Fiscal deficit may widen to 3.8% for current financial year: Report

Source: The Economic Times, Jan 25, 2019

Mumbai: The country’s fiscal deficit for 2019-20 is expected to widen to 3.8 per cent and the upcoming Budget may set a target of 3.5 per cent for 2020-21, a report said on Friday.

The first full-year Budget of the current government, to be presented on February 1, will focus on reviving consumption demand through base-level income tax cuts, interest subvention for small and medium businesses and housing, Bank of America Securities said.

A correction in consumption demand is cited as a major reason for a dip in economic growth to a decadal low of 5 per cent.

As calls to revive the growth momentum increase, all eyes are set on Finance Minister Nirmala Sitharaman’s strategy on fiscal deficit, as tightening of the gap may not help in the aim.

“We continue to believe that expansionary counter-cyclical fiscal policy is the need of the hour. We expect the finance minister to target higher fiscal deficits of 3.8 per cent of GDP (up from 3.3 per cent budgeted) in FY20 and 3.5 per cent in FY21,” analysts at the American brokerage said.

It added that the sharp corporate tax cut announced last year will result in a recurring 0.8 per cent sacrifice for the next two years but added that the government has room as per the N K Singh committee report, and also pointed to the long-term fiscal deficit being at 4.5 per cent.

On the income tax front, there could be a cut at the lower-income group levels to push consumption, while small businesses may be offered a 2 per cent interest subvention on all their borrowings, it said.

The subvention is necessary to compensate the troubled segment from the 0.85 per cent increase in real lending rates since March, it said adding that the cost of the 2 per cent subvention will come at Rs 21,100 crore or 0.1 per cent of GDP.

There can also be an announcement of an interest subvention for homebuyers for the first year to rekindle the sagging realty demand, it said.

RBI ups investment limit for FPIs in govt, corporate bonds

Source:, Jan 24, 2019

NEW DELHI: The Reserve Bank of India on Thursday raised the investment limit for FPIs in government and corporate bonds to bring in more foreign funds into the market.

Currently, short-term investments by a foreign portfolio investors (FPI) should not exceed 20 per cent of the total investment of that FPI in either central government securities (including treasury bills) or state development loans or corporate bonds.

The short-term investment limit has now been increased from 20 per cent to 30 per cent in both cases, the RBI said in a circular.

The central bank has also made a relaxation in the voluntary retention route (VRR) for FPI investments in debt. The investment cap through VRR has been doubled to ₹1.5 lakh crore, the RBI said in another circular.

“FPIs that have been allotted investment limits under VRR may, at their discretion, transfer their investments made under the general investment limit to VRR,” the bank said.

FPIs are also allowed to invest in exchange-traded funds that invest only in debt instruments, it added.

The RBI had introduced VRR in March 2019. This helped FPIs to invest in debt markets in India.

PE, VC investments in India grew 28% to $48 billion in 2019, says EY data

Source: Business Standard, Jan 23, 2019

Chennai: Private equity and venture capital investments in 2019 were at an all-time high in terms of both value and volume. In terms of value, at $48 billion, PE/VC investments grew 28 per cent compared to $37.4 billion recorded in 2018.

According to EY data, the growth was mainly on account of significant investments in the infrastructure sector which alone accounted for 30 per cent of all investments in 2019 by value compared to 12 per cent in 2018.

The data included deals that were announced but are awaiting closure like ADIA, PSP and NIIF’s investment in GVK and others.

In terms of volume, 2019 recorded 1,037 deals, 35 per cent increase over from a year-ago period (769 deals in 2018), 60 per cent of which were in the start-up space. In terms of number of deals, start-ups recorded a 61 per cent increase in deal activity in 2019 compared to last year (378 deals in 2018).

While pure play PE/VC investments recorded a decline of three per cent, there was a significant increase in investments in the infrastructure and real estate asset classes which recorded an increase of 225 per cent and 33 per cent, respectively, on a y-o-y basis.

The year 2019 recorded the highest ever value of PE/VC investments in the infrastructure ($14.5 billion against $4.5 billion in 2018) and real estate ($6.1 billion against $4.6 billion in 2018) sectors.

For the first time, buyouts emerged as the primary PE/VC deal type, overtaking growth capital deals and accounting for 34 per cent of all PE/VC investments by value in 2019.

Buyouts recorded the largest increase of 56 per cent in terms of value ($16.2 billion in 2019 against $10.4 billion in 2018).

In the past two years, buyouts clocked $26.7 billion in deal value, which is more than the value of buyouts in the previous 12 years combined. Also, number of buyouts in 2019 (58 deals) are the highest ever. Once again, this has been driven by significant increase in the value (180 per cent increase y-o-y) and number (123 per cent increase y-o-y) of buyouts in the infrastructure and real estate sectors. Buyouts in the traditional PE/VC space, however, recorded declines in both value (26 per cent decline y-o-y) and volume (19 per cent decline y-o-y) in 2019.

Growth capital investments, at $14.5 billion, recorded modest increase of 9 per cent in 2019 against $14.2 billion in 2018. This too was primarily on account of increase in growth investments in infrastructure and real estate sectors which rose by 136 per cent ($7.3 billion in 2019 against US$3.1 billion in 2018) in terms of value and 97 per cent in terms of volume (59 deals in 2019 against 30 deals in 2018) respectively. Pure play PE/VC growth capital investments recorded a decline of 26 per cent in terms of value and 13 per cent in terms of volume.

Start-up investments in 2019 were the highest ever in terms of value and volume. 2019 recorded start-up investments worth US$7.9 billion, 22 per cent higher compared to US$6.5 billion in 2018. Softbank’s investment of US$810 million in OYO was the largest start-up investment in 2019.

There were 111 large deals (value greater than $100 million) in 2019, aggregating to $35.2 billion and accounting for 73 per cent of total PE/VC investments made in 2019 compared to 81 large deals aggregating $27.9 billion in 2018. The value and volume of large deals have been progressively increasing over the past four to five years.

World Bank approves Rs 630 crore loan to Assam Inland Water Transport

Source: The Economic Times, Jan 17, 2019

GUWAHATI: The World Bank has approved a loan of Rs 630 crore to Assam Inland Water Transport (AIWT) for modernisation of the state’s passenger ferry services on Brahmaputra and other rivers.

Under the Assam Inland Water Transport Project (AIWTP), the infrastructure of passenger ferry services will be improved and the capacity of institutions running the inland water transport will be strengthened. Better-designed terminals and energy-efficient vessels will make the ferry services more sustainable with least disruption to nature. Of the total project cost of Rs. 770 crore, the bank will provide Rs. 630 crore.

In an official communique, state government stated that the loan was signed between AIWTP, to be executed by Government of Assam, and World Bank India’s country director in presence of Additional Secretary (FB & ADB), Department of Economic Affairs.

The state delegation was represented by AIWTDS state project director Adil Khan and deputy state project director Rahul Chandra Das. With the World Bank’s support, the government will create an institutional framework to turn inland waterways into a mode of transport, which is both attractive and well-suited to the people.

Assam’s ferry services are integral to the lives of the people living both in the Brahmaputra Valley and Barak Valley. With better navigation aid, appropriate safety gear and suitable marine engines, the ferry services are expected to get more reliable and safer. The project will also help build modern ferry terminals. It will follow the ‘working with nature’ principle that aim to design new infrastructure and rehabilitate the existing one in a way that works with natural river processes. The project will be initiated at Guwahati and Majuli.

The project will also improve the infrastructure of ferry services and focus on safety of women passengers. The terminals will have better access, lighting and signages, while the new vessels will be equipped with individual seats and washroom facility. A strengthened regulatory regime will ensure reduced overloading, adherence to time schedule and better crew standards.

Government plans new law to protect foreign investment

Source: Business Standard, Jan 09, 2019

NEW DELHI : India is planning a new law to safeguard foreign investment by speeding up dispute resolution, aiming to attract more capital from overseas to boost stuttering domestic growth, two officials with direct knowledge of the matter told Reuters.

In a 40-page initial draft, India’s finance ministry has proposed appointing a mediator and setting up fast-track courts to settle disputes between investors and the government, one of the sources said.

“The idea is to attract and promote foreign investment, but a major issue for investors is enforcement of contracts and speedy dispute resolution,” said the official.

The draft proposal is aimed at diffusing investor mistrust around the sanctity of agreements, which has worsened recently after some state governments decided to review approved projects, or threatened to cancel contracts.

Both officials declined to be named as the proposal is not public, and is still being assessed by different ministries and regulators.

A spokesman for the finance ministry did not respond to a request for comment.

Foreign investors have highlighted the enforcement of contracts as one of their biggest concerns, said the second official, adding that improving on this front would also reduce litigation for the government.

While investors can still rely on the existing legal system to settle disputes, it often takes several years for cases to be decided or settled.

Investors previously had an option to take India to international arbitration courts under bilateral investment treaties (BITs) the government had agreed with dozens of nations. But, after suffering setbacks in overseas arbitration matters, India has allowed most of its treaties to lapse, giving investors little to fall back on in case of major disputes.

BITs are agreements between two countries that give foreign investors protections, and among other things, legal recourse via international arbitration in disputes with a government.

India is entangled in more than 20 such overseas arbitration cases – the most against any country – brought by companies including Vodafone, Deutsche Telekom and Nissan Motor Co for disputes over retrospective tax claims and breach of contracts.

If India loses these cases, brought before most of its BITs lapsed, it could end up paying billions of dollars in damages.

The government’s thinking is that India may not need to sign investment treaties with other nations if the new law, which is modelled on a BIT, can give confidence to investors, said the first source.

A domestic law, however, cannot be a substitute for a BIT as its scope cannot allow investors to take their case to international arbitration, the sources said.

India lost over $1.3 billion to internet shutdowns last year, says study

Source: Business Standard, Jan 10, 2019

New Delhi: India lost over $1.3 billion in internet shutdowns across the country — lasting 4,196 hours in 2019 — making it the third-most economically affected country after Iraq and Sudan, says a new study.

The report, titled The Global Cost of Internet Shutdowns, in 2019 by internet research firm Top10VPN, worked on calculating the data in major regions of the world using the COST tool. The tool was developed by internet monitoring NGO Netblocks and advocacy group The Internet Society, and uses indicators from the World Bank, ITU, Eurostat, and US Census.

The total cost of internet shutdowns across the world, according to the report, stood at $8.05 billion in 2019, an increase of 235 per cent since 2015-16.

The report also looked at data collated by not-for-profit legal services organisation Software Freedom Law Foundation. Its internet shutdown tracker for India calculated 106 shutdowns in 2019.

“India imposes internet restrictions more often than any other country, with over 100 shutdowns documented in 2019,” said Samuel Woodhams and Simon Migliano, authors of the report. “As they tend to be highly targeted — even down to the level of blacking out individual city districts for a few hours while security forces try to restore order — many of these incidents have not been included in this report, which instead focused on larger region-wide shutdowns. The full economic impact is, therefore, likely to be higher even than our $1.3 billion figure,” they added.

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India official sees Budget gap widening to 3.8%, over target

Source: The Economic Times, Jan 08, 2019

India’s budget deficit could widen to 3.8% of gross domestic product in the current fiscal year, breaching a target of 3.3%, according to a senior official.

The law allows the government to exceed the target by as much as half a percentage point, the official told reporters, asking not to be identified in line with rules. The government can also miss its target if it faces acts of war, a collapse in farm output, or the economy is undergoing structural reforms with unanticipated fiscal implications.

The government is facing a revenue crunch as economic growth slows, putting pressure on the budget. An official GDP estimate published Tuesday showed India’s economy will probably grow 5% in the fiscal year to March and post nominal growth of 7.5%. That’s lower than the 11.5% nominal growth the government forecast in its budget in July.

The reduction in nominal GDP estimates will push the government’s fiscal deficit higher by 12 basis points, or upwards of 3.4%, said Soumya Kanti Ghosh, chief economist at State Bank of India in Mumbai.

Prime Minister Narendra Modi’s government has already breached its deficit goals in the previous two years. The shortfall exceeded the target by 1 percentage point in the last fiscal year and by 3 percentage points the year before.

Reserve Bank of India Governor Shaktikanta Das told the Financial Express newspaper last month that economic conditions were appropriate for the government to invoke the clause that allows it to widen the deficit.