on the borrowing requirements,” another official said.

PE/VC sector saw investments worth $47.6 billion in 2020

Source: The Hindu Business Line, Jan 28, 2021

Mumbai: The private equity and venture capital (PE/VC) sector recorded investments worth $47.6 billion across 921 deals in 2020, almost at par with the previous year, led by fund-raising by Reliance Group entities. Exits stood at $6 billion across 151 deals with open market exits accounting for 40 per cent of all deals by value.

Had it not been for the PE investments of $17.3 billion in Reliance Group firms, the year under review would have been 36 per cent lower than 2019. In terms of volume, number of deals in 2020 declined by 11 per cent compared to last year (921 deals in 2020 Vs 1,030 deals in 2019), according to a report by Indian Private Equity & Venture Capital Association and EY.

“PE/VC investment activity capped off a tumultuous 2020 on a high, closing out with over $7.1 billion of investments in December, making it the second-highest monthly total in 2020. While the Jio Platforms’ and Reliance Retail’s fund-raising juggernaut rolled on in May-June and September-November respectively, seemingly unaffected by the pandemic, Indian PE-VC investment activity ground to monthly average of less than $1.2 billion during March-June, the lowest ever in the past six years,” Vivek Soni, Partner and National Leader Private Equity Services at EY, said.

“July saw almost $4.1 billion of PE/VC investments (non-RIL entities) and as India continued to fare better than expected on both health and economic parameters, monthly PE/VC investment activity strengthened month-on-month,” he added.

Large deals (greater than $100 million) fell from 109 in 2019 to 66 (excluding RIL Group deals) largely due to the tepid deal-making for one-third of the year.

Infra sector hit

Consequently, while most sectors, barring the ones mentioned above witnessed declines in PE/VC investments, infrastructure sector investments declined the most, from $13.8 billion in 2019 to $5 billion in 2020. PE/VC exits too saw a significant decline of 46 per cent from 2019 levels, reaching a five-year low as pandemic induced lockdowns and the resulting disruptions roiled asset prices, forcing PE/VC investors to postpone stake sales to better times.

One of the biggest reasons for the relative decline in PE/VC investments in 2020 is the under-performance of the infrastructure and real estate sectors, which attracted the highest PE/VC investment in 2019, at $20 billion, accounting for 42 per cent of all PE/VC investments in 2019. In 2020, these sectors have received only $10.2 billion in investments, accounting for just 21 per cent of total PE/VC investments.

As a result, there has been a sharp decline in buyout activity as well, which has recorded a decline of 28 per cent in terms of value and 30 per cent in terms of volume. Infrastructure and real estate sectors accounted for 71 per cent of all buyouts by value in 2019 which has dropped to 61 per cent in 2020.

Exits

In 2020, exits fell by 46 per cent in value terms ($6 billion vs $11.1 billion in 2019) and is the lowest value in six years. In terms of volume, exits declined by 4 per cent compared to 2019 (151 deals in 2020 vs 157 deals in 2019). The decline was mainly due to fewer large deals. Exits via open market were the highest at $2.4 billion (67 deals) in 2020, 47 per cent fell compared to 2019. Exits via initial public offerings (IPOs) were second in line with $1.2 billion recorded across nine IPOs ($247 million across eight IPOs in 2019), which includes the $1 billion SBI Cards partial exit by Carlyle.

Centre releases rural local body grants worth Rs 12,351 crore to states

Source: The Economic Times, Jan 27, 2021

The Ministry of Finance released grants worth Rs 12,351 crore to 18 states towards the development of rural local bodies (RLBs) on Wednesday, according to an official statement.

This took the total grants released so far towards RLBs to Rs 45,738 crore in the ongoing fiscal.

It also marked the second installment of the basic grants towards RLBs in FY21 as per the recommendations of the 15th Finance Commission (FC).

The 18 states received the second installment after receiving certification of utilisation of the first installment from the ministry of panchayati raj.

From the RLB grants, Uttar Pradesh received the highest amount of Rs 7,314 crore followed by Maharashtra with Rs 4,370 crore and Bihar at Rs 3,763 crore.

The states are required to release the grants to RLBs within ten working days of receipt from the Centre while delays beyond this timeline require the states to transfer the amount along with interest, the ministry said.


As part of its interim report in November 2019, the 15th FC had recommended two types of grants to the RLBs, basic and tied, towards all three tiers of panchayati raj – village, block and district level.

While basic grants can be used by the local bodies for location-specific needs other than salary or other establishment expenditures, tied grants can be used for basic services of sanitation and maintenance of open defecation free status and supply of drinking water, rain water harvesting and water recycling.

In June last year, the Centre released Rs 18,199 crore as basic grants for RLBs to the states along with arrears of 14th FC. Thereafter, the first installment of tied grants was released amounting to Rs 15,187 crore.