The scheme is meant to provide for the welfare of people and areas affected by mining related operations
The funds collected by District Mineral Foundations (DMFs) will be utilised for this purpose
Key facts:
Aim: Mitigate the adverse impacts due to mining operation on the health and environment. It also seeks to ensure long-term sustainable livelihoods for the affected people in mining areas
Objective: To implement various welfare and developmental projects in mining affected areas by complementing the existing ongoing schemes of State and Central Government
To mitigate and minimize the adverse impacts during and after mining on the health, environment and socio-economics of people in mining districts
To ensure long-term sustainable livelihoods to people in areas affected by mining
DMF spending: 60% of the DMF funds will be spent on high priority areas including health care, education, drinking water supply, sanitation and skill development of the affected people
Rest of the funds will be spent on infrastructure developmental projects such as making roads, railways, bridges, waterways projects, irrigation and alternative energy sources
About District Mineral Foundations (DMFs):
The Mines and Minerals (Development & Regulation) Amendment Act, 2015 has mandated setting up of DMFs in all districts in the country affected by mining related operations
Union government also has notified the rates of contribution payable by miners to the DMFs along with launching PMKKKY
In case of mining leases granted before 12th January 2015 (on this date Amendment Act came into force) miners have to contribute 30% of the royalty payable by them to DMFs
While, in case of mining leases executed after 12th January 2015, miners have to contribute 10% of the royalty
India is set to announce a policy on flexible-fuel cars, cars that can run on bio-ethanol and petrol, or a blend of both.
Biofuel production would help farmers by supporting the diversification of agriculture into energy, power and bio-plastics.
What are Biofuels?
Simply put, fuels produced directly/indirectly from organic material i.e. biomass including plant materials and animal waste.
Biofuels can be solid, liquid or gaseous.
Primary Biofuels
Those organic materials which are used in an unprocessed form such as fuel wood, wood chips and pellets, primarily for heating, cooking, electricity production.
Secondary Biofuels
Those materials which result from processing of biomass. Example: Liquid fuels such as ethanol and biodiesel
What are different generations of Biofuels?
First Generation
The first generation fuels are conventional biofuels made from sugar, starch or vegetable. Issue: They come from a biomass that is also a food source, so it requires a lot of land to grow at a time when there is food shortage in the world.
Let’s learn about some of the famous examples in this category.
Ethanol – It is a type of alcohol which can be produced by any feedstock containing significant amount of sugar. It can be blended with petrol or burned in nearly pure form in slightly modified spark-ignition engines.
1 litre of ethanol produces energy equivalent to two-third of energy produced by 1 litre of petrol.
Is there any benefit of blending except providing an alternative to sugar industry? Of course, it improves combustion performance and lowers the emissions of Carbon Mono-oxide and Sulfur Di-oxide.
Biodiesel– It is produced by combining vegetable oil or animal fat with alcohol. It can be blended with traditional diesel fuel or burned in its pure form in compression ignition engines.
Source – rapeseed, soyabeen, palm, coconut or jatropha oils.
Energy content is 88-95 % of diesel
Second Generation
They come from non-food biomass such as wood, organic waste, food waste, specific biomass crops. Issue: The second-generation fuel sources compete with food production for land.
Third Generation
They are specifically engineered crops such as algae as the energy source. These algae are grown and harvested to extract oil within them.
Fourth Generation
They are aimed at not only producing sustainable energy but also a way of capturing and storing carbon-dioxide. They are carbon-negative i.e. it takes away more carbon-dioxide than it produces.
National Policy on Biofuels 2015
The Policy endeavors to facilitate and bring about optimal development and utilization of indigenous biomass feedstocks for production of bio-fuels.
It envisages that biofuels will be produced using non-food feedstock on waste lands
Encouraged the use of renewable energy resources as alternate fuels to supplement transport fuels
Proposed an indicative target of 20% biofuel blending by 2017
Major thrust for development of second generation biofuels
A Biofuel Steering Committee will be set up to oversee implementation of the Policy
Criticism – Govt launched National Biodiesel Mission identifying Jatropha as the most suitable tree-borne oilseed for bio-diesel production, which failed miserably. The policy is also criticized for being largely sugarcane centric.
What is the proposal under flex-fuel policy?
It aims at decreasing pollution by adopting cleaner alternatives against fossil fuels. It encourages a diversion in the sugar industry’s output away from sugar towards ethanol.
Sugar industry has an excess supply problem and it helps farmers because of diversification of agriculture into energy, power and bio-plastics.
What are the challenges to implement this policy?
Additional sugarcane cultivation or it can be met by improved farm practices/HYV canes
Installing special dispensing units at petrol pumps across the country
Automakers need to be given adequate time to comply
Oil marketing companies will have to augment storage capacity for ethanol
Reforming tax structure so that transport of ethanol across state boundaries is not expensive
In a bid to rein in the gold imports and attract investors away from physical assets, PM Modi launches 3 Gold Schemes:
Gold Coin and Bullion scheme
Gold Monetisation Scheme
Gold Sovereign Bond Scheme
#1. India Gold Coin and Bullion scheme
The coin will be the first ever national gold coin minted in India and will have the National Emblem of Ashok Chakra engraved on one side and Mahatma Gandhi on the other side.
Initially, the coins will be available in denominations of 5 and 10 grams.
The Indian Gold coin is unique in many aspects and will carry advanced anti-counterfeit features and tamper proof packaging that will aid easy recycling.
#2. Gold Monetisation Scheme (GMS), 2015
Scheme allows you to earn some regular interest on your gold and save you carrying costs as well.
It replaced the existing Gold Deposit Scheme, 1999.
It offers option to resident Indians to deposit their precious metal and earn an interest of up to 2.5 per cent.
Who can make deposits?
Resident Indians (individuals, HUF, trusts, including mutual funds/exchange traded funds registered under Sebi norms) can make deposits under the scheme.
No maximum limit for deposit under the scheme and the metal will be accepted at the Collection and Purity Testing Centres (CPTC) certified by the Bureau of Indian Standards.
#3. Sovereign Gold Bond Scheme
Investors can earn an interest rate of 2.75 per cent per annum by buying paper bonds.
Sovereign Gold Bonds will be issued in multiple tranches subject to the overall borrowing limits.
The bond would be restricted for sale to resident Indian entities and the maximum allowable limit is 500 grams per person per year.
They can be used as collateral for loans and can be sold or traded on stock exchanges
Few more things to know
Minimum investment in the bond shall be 2 grams.
The bonds can be bought by Indian residents or entities and is capped at 500 grams.
The RBI has fixed the public issue price of sovereign gold bonds at Rs 2,684 per gram.
The borrowing through issuance of Bond will form part of market borrowing programme of Government.
The Bonds will be eligible for Statutory Liquidity Ratio (SLR).
Why was there a need for such schemes?
To lure tonnes of gold from households into banking system.
According to the World Gold Council, an estimated 22,000-23,000 tonnes of gold is lying idle with households and institutions in India.
Huge gold imports pushed India’s current account deficit (CAD) to a record $190 billion in 2013, prompting the hike its duty on imports to a record 10 percent.
The government wants to reduce the reliance on gold imports over time.
But, will these schemes succeed in bringing down Gold imports?
Experts who believe, investors will still find 8 percent offered for bank deposits as more attractive.
The present scheme will not bring out even 20 tonnes of gold.
Investors fear that the tax department will hound them questioning the source of gold.
Okay! But tell me how good are they from investing point of view?
A section of experts feels the interest rates being offered (on both deposits and bonds) are attractive.
For people who have gold as an investment asset, it is a good opportunity to gain some interest out of it.
Gold is always written off as a zero-yield instrument compared to equities, which give dividend and fixed income which gives fixed interest.
From now on, gold will not only be an instrument of security but will also give earnings and will become part of nation building.
FDI means where a foreign company, generally an MNC, may invest in a country in any of the following 3 forms:
#1. Setup a plant or project to manufacture a commodity- consumer goods, capital goods, automobile, aircrafts, ships etc. It may also engage itself in construction activity- highways, roads, bridges, ports, airports, real estate etc.
#2. Setup network for providing services- banking, insurance, shipping, telecom, software, civil aviation etc.
#3. Only provide technology by way of Technology Transfer through any company of the country. It can provide technology only or provide technology along with #1 & #2 above
Foreign Portfolio Investment (FPI):
It means that foreign investors, generally Foreign Institutional Investors in case of India (FIIs are very large investors who invest bulk amounts just like Mutual Funds), invest in country stock market by investing in shares, debentures, bonds, Mutual Funds etc.
The objective here is to make capital gains in the stock markets
Hence this is investment is also called ‘Hot Money’ or ‘Fly-by-Night Money’ as it has a tendency to move from one country to another in search of quick profit
Therefore it has a potential to cause volatility in those markets from where it leaves
FDI routes:
#1. Automatic
A foreign company wishing to invest in India doesn’t have to seek prior approval of any body/ agency in India
It can straight away bring in investments in India & has only to inform the RBI within 1 month of bringing its investment in a certain sector
This route is relatively hassle free due to which more than 55% of total FDI has come through this route
#2. Foreign Investment Promotion Board (FIPB)
It was established in 1992 (just after L-P-G reforms)
Investments upto Rs. 5000 crore from notified sectors have to go through its approval
#3. Cabinet Committee on Economic Affairs (CCEA)
This approves investments above Rs. 5000 crores from notified sectors
Merits of FDI:
Source: Dailymail
Adds to the productive capacity of a nation (by definition, as mentioned above)
Long term and stable- Because an MNC would continue to manufacture in a country, earn profits, engage in exports and thus spread its wings across the world as it enjoys a global name
No repayment obligation on part of the country where it is operating. This is the most important feature
Brings in capital and bolsters FOREX reserves
Brings in technology
Helps export promotion (because of global brands)
Generates employment
Expands markets (domestic as well as foreign)
International Best Practices- Brings in latest administrative and work culture
Infuses competition among domestic industries
What is the impact of FDI on Inflation?
Source: navroops.blogspot.in
FDI has been generally touted as a measure to dampen inflation. But this can NOT be concluded in all situations
The FDI’s impact on dampening the inflation is based upon the assumption that FDI would result in the developing of country’s back-end infrastructure and crack the supply bottlenecks. Practically, it may or may not happen
Economics has no rule to link FDI and Inflation because inflation may have many reasons behind it rather than only infrastructure and supply bottlenecks
Generally the FDI’s role in containing inflation is supported by the facts that- it improves infrastructure, improves supply chain, brings permanent investment
Demerits:
May threaten a country’s economic and political sovereignty (remember East
India Company which came to India just as a trader)
It may bring obsolete technology (this was true especially during 1950-90 because US and UK were the only countries bringing FDI. But now due to many countries bringing FDI, there is competition and this risk is reduced)
Focus on short term profit earning tactics rather than long term investments with a view of national industrial development
Indulging in cut-throat competition
Indulging in transfer pricing practices
Why Foreign Investors go for FDI?
To take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive
To gain tariff-free access to the markets of the country
To acquire lasting interest in enterprises operating in the target country.
What attracts FDI?
The growth rate of the source economy is an important determinant
The political and economic stability of the target region
How ‘open’ the economy is towards foreign trade (both imports and exports)
The policies, rules, regulations and loopholes incidental thereto
For example, Mauritius has been top FDI source for India due to the later (loophole) reasons
Recent FDI reforms (November 2015):
Source: Economic Times
#1. Townships, shopping complexes & business centres – all allow up to 100% FDI under the auto route
Conditions on minimum capitalisation & floor area restrictions have now been removed for the construction development sector
#2. India’s defence sector now allows consolidated FDI up to 49% under the automatic route
FDI beyond 49% will now be considered by the Foreign Investment Promotion Board
Govt approval route will be required only when FDI results in a change of ownership pattern
#3. Private sector banks now allow consolidated FDI up to 74%
#4. Up to 100% FDI is now allowed in coffee/rubber/cardamom/palm oil & olive oil plantations via the automatic route
#5. 100% FDI is now allowed via the auto route in duty free shops located and operated in the customs bonded areas
#6. Manufacturers can now sell their products through wholesale and/or retail, including through e-commerce without Government Approval
#7. Foreign Equity caps have now been increased for establishment & operation of satellites, credit information companies, non-scheduled air transport & ground handling services from 74% to 100%
#8. 100% FDI allowed in medical devices
#9. FDI cap increased in insurance & sub-activities from 26% to 49%
#10. FDI up to 49% has been permitted in the Pension Sector
#11. Construction, operation and maintenance of specified activities of Railway sector opened to 100% foreign direct investment under automatic route
#12. FDI policy on Construction Development sector has been liberalised by relaxing the norms pertaining to minimum area, minimum capitalisation and repatriation of funds or exit from the project
To encourage investment in affordable housing, projects committing 30 percent of the total project cost for low cost affordable housing have been exempted from minimum area and capitalisation norms
#13. Investment by NRIs under Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations will be deemed to be domestic investment at par with the investment made by residents
#14. Composite caps on foreign investments introduced to bring uniformity and simplicity is brought across the sectors in FDI policy
#15. 100% FDI allowed in White Label ATM Operations White Label ATMs? Answer in comments>
Crux of the reforms:
To further ease, rationalise and simplify the process of foreign investments in the country
To put more and more FDI proposals on automatic route instead of Government route where time and energy of the investors is wasted
Refining of foreign investment norms in construction is to facilitate the construction of 50 million houses for poor
Opening up of the manufacturing sector for wholesale, retail and e-commerce is aimed at motivating industries to Make In India and sell it to the customers here instead of importing from other countries
Sectoral caps:
Petroleum Refining by PSU (49%)
Teleports (setting up of up-linking HUBs/Teleports),Direct to Home (DTH), Cable Networks (Multi-system operators (MSOs) operating at national, state or district level and undertaking upgradation of networks towards digitalisation and addressability), Mobile TV and Headend-in-the-Sky Broadcasting Service (HITS) – (74%)
Cable Networks (49%)
Broadcasting content services- FM Radio (26%), uplinking of news and current affairs TV channels (26%)
Print Media dealing with news and current affairs (26%)
Air transport services- scheduled air transport (49%), non-scheduled air transport (74%)
Ground handling services – Civil Aviation (74%)
Satellites- establishment and operation (74%)
Private security agencies (49%)
Private Sector Banking- Except branches or wholly owned subsidiaries (74%)
Public Sector Banking (20%)
Commodity exchanges (49%)
Credit information companies (74%)
Infrastructure companies in securities market (49%)
Insurance and sub-activities (49%)
Power exchanges (49%) power exchanges? What are the issues with them? Hint- Economic Survey 2015-16 Chapter 11>
Defence (49% above 49% to CCS)
Pension Sector (49%)
Sectors which need Govt (FIPB/ CCEA) approval:
Tea sector, including plantations – 100%
Mining and mineral separation of titanium-bearing minerals and ores, its value addition and integrated activities -100%
FDI in enterprise manufacturing items reserved for small scale sector – 100%
Defence – up to 49% under FIPB/CCEA approval, beyond – 49% under CCS approval (on a case-to-case basis, wherever it is likely to result in access to modern and state-of-the-art technology in the country)
Teleports (setting up of up-linking HUBs/Teleports), Direct to Home (DTH), Cable Networks (Multi-system operators operating at National or State or District level and undertaking upgradation of networks towards digitisation and addressability), Mobile TV and Headend-in-the Sky Broadcasting Service(HITS) – beyond 49% and up to 74%
Broadcasting Content Services: uplinking of news and current affairs channels – 26%, uplinking of non-news and current affairs TV channels – 100%
Publishing/printing of scientific and technical magazines/specialty journals/periodicals – 100%
Print media: publishing of newspaper and periodicals dealing with news and current affairs- 26%, Publication of Indian editions of foreign magazines dealing with news and current affairs- 26%
Terrestrial Broadcasting FM (FM Radio) – 26%
Publication of facsimile edition of foreign newspaper – 100%
Airports – brownfield – beyond 74%
Non-scheduled air transport service – beyond 49% and up to 74%
Ground-handling services – beyond 49% and up to 74%
Satellites – establishment and operation – 74%
Private securities agencies – 49%
Telecom-beyond 49%
Single brand retail – beyond 49%
Asset reconstruction company – beyond 49% and up to 100%
Banking private sector (other than Branches) – beyond 49% and up to 74%, public sector – 20%
Insurance – beyond 26% and up to 49%
Pension Sector – beyond 26% and up to 49%
Pharmaceuticals – brownfield – 100%
All sectors other than these are under automatic route.
Sectors where FDI is prohibited:
Lottery Business including Government /private lottery, online lotteries, etc.
Gambling and Betting including casinos etc.
Chit funds
Nidhi company-(borrowing from members and lending to members only)
Trading in Transferable Development Rights (TDRs) <What are TDRs? Answer in comments>
Real Estate Business (other than construction development) or Construction of Farm Houses
Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
Activities/ sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than construction, operation and maintenance of
(i) Suburban corridor projects through PPP,
(ii) High speed train projects,
(iii) Dedicated freight lines,
(iv) Rolling stock including train sets, and locomotives/coaches manufacturing and maintenance facilities,
(v) Railway Electrification,
(vi) Signaling systems,
(vii) Freight terminals,
(viii) Passenger terminals,
(ix) Infrastructure in industrial park pertaining to railway line/sidings including electrified railway lines and connectivities to main railway line and
(x) Mass Rapid Transport Systems)
Services like legal, book keeping, accounting & auditing.
During his visit to the UK last week, Prime Minister Narendra Modi spoke about the Indian Railways issuing bonds and listing them on the London Stock Exchange.
Let’s explore the Bonds as a financial instrument and then dive deep into Masala Bonds.
What are Bonds?
Bonds are debt instruments which allow the companies or govt. to raise funds only by incurring debt and lender is guaranteed of a fixed repayment (Principle and Interest).
What are instrument available with Company to raise funds?
1. Issue Bonds – Companies will have to pay the fixed amount when the bond matures.
2. Issue Shares – Companies would like to raise money, but don’t want is as a debt, so company will issue shares.
Can you imagine who (Company/Investor) will prefer what (Debt/Shares)?
Companies will prefer to raise money through equities i.e. issuing shares because they will part a share of the company to the investors, while the investors will prefer to purchase bonds because bonds are more secured.
Shares may give higher returns in the long run. So, it is risk-return trade-off.
How the bonds are more secure than shares?
In case of liquidation of the company, the bond holders are the one who get their claim before the share holders.
Now, let’s get into main discussion on Masala Bonds
What’s new in the Masala Bonds?
Basically, overseas rupee bonds are known as Masala bonds.
Indian firms have earlier raised money abroad through bonds and other forms of borrowings, but always in foreign currency.
However, the first overseas rupee bonds were issued in 2013 by the International Finance Corporation, the World Bank’s private sector investment arm.
To raise funds for capital expenditure, the Indian Railway Finance Corporation will be issuing bonds denominated in rupees.
What are the risk associated Indian companies with foreign currency overseas bond?
An Indian company issuing a overseas bond(i.e. in other currencies specially dollar) runs into a risk on account of currency fluctuation.
If rupee weakens during the period of bond, then it add significantly to costs at the time of repayment, normally at the end of 5 years.
How Masala Bonds will benefit Indian companies?
If the issuer, issues bonds in rupees, then he gets rid of this risk (currency fluctuation) which passes on to the investor.
This bond brings a new and diversified set of investors for Indian companies, and more liquidity in foreign exchanges, apart from bank funding and the corporate bond market in India.
Does Masala bond offer something for foreign investors?
The investor who purchases a bond issued by an Indian entity is betting on India, in a hope that currency and inflation would be stable enough to ensure good returns after hedging for foreign exchange risks.
With India’s GDP or national income rising, and projected to grow at a reasonably fast clip over the next few years, many overseas investors would like to buy into such bonds to join the party and to earn higher returns compared to the US and Europe where interest rates are still low.
How does Govt. and RBI view Masala Bonds?
The local currency bond markets can contribute to financial stability by reducing currency mismatches and extending the duration of debt.
It will also be a sign of early acceptance of the Indian currency in trading and settlement overseas, showing the confidence of investors and can lead to internationalization of the currency over the medium- and long term.
Foreign investors prefer to hedge their risks overseas because there are limited products in the Indian market, especially for longer periods.
The other worry, if the overseas rupee bond market takes off, will be about the growth of the Indian corporate bond market and Indian banks as top companies shift to another market, impacting growth here.
Was such an approach adopted by any emerging economies in past?
China’s People’s Bank of China has previously issued yuan denominated bonds to raise funds at a little over 3%.
China had issued bonds in its own currency in Hong Kong dubbed dimsum bonds and plans to issue more as part of its plan to push its currency for global trade.
Unlike China, the Indian govt. has never borrowed abroad on its own, preferring to push its state owned firms, instead.
RBI, unlike the Chinese central bank, cannot issue debt with no legal sanction for it.
But these have been borrowings in dollar or other currencies. The Railways bond, on the other hand, will be denominated in rupees.
In a bid to rescue almost bankrupt state electricity retailers, the Cabinet recently approved this scheme for reviving power utilities having debt amounting to Rs 4.3 lakh crore.
What is Ujjwal Discom Assurance Yojana?
UDAY provides for the financial turnaround and revival of Power Distribution companies (DISCOMs), and importantly also ensures a sustainable permanent solution to the problem. It has ambitious target of making all discoms profitable by 2018-19.
The scheme will ease the financial crunch faced by power distribution companies, that has impaired their ability to buy electricity.
It is based on the premise that it is states’ responsibility to ensure that discoms become financially viable.
How UDAY will revive Discoms?
It has all the 3 elements —
Clear up the legacy issues of past losses and debt.
Provide a financial road map to bring tariffs in line with costs by FY19.
Provide enough deterrents for the state govt to not allow the state discoms to become loss ridden post FY18, as losses start to impact their FRBM limits.
The State govt. will takeover the discom liabilities over 2-5 year period.
This will allow discoms to convert their debt into State bond. These bonds will have a maturity period of 10-15 years.
It will allow transfer of 75% outstanding debts incurred by stressed discoms to States’ debt, 50% in 2015-16 and 25% in 2016-17.
The central government will not include the loans of the discoms in calculation of the state’s deficit till 2016-17.
Why are these Discoms so stressed?
There are various reasons that lead to Discoms becoming unsustainable over the period of time.
Politics of free power, repressed tariffs and power thefts leading high transmission losses.
Poor infrastructure and low standard of management.
Power subsidies are given to all, irrespective of rich/poor.
Discoms in states of Rajasthan, Tamil Nadu and UP are the most stressed ones.
Almost 25% T&D ( Transmission & Distribution) losses suffered by discoms. Remaining 75% is sold at a price much lower than discoms’ procurement costs. Wondering Why??
The most obvious reason is political interference, i.e. tariff is set by a group of largely political appointees.
Financially stressed DISCOMs are not able to supply adequate power at affordable rates, which hampers quality of life and overall economic growth and development.
What will be the impact of this scheme?
It is expected to help the banks in managing their bad loans.
It will relieve discoms who can push power distribution in right way.
It will allow states to align tariff costs, so that discoms run on a sustainable basis.
What are thrust areas of UDAY to turnaround discoms?
Improve operational efficiency.
Reduction in cost of power – By monitoring technical and commercial losses by smart metering and feeder separation.
Reduction in the interest cost of discoms.
Enforcing financial discipline on discoms through alignment with States’ finances.
What could be potential challenge to UDAY?
Electricity is not a central subject, states’ cannot be made to participate in the programme.
Finding buyers for such bonds might prove difficult, as these would enjoy the SLR status.
It has not laid down a specific performance-monitoring and compliance mechanism.
It does not cover inadequate investment in network & poor supply, which is essential for reliable and quality supply.
No central monetary assistance is provided, rather states’ will be provided subsidised funding from the central govt.’s power schemes as well as priority in supply of coal.
How is ease of doing business linked with the Insolvency and Bankruptcy Code?
In India, lack of resolution of insolvency is one of the significant factors for the failure of credit market in the country. The present legislations governing insolvency are fragmented, multi-layered and the adjudication of insolvency matters take place in multiple forum, resulting in an unpredictable regime.
The Insolvency and Bankruptcy Code has been hailed as an excellent reform for India that will pay a critical role in improving the ease of doing business.
Why does India need a Bankruptcy law?
Currently it takes, on an average, more than 4 years to resolve insolvency in India. The proposed Bankruptcy Code will replace over a century-old archaic insolvency act – The Presidency Towns Insolvency Act, 1909.
Delays in making decisions on the viability of business.
Sometimes, company promoters try to delay reorganisation or attempts to sell-off assets or change of management.
Delays in disposing off cases by Debt Recovery Tribunal.
Continued litigation at various levels and delays in appellate level.
Currently, there are 4 different agencies viz. the HC, the Company Law Board, the BIFR and the DRTs that handle insolvency-related cases.
How can a modern law help?
Speedy closure will help firms on the verge of brink in two ways, i.e. either restructure the firm or sell-off the assets to recover the money.
It will promote efficient allocation and greater availability of credits for businesses, as it frees up capital.
Development of financial markets such as bond market, due to clarity on repayment for debtors.
What is the international experience in this regard?
US Bankruptcy Code provides for fairly quick liquidation or reorganisation of the company.
In UK, once the cases are filed, then after 12 months, either the part of assets are discharged to pay-off debt or court-appointed administrators handle the case, if company can be turned around.
Was any committee formed to suggest Insolvency reforms?
The Bankruptcy Law Reform Committee (BLRC) was set up in August, 2014 under the chairmanship of Mr. T.K. Vishwanathan.
It was the first committee with the mandate of suggesting comprehensive and not incremental reforms.
The BLRC extensively studied the insolvency regime within India as well as various international jurisdictions.
What was the recommendation of the Committee?
The committee proposed an all-encompassing law for corporate and individual insolvency, reflecting the best practices from across the globe.
The corporates should assess the viability of an enterprise in the early stages of insolvency, such that the creditor and the debtors can negotiate a financial arrangement while preserving the economic value of the enterprise.
However, if the negotiations fail, then the enterprise is liquidated. The insolvency resolution is required to be done within a period of 180 days.
It also suggested fast track insolvency resolution for certain entities which is required to be completed within 90 days.
What are the provisions of draft Insolvency and Bankruptcy Code?
The code aims to bring modern framework to deal with bankruptcy and insolvency of variety of economic players, including individuals, but excluding financial firms.
It will restore some power to creditors, both financial and operational.
It will fast-track mechanism of insolvency resolution process may be applicable to certain categories of entities.
The corporate insolvency would have to be resolved within a period 180 days, extendable by 90 days.
It also provides for fast-track resolution of corporate insolvency within 90 days.
Debt Recovery Tribunals will be adjudicating authority over both individual & unlimited liability partnership firms.
National Company Law Tribunal will be adjudicating authority with jurisdiction over companies with limited liability.
It has a clause to provide for insolvency professionals who will specialize in helping sick companies. <These professionals will help revive control the management of distressed firm to revive it>
It also provides for information utilities that will collate all information about debtors to prevent serial defaulters from misusing the system
To setup Insolvency and Bankruptcy Board of India to act as a regulator for these utilities and professionals.
The bill also seeks to establish Insolvency and Bankruptcy Fund of India.
What about Financial Sector Insolvencies?
FSLRC recommended creation of a resolution corporation to monitor financial firms and intervene before they go bust.
The aim is to close-down the firms which can’t be revived or change their management to protect investors or depositors.
The reform is dubbed as 2nd most important reform after GST, as it will also improve the ease of doing business in India.
Launched by the central government in February 2015, the scheme is tailor-made to issue ‘Soil card’ to farmers which will carry crop-wise recommendations of nutrients and fertilizers required for the individual farms.
Agriculture as primary activity in India
Agriculture since ages is the mainstay of the Indian population.
The story of Indian agriculture has been a spectacular one, with a global impact for its multi-functional success in generating employment, livelihood, food, nutritional and ecological security.
Agriculture and allied activities contribute about 18% to the GDP of India (as of 2014-15). The green revolution had heralded the first round of changes.
India is the second largest producer of wheat, rice, sugar, groundnut as also in production of cash crops like coffee, coconut and tea.
What is the scope and focus of government in agriculture?
India is now eyeing second Green Revolution in eastern India.
The need for enhanced investment in agriculture with twin focus on higher quality productivity and welfare of farmers.
In the entire scenario, importantly the government has laid emphasis on the awareness campaign and enhanced agri knowledge for the farming community.
Why is there a need of awareness in assessing soil health position?
Awareness of soil health position and the role of manures would help in higher production of foodgrains in eastern India too and this would help tackle the decline in production in central and peninsular India.
The growth in foodgrains, rice and wheat, from eastern India would provide an opportunity to procure and create foodgrain reserves locally.
This would reduce the agricultural pressure on Punjab and Haryana as well.
Is it Gujarat’s model programme?
From 2003-04, Gujarat has been the first state to introduce Soil Health cards, to initiate the scientific measures for Soil Health care.
In Gujarat, over 100 soil laboratories were set up and the result of scheme was found quite satisfactory.
To start with, the agriculture income of Gujarat from Rs 14000 crore in 2000-01 had gone up to staggeringly high Rs 80,000 crore in 2010-11.
Why did government start taking effective action on soil health card initiative?
According to renowned expert and the ‘father of Green Revolution’, M S Swaminathan, there is need to opt for wide range of crops cultivation.
The awareness of soil health conditions would only make these operations easier and more result oriented. The government can help farmers adopt crop diversification.
The Soil Health Card mechanism definitely aims to help herald some essential revolutionary changes and salutary effect in country’s agricultural scene.
Farmers would understand the fertility factor of the land better and can be attracted towards value added newer crops.
This would help reduction in risk in farming and also the cost of overall cultivation process would get reduced.
Why has Soil Health Card portal been launched?
Some states are already issuing Soil Health Cards but, it was found that, there was no uniform norm for sampling, testing and distribution of Soil Health Cards across the states.
Taking a holistic view on these, the central government has thus rightly taken measures like launching of a Soil Health Card portal.
This would be useful for registration of soil samples, recording test results of soil samples and generation of Soil Health Card (SHC) along with Fertilizer Recommendations.
Soil Health Card portal aims to generate and issue Soil Health Cards based on either Soil Test-Crop Response (STCR) formulae developed by ICAR or General Fertilizer Recommendations provided by state Governments.
How will it be implemented by Union and State governments?
The scheme has been approved for implementation during 12th Plan with an outlay of Rs.568.54 crore.
For the current year (2015-16) an allocation of Rs.96.46 crore – only for the central government share-has been made.
The scheme is to be otherwise implemented on 50:50 sharing pattern between Government of India and state Governments.
In order to improve quality of soil and ultimately for better nutrient values and higher yields.
Experts say while at present, general fertilizer recommendations are followed by farmers for primary nutrients, the secondary and micronutrients are often overlooked.
Can proactive steps and such programs lead to efficient and effective agriculture? Really?
The government is effectively marching in quite ambitiously for a grand success of the Soil Health Card scheme and proposes to ensure that all farmers in the country have their respective Soil Health Cards by 2017.
In the first year of NDA regime 2014-15, a sum of Rs 27 crore was sanctioned and in 2015-16, there is an allocation of Rs 100 crore to all the states to prepare soil health cards.
In the Union Budget 2015-16, Finance Minister announced that the PPP mode of infrastructure development has to be revisited, and revitalized. In pursuance of this announcement, a Committee was constituted to look into the issues.
The proposals include a provision for monetisation of projects, revamp of the model concession agreement and creation of a new institutional mechanism.
What was committee asked to look into?
Review of the experience of PPP Policy.
Analyse risks involved in PPP projects in different sectors and suggest optimal risk sharing mechanism.
Propose design modifications in PPP based on international best practices and our institutional context.
Measure to improve capacity building in govt for effective implementation of the PPP projects.
Why is there need to reform PPP framework?
Background: PPP contracts are typically of very high-value, often with huge capital and operating costs.
The emergence of risks not foreseen at the time of signing the agreement exposes such projects to potential distress, making them unviable for the developers and prompting demands for a renegotiation of the original terms.
How to manage risks in PPP projects?
Optimal allocation of risks across PPP stakeholders to boost investment.
Sector specific model concession pacts to capture interest of all stakeholders.
What are the design modifications proposed by the committee?
The Kelkar panel has come out with clear-cut norms on resolving issues and clarifying norms on re-negotiation of contracts.
Formulate a national PPP policy and seeking Parliament’s backing for it to be effective.
It emphasised upon the need to establish independent sector regulators for faster implementation of infrastructure projects and swifter dispute resolution mechanisms.
The report stated that the PPP structure should not be adopted for small projects.
It added that the govt should encourage development of airports, ports and railways through PPP, by ensuring easier funding for projects with long gestation periods.
Let’s take a look at much deeper level about various specific dimensions of PPP framework and panel’s recommendation.
How to streamline the stalled projects?
Background: The Ministry of Statistics and Programme Implementation (MOSPI) says that 40% of all central govt infrastructure projects are behind schedule or have overshot their original cost estimates.
Panel’s view: Follow the example of the Ministry of Road Transport and Highways, and NHAI, which has taken several successful steps in reducing the number of stalled projects in the sector.
What are the institutions proposed in the report?
An Infrastructure PPP Project Review Committee be constituted.
It recommends creation of an Infrastructure PPP Adjudication Tribunal.
How to renegotiate the PPP contracts?
Background: More than 50% of PPP projects come up for renegotiation.
The panel has suggested extensive guidelines stipulating the reasons that form the basis for re-negotiation & those that should not be entertained as valid reasons.
The panel wants full disclosure of few items prior to the renegotiation:
Long-term costs
Risks and potential benefits
Financial implications for the govt
Panel has suggested formation of an independent body, like a renegotiation commission, which can oversee the renegotiation of model concession agreements across sectors.
What is panel’s view on Swiss Challenge method?
Swiss Challenge Method: It is a process of awarding contracts as any person with credentials can submit a development proposal to the govt, which will be made online and a second person can give suggestions to improve and beat that proposal.
The Panel wants Swiss Challenge method to be actively discouraged.
Reason: It brings information asymmetries in the procurement process and result in lack of transparency and in the fair and equal treatment of potential bidders in the procurement process.
Criticism: India’s ambitious plan to build new expressways across the country by adopting the ‘Swiss Challenge’ method has become uncertain.
Why report calls for changes in anti-corruption law?
The report calls for promptly amending the Prevention of Corruption Act, 1988
Reason: To differentiate between genuine errors in decision-making and plain corrupt practices.
What is panel’s view on 3P India?
Background: Finance Minister had announced the setting up of 3P India in 2014-15 budget with a corpus of Rs 500 crore.
The panel wants the revival of a defunct proposal to establish 3P India to support PPP projects. It can function as a centre of excellence, enable research, and review and roll out activities to build capacity
How to deal with private sector?
The private sector must be protected against the loss of bargaining power over long time spans. It has asked for comprehensive guidelines to be framed in this regard.
How to build capacity in PPP projects?
Strengthen 3 key pillars of PPP framework – governance, institutions and capacity.
Structured capacity building programmes for different stakeholders.
A national level institution to back institutional capacity building activities.
The report pitches for pragmatism, transparency and a business-like attitude for all stakeholders.
