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GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

  • National Monetization Pipeline shows promise — and limits

    The government of India recently announced an asset monetization plan, wherein existing public assets worth Rs 6 trillion would be monetized by leasing them out to private operators for fixed terms.

    The plan has generated a lot of print so it is worth discussing its pros and cons.

    About NMP

    • The identified assets are primarily concentrated in roads, railways, power, oil and gas, and telecoms.
    • The lease proceeds are expected to be used for new infrastructure investment which, in turn, will contribute to the government’s ambitious Rs 111 trillion infrastructure investment plan.

    Important issues raised by the plan

    [I] How much should the government expect to raise from the plan?

    Revenue Potential

    • In deciding the amount to bid for leasing rights, bidders compute the present discounted value of the annual cash flow from the asset for the duration of the lease.
    • The biggest uncertainty in this calculation surrounds the cash flow on these public assets.
    • Rates of return estimates on public capital in the US have been estimated to be upwards of 15 per cent.
    • However, this is India with its myriad uncertainties regarding pricing, bill collection, asset quality, regulatory framework as well as policy reversals.
    • Hence there is significant uncertainty regarding the revenue potential of the plan.

    [II] Is the plan likely to increase the efficiency of the economy?

    a. Efficiency of the economy

    • The NITI Aayog believes that the private sector is better at managing and operating the identified public assets than the public sector.
    • There is certainly scope for efficiency gains. However, there are significant efficiency impediments too.
    • One set of efficiency issues surrounds usage fees. A second factor related to efficiency is the effect of the plan on competition.

    b. Stressed sectors

    • The identified assets belong to core sectors of the economy spanning transport, energy and communication.
    • Sectors like telecoms and ports have already seen rising concentration of ownership in recent years.
    • An acceleration and extension of this trend to other segments of the infrastructure landscape would be seriously worrying.
    • While some of this could well be rationalized through the stipulation of rules for the allocation of leasing rights, the plan is silent on this.

    c. Financing of the lease bids

    • If bidders finance their bids using domestic savings, there is a clear opportunity cost of the plan since these savings would otherwise have been invested in alternative projects.
    • Moreover, the bidding for scarce domestic savings by prospective investors will also raise domestic interest rates which will put downward pressure on domestic private investment.
    • It would also be worth reminding ourselves that the last round of PPP-based infrastructure funding routed through banks ended up with a heap of NPAs in public sector bank balance sheets.

    Biggest flaw of the NMP

    • No clear objective: The biggest drawback of the plan is that it fails to articulate the reasons for public sector inefficiency in asset management.
    • No focus on management: If it is personnel-related, then privatizing management may be the right answer. If the inefficiency is related to constraints on pricing and bill collection, then the roots of the problem are unlikely to be addressed by leasing out their management to private operators.
    • No clear assessment of underperforming sectors: The plan document also fails to outline whether the identified brownfield assets are the public sector’s highest cash flow assets or the relatively under-performing ones.

    Better alternatives for the govt

    • The way around this is to welcome foreign investors to bid for the assets.
    • But this will require serious political will since entrenching foreign influence on Indian public assets will generate controversy.
    • On this aspect too, the announced plan is low on details.

    Way forward

    • If the private sector is indeed more efficient in running infrastructure assets, the most efficient strategy would be to lease out the worst-performing assets rather than the best performing ones.
    • The NITI Aayog would do the policy landscape a big service by following up the proposal with a white paper that addresses some of these efficiency-related issues.
    • Without that, the monetization plan, while intriguing, is incomplete.

    Conclusion

    • A monetization plan envisages the private sector paying an upfront fee to the government which the government uses for new infrastructure investment.
    • As much as private bidders finance themselves by borrowing, this amounts to the private sector borrowing and handing over the funds to the government to invest in infrastructure.
    • This could enhance efficiency in infrastructure investment only if the government faces higher interest rates in capital markets than the private sector.

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  • [pib] PLI Scheme for White Goods

    A total of  52 companies have filed their application with a committed investment of Rs 5,866 crore under the PLI scheme to incentivize the domestic manufacturing of components of White Goods.

    What are White Goods?

    • White goods refer to heavy consumer durables or large home appliances, which were traditionally available only in white.
    • They include appliances such as washing machines, air conditioners, stoves, refrigerators, etc. The white goods industry in India is highly concentrated.

    Why PLI scheme for white goods?

    • Indian appliance and consumer electronics (ACE) market reached INR 76,400 crore (~$10.93 bn) in 2019.
    • Appliances and consumer electronics industry is expected to double to reach INR 1.48 lakh crore (~$21.18 bn) by 2025.
    • The PLI Scheme on White Goods is designed to create complete component ecosystem for Air Conditioners and LED Lights Industry in India and make India an integral part of the global supply chains.
    • Only manufacturing of components of ACs and LED Lights will be incentivized under the Scheme.

    What is PLI Scheme?

    • As the name suggests, the scheme provides incentives to companies for enhancing their domestic manufacturing apart from focusing on reducing import bills and improving the cost competitiveness of local goods.
    • PLI scheme offers incentives on incremental sales for products manufactured in India.
    • The scheme for respective sectors has to be implemented by the concerned ministries and departments.

    Criteria laid for the scheme

    • Eligibility criteria for businesses under the PLI scheme vary based on the sector approved under the scheme.
    • For instance, the eligibility for telecom units is subject to the achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.
    • The minimum investment threshold for MSME is Rs 10 crore and Rs 100 crores for others.
    • Under food processing, SMEs and others must hold over 50 per cent of the stock of their subsidiaries, if any.
    • On the other hand, for businesses under pharmaceuticals, the project has to be a greenfield project while the net worth of the company should not be less than 30 per cent of the total committed investment.

    What are the incentives offered?

    • An incentive of 4-6 per cent was offered last year on mobile and electronic components manufacturers such as resistors, transistors, diodes, etc.
    • Similarly, 10 percent incentives were offered for six years (FY22-27) of the scheme for the food processing industry.
    • For white goods too, the incentive of 4-6 per cent on incremental sales of goods manufactured in India for a period of five years was offered to companies engaged in the manufacturing of air conditioners and LED lights.

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  • GST Council may consider bringing petrol, diesel under GST

    The GST Council might consider taxing petrol, diesel and other petroleum products under the single national GST regime.

    About GST Council

    • The GST Council is a constitutional body that aims to bring together states and the Centre on a common platform for the nationwide rollout of the indirect tax reform.
    • It is an apex member committee to modify, reconcile or to procure any law or regulation based on the context of goods and services tax in India.
    • It dictates tax rate, tax exemption, the due date of forms, tax laws, and tax deadlines, keeping in mind special rates and provisions for some states.
    • The predominant responsibility of the GST Council is to ensure to have one uniform tax rate for goods and services across the nation.

    How is the GST Council structured?

    • The GST is governed by the GST Council. Article 279 (1) of the amended Indian Constitution states that the GST Council has to be constituted by the President within 60 days of the commencement of Article 279A.
    • According to the article, the GST Council will be a joint forum for the Centre and the States. It consists of the following members:
    1. The Union Finance Minister will be the Chairperson
    2. As a member, the Union Minister of State will be in charge of Revenue of Finance
    3. The Minister in charge of finance or taxation or any other Minister nominated by each State government, as members.

    Terms of reference

    • Article 279A (4) specifies that the Council will make recommendations to the Union and the States on the important issues related to GST, such as the goods and services will be subject to or exempted from the Goods and Services Tax.
    • They lay down GST laws, principles that govern the following:
    1. Place of Supply
    2. Threshold limits
    3. GST rates on goods and services
    4. Special rates for raising additional resources during a natural calamity or disaster
    5. Special GST rates for certain States

    Why bring Petro/Diesel under GST?

    • GST is being thought to be a solution for the problem of near-record high petrol and diesel rates in the country, as it would end the cascading effect of tax on tax.
    • The state VAT is being levied not just on the cost of production but also on the excise duty charged by the Centre on such output.

    Why were they left out of GST?

    • When a national GST subsumed central taxes such as excise duty and state levies like VAT on July 1, 2017, five petroleum goods – petrol, diesel, ATF, natural gas and crude oil – were kept out of its purview.
    • This is because both central and state government finances relied heavily on taxes on these products.
    • Since GST is a consumption-based tax, bringing petroleum under the regime would have mean states where these products are sold get the revenue and not the producer ones.
    • Simply put, Uttar Pradesh and Bihar with their huge population and a resultant high consumption would get more revenues at the cost of states like Gujarat.

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  • National Financial Reporting Authority (NFRA)

    Audit regulator National Financial Reporting Authority (NFRA) wants to be positioned as a regulator for the entire gamut of financial reporting, covering all processes and participants in the financial reporting chain.

    What is NFRA?

    • NFRA is an independent regulator to oversee the auditing profession and accounting standards in India under Companies Act 2013.
    • It came into existence in October 2018.
    • After the Satyam scandal took place in 2009, the Standing Committee on Finance proposed the concept of the National Financial Reporting Authority (NFRA) for the first time in its 21st report.
    • Companies Act, 2013 then gave the regulatory framework for its composition and constitution.

    Functions

    • NFRA works to improve the transparency and reliability of financial statements and information presented by listed companies and large unlisted companies in India.

    Powers & duties

    • NFRA is responsible for recommending accounting and auditing policies and standards in the country.
    • It may undertake investigations, and impose sanctions against defaulting auditors and audit firms in the form of monetary penalties and debarment from practice for up to 10 years.
    • Since 2018, the powers of the NFRA were extended to include the governing of auditors of companies listed in any stock exchange, in India or outside of India, unlisted public companies above certain thresholds.

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  • [pib] Transport and Marketing Assistance (TMA) scheme for Specified Agriculture Products

    The Centre has revised “Transport and Marketing Assistance” (TMA) scheme for Specified Agriculture Products’.

    What is the TMA Scheme?

    • The TMA Scheme was introduced in 2019 to provide assistance for the international component of freight, to mitigate the disadvantage of higher freight costs faced by the Indian exporters of agriculture products.
    • All exporters, duly registered with relevant Export Promotion Council as per Foreign Trade Policy, of eligible agriculture products, shall be covered under this scheme.
    • The assistance, at notified rates, will be available for the export of eligible agriculture products to the permissible countries, as specified from time to time.
    • Assistance would be provided in cash through a direct bank transfer as part reimbursement of freight paid.

    Following major changes have been made in the revised scheme:

    • Dairy products, which were not covered under the earlier scheme, will be eligible for assistance under the revised scheme.
    • Rates of assistance have been increased, by 50% for exports by sea and by 100% for exports by air.

    List of ineligible products

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  • PLI Scheme for Textiles

    The Union Government has approved Production Linked Incentive (PLI) Scheme for Textiles.  This move is a part of the overall announcement of PLI Schemes for 13 sectors made earlier during the Union Budget 2021-22.

    What is PLI Scheme?

    • As the name suggests, the scheme provides incentives to companies for enhancing their domestic manufacturing apart from focusing on reducing import bills and improving the cost competitiveness of local goods.
    • PLI scheme offers incentives on incremental sales for products manufactured in India.
    • The scheme for respective sectors has to be implemented by the concerned ministries and departments.

    Criteria laid for the scheme

    • Eligibility criteria for businesses under the PLI scheme vary based on the sector approved under the scheme.
    • For instance, the eligibility for telecom units is subject to the achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.
    • The minimum investment threshold for MSME is Rs 10 crore and Rs 100 crores for others.
    • Under food processing, SMEs and others must hold over 50 per cent of the stock of their subsidiaries, if any.
    • On the other hand, for businesses under pharmaceuticals, the project has to be a greenfield project while the net worth of the company should not be less than 30 per cent of the total committed investment.

    What are the incentives involved?

    • An incentive of 4-6 per cent was offered last year on mobile and electronic components manufacturers such as resistors, transistors, diodes, etc.
    • Similarly, 10 percent incentives were offered for six years (FY22-27) of the scheme for the food processing industry.
    • For white goods too, the incentive of 4-6 per cent on incremental sales of goods manufactured in India for a period of five years was offered to companies engaged in the manufacturing of air conditioners and LED lights.

    What is in the box for Textiles?

    • The PLI scheme for textiles aims to promote the production of high value Man-Made Fibre (MMF) fabrics, garments and technical textiles.
    • Any person or company willing to invest a minimum of Rs 300 crore in plant, machinery, equipment and civil works (excluding land and administrative building cost) to produce products of MMF fabrics, garments and products of technical textiles will be eligible.
    • Investors willing to spend a minimum of Rs 100 crore under the same conditions shall be eligible.

    Benefits offered

    • PLI scheme for Textiles will promote production of high value MMF Fabric, Garments and Technical Textiles in country.
    • The incentive structure has been so formulated that the industry will be encouraged to invest in fresh capacities in these segments.
    • This will give a major push to the growing high-value MMF segment which will complement the efforts of the cotton and other natural fiber-based textiles industry.
    • This will help to generate new opportunities for employment and trade, resultantly helping India regain its historical dominant status in global textiles trade.

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    Back2Basics: India’s textile sector

    • The textile industry in India traditionally, after agriculture, is the only industry that has generated huge employment for both skilled and unskilled labour.
    • The domestic textiles and apparel industry contributes 5% to India’s GDP, 7% of industry output in value terms, and 12% of the country’s export earnings.
    • The textile industry continues to be the second-largest employment generating sector in India. It offers direct employment to over 35 million in the country.
    • India is first in global jute production and shares 63% of the global textile and garment market. India is second in global textile manufacturing and also second in silk and cotton production.
    • 100% FDI is allowed via automatic route in textile sector.

  • The economic reforms — looking back to look ahead

    Context

    The economic reforms, so far, have been more focused on the technical nature of the economy than the system, process and people. The fundamentals need to be set right with a focus on human capital, technology readiness and productivity.

    Benefits and limits of economic reforms of 1991

    • Economic reforms of 1991 — and from time to time, subsequent interjections for liberalisation of economy and trade — have enabled some credible gains for the country.
    • Benefits: Foreign exchange reserves (over $600 billion), sustained manufacturing contribution in GDP, increased share in global exports (from 0.6% in the 1990s to 1.8%), robust software exports, and sustained economic growth in the range of 6%-8% are clear indicators of its success.
    • Limits: Primary drivers of the economy — human capital, technology readiness, productivity, disposable income, capital expenditure, process innovation in setting up businesses, and institutional capacity — have not got enough recognition.

    Issues affecting the Indian economy

    1) Lack of Human resource capital formation

    • The human resource capital (HRC) formation, a good determinant of labour productivity, has been missing over the entire period of reforms.
    • The HRC rank for India stands at 103; Sri Lanka is at 70, China at 34, and South Korea at 27, as brought out by the Global Human Capital Report, 2017.
    • Factors responsible for low HRC: The lack of quality education, low skilled manpower, and inadequacies in basic health care have resulted in low HRC.

    2) Low disposable income

    • The World Bank database on GDP for 2019 indicates the low per capita GDP in India, at $2,104 (at $6,997 in PPP terms, ranked 125th globally) against the world average of $11,429 (at $17,678 in PPP terms).
    • Low per capita GDP has direct links to low per capita family income.
    • Low wages: The report by Deloitte (Global Manufacturing Competitiveness Index in 2016) reflects that the hourly wages in India have been $1.7; they are $38, $24, $20.7, and $3.3 for the United States, Japan, South Korea, and China, respectively.
    • Low wages have a direct bearing on the disposable income of families, affecting demand.

    3) Low R&D expenditure

    • India’s research and development expenditure stand at 0.8% of GDP, for other fast-emerging economies such as South Korea, it is (4.5%), China (2.1%), and Taiwan (3.3%).
    • Reduced technology readiness: This low expenditure is resulting in lower capacity for innovation in technologies and reduced ‘technology readiness’, especially for manufacturing.

    4) Low labour productivity: Result of low HRC and lack of technology readiness

    • The lack of HRC and low technology readiness have impacted labour productivity adversely.
    • World Bank publication of 2018 indicates that India’s labour productivity in manufacturing is less than 10% of the advanced economies including Germany and South Korea, and is about 40% of China.
    • Low productivity has unfavourable consequences for competitiveness, manufacturing growth, exports and economic growth.

    5) Long time and more cost in setting up a business

    • There are difficulties in acquiring land for businesses, inefficient utilization of economic infrastructure, and in providing business services.
    • This results in a long time and more cost in setting up enterprises, resulting in a loss of creative energy of entrepreneurs.

    Way forward

    • Investment in human capital and technology: First, to attract large investment in manufacturing and advanced services, at a basic level, investment in human capital and technology is a prerequisite.
    • Technology readiness: The reports by McKinsey and the World Economic Forum on advanced manufacturing suggest that Industry 4.0 will be defined by new technologies such as robotics, 3-D printing, artificial intelligence (AI), the Internet of things (IoT), etc.
    • Consequently, efforts for technology readiness are very essential to stay competitive.
    • It demands enhancing public research and development expenditure to 2% of GDP over the next three years.
    • Strategies to enhance per capita income: There is a need to work on strategies to enhance per capita income by more wages for workers through higher skills and enhancing minimum wages, besides improving the social security net.
    • Promote business-centric approach: Using insights from the work of Nobel laureate (1993) Douglass C. North, it is necessary to build the capacity of public institutions to create a good environment for business and industry.
    • Policy reforms should lay an emphasis on process innovation and promote a business-centric approach to create a friendly ecosystem and for efficient internal supply chain management to integrate with the global supply chain.
    • Innovative nature in public policymaking: The future of the economy should be particularly viewed in the backdrop of a significant and irreversible shift in terms of reliance on the global supply chain as a result of the knowledge-intensive nature of businesses and exponential effects caused by advanced technologies under Industry 4.0, since the 2010s.
    • Therefore, the strategies adopted since the 1990s till now may not ensure adequate returns and call for innovative approaches in public policymaking.

    Consider the question “The economic reforms, so far, have been more focussed on the technical nature of the economy than the system. This resulted in fundamental deficiencies. Suggest the way forward to deal with these deficiencies.”

    Conclusion

    In sum, it necessitates a systemic approach for policy reforms for setting the economic fundamentals right and to achieve higher growth.

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  • Govt. mulls allowing local sales by SEZ units sans import tag

    The government is considering a proposal to allow producers in Special Economic Zones (SEZs) to sell their output to the domestic market without treating them as imports.

    What are SEZs?

    • A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
    • SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
    • To encourage businesses to set up in the zone, financial policies are introduced.
    • These policies typically encompass investing, taxation, trading, quotas, customs, and labor regulations.
    • Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

    SEZs in India

    • The SEZ policy in India first came into inception on April 1, 2000.
    • The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
    • The idea was to promote exports from the country and realizing the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
    • Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.

    Who can set up SEZs? Can foreign companies set up SEZs?

    • Any private/public/joint sector or state government or its agencies can set up an SEZ.
    • Yes, a foreign agency can set up SEZs in India.

    What is the role of state governments in establishing SEZs?

    • State governments will have a very important role to play in the establishment of SEZs.
    • A representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal.
    • Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

    Are SEZs controlled by the government?

    • In all SEZs, the statutory functions are controlled by the government.
    • The government also controls the operation and maintenance function in the central government-controlled SEZs. The rest of the operations and maintenance are privatized.

    Are SEZs exempt from labor laws?

    • Normal labor laws are applicable to SEZs, which are enforced by the respective state governments.
    • The state governments have been requested to simplify the procedures/returns and for the introduction of a single-window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.

    Who monitors the functioning of the units in SEZ?

    • The performance of the SEZ units is monitored by a unit approval committee consisting of a development commissioner, custom, and representative of the state government on an annual basis.

    What are the special features for business units that come to the zone?

    • Business units that set up establishments in an SEZ would be entitled to a package of incentives and a simplified operating environment.
    • Besides, no license is required for imports, including second-hand machinery.

    How do SEZs help a country’s economy?

    • SEZs play a key role in the rapid economic development of a country.
    • In the early 1990s, it helped China and there were hopes that the establishment in India of similar export-processing zones could offer similar benefits – provided, however, that the zones offered attractive enough concessions.
    • Traditionally the biggest deterrents to foreign investment in India have been high tariffs and taxes, red-tapism, and strict labor laws.
    • To date, these restrictions have ensured that India has been unable to compete with China’s massively successful light-industrial export machine.

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  • Why is there a push for Asset Monetization?

    Finance Minister has recently announced the framework for the National Monetization Pipeline (NMP) and its process is under discussion.

    What is Asset Monetization?

    • Asset Monetization involves the creation of new sources of revenue by unlocking of the value of hitherto unutilized or underutilized public assets.
    • Internationally, it is recognized that public assets are a significant resource for all economies.
    • Many public sector assets are sub-optimally utilized and could be appropriately monetized to create greater financial leverage and value for the companies and of the equity that the government has invested in them.
    • This helps in the accurate estimation of public assets which would help in the better financial management of government/public resources over time.

    What is the National Monetization Pipeline?

    • The NMP names a list of public assets that will be leased to private investors.
    • Only brown-field assets, which are assets that are already operational, are planned to be leased out under the NMP.
    • So, to give an example, an airport that is already operational may be leased out to an investor.
    • Assets that are yet to be developed, such as an undeveloped piece of land, for example, may not be leased out.
    • Importantly, there won’t be any transfer of ownership from the government to the private sector when assets are leased out.
    • The government only plans to cede control over its assets for a certain period of time, after which the assets must be returned to the government unless the lease is extended.

    Will NMP help the economy?

    • Better control and utilization: Economists generally believe that scarce assets are better managed and allocated by the private sector than by the government. So to the extent that the NMP frees assets from government control, it can help the economy.
    • Freeing Capital: The government believes that leasing out public assets to private investors will help free capital that is stuck in these assets.
    • Infra generation: The government can use this money, in turn, to build fresh infrastructure under the National Infrastructure Pipeline (NIP).
    • Economic boost: In fact, the proceeds from the NMP are expected to account for about 14% of the total outlay for infrastructure under the NIP. The government believes all this spending will boost economic activity.
    • A perfect model: Analysts also believe that the government has now through the NMP found the right model for infrastructure development.
    • Source of finance: The government, they say, is best suited to tackle the ground-level challenges in building infrastructure, while the private sector can operate and offer indirect finance to these projects through the NMP.

    For example, say the government has invested thousands of crores in a road project. It may take the government decades to recover its investment through the annual toll revenues.  Instead, the government can recover a good chunk of its investment by leasing out the right to collect toll for the next 30 years to a private investor.

    What are the risks?

    • Political lobbying: The allocation of assets owned by governments to private investors is often subject to political influence, which can lead to corruption. In fact, many in the Opposition allege that the NMP will favour a few business corporations that are close to the government.
    • Burden of opportunity cost: The expected boost to economic activity due to higher government spending may also need to be weighed against the opportunity costs. For one, the money that the government collects by leasing out assets comes from the pockets of the private sector. So higher government spending will come at the cost of lower private spending.
    • Legal uncertainties: The NMP also does not address the various structural problems such as legal uncertainty and the absence of a deep bond market that hold back private investment in infrastructure.
    • Sheer Privatization: There are also concerns that the leasing of airports, railways, roads and other public utilities to private investors could lead to higher prices for consumers. If the government merely cedes control of public utilities to private companies without taking steps to foster greater competition, it can indeed lead to poor outcomes for consumers.
    • Policy compulsion: The government’s past disinvestment projects such as the sale of Air India did not catch the fancy of investors owing to the stringent conditions set by the government. In the case of Air India’s sale, the buyers were supposed to possess a certain minimum net worth and stay invested in the airline for at least three years.

    What lies ahead?

    • The success of the NMP will depend on the demand for brown-field government assets among private investors.
    • Many analysts also believed that the government was expecting buyers to pay too much for a debt-ridden Air India.
    • The pricing of assets and the terms of sale will thus determine the level of interest that private investors show for assets leased under the NMP.
    • In the past, doubts have been raised about the allocation of airports and other assets to certain private business groups (say Adani Group).
    • So the process that the government adopts this time to allocate assets may come under scrutiny. There is likely to be a demand for an open, competitive auction of assets.

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  • Govt’s clarifications on CSR Expenditure

    The Ministry of Corporate Affairs has clarified that companies have to ensure that funds transferred to implementing agencies are actually utilized for them to be counted towards mandatory CSR expenditure.

    What is Corporate Social Responsibility (CSR)?

    • CSR is a type of business self-regulation that aims to contribute to the societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically-oriented practices.
    • It rests on the ideology of “give and take” i.e. to take scarce resources from the environment for running a business, and in turn to contribute towards economic, social, and environmental development.

    CSR in India

    • India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014.
    • Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.

    All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2 per cent of their average profits of the previous three years on CSR activities every year.

    What is the recent clarification?

    • The MCA has clarified that excess Corporate Social Responsibility (CSR) expenditure prior to FY21 cannot be set off against future CSR expenditure requirements.
    • Corporate donations to government schemes cannot be counted as CSR.
    • The ministry has also clarified that companies have to ensure that funds transferred to implementing agencies are actually utilized for them to be counted towards mandatory CSR expenditure.

    Impact of the move

    • This clarification may impact donations to state government schemes which are often done for the sake of managing relationships with the government.

    Earlier changes

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