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The one thing finance minister Arun Jaitley does not have to worry about much in this budget is how to meet the fiscal deficit target of 4.1 per cent. Much of that work is being done outside of the country: the Organisation of Petroleum Exporting Countries (OPEC) has decided to not reduce crude oil production. In the process, global crude oil prices are tumbling by the day. In the 200-odd days that Narendra Modi has been in power, the India basket of crude has fallen by almost 60 per cent from $108.05 a barrel (on 26 May) to $43.36 a barrel (on 14 January).
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In the 67-odd years since Independence, while micro, small and medium enterprises (MSME) have contributed to form a major chunk of industry, the MSME sector still does not have a policy for itself. That is going to change over the next few days as the central government comes out with a policy targeted at small and medium enterprises. This was stated by Amarendra Sinha, development commissioner & additional secretary, ministry of MSME at the launch of the BW |Businessworld SME Whitebook.The idea behind the policy is to simplify procedures and procurement norms for small and medium enterprises. As a first step, the government will put the policy document on the ministry website and seek recommendations from people. Once it gets feedback from people, those could be incorporated into the final policy document. The idea is get a better idea of what people and industry want.What the policy aims to do is to make it much simpler to register SMEs. One can expect the policy to redefine the sector in terms of turnover, capital employed and labour employed. That is expected to make a huge difference to the over 46 million small and medium enterprises that account for over 40 per cent of Indian exports and employ over 106 million people.In a way, the MSME policy could well be a pivot for furthering Prime Minister Narendra Modi’s ‘Make in India’ plan of making the country a manufacturing hub. While it is not clear what all changes are expected, there is talk of amending exemptions of excise duty on goods made by MSMEs. The big problem that the sector faces today is that it is largely unorganised. As a result, access to finance emerges as one of the biggest problems.In his Budget speech, finance minister Arun Jaitley had mentioned that the definition of MSME will be reviewed to provide for a higher capital ceiling. A programme to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery will also be put in place.anup@businessworld.inanupjayaram@gmail.com@anupjayaram
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He came in with fire and bluster. In a two-month long election campaign, Narendra Modi literally tore apart the achievements of the UPA-II government led by Prime Minister Manmohan Singh. Now as Modi completes 100 days as India’s 15th Prime Minister, how have the first 100 days been?Macquarie Research analysed the performance of the Modi government. Its Modi Meter gives the government a phenomenal rating of 8.5/10 based on four yardsticks — economics, foreign policy, governance and parliament productivity/state relations. Macquarie will be doing a quarterly review of the government.It has given the government a 10/10 rating for foreign policy despite calling off the Indo-Pak foreign secretary level talks. On all the other parameters, the government has been rated at 8/10. It points out that when the government started out, there were many factors going against it. That included a potential 43 per cent deficit in the rainfall during the monsoon, high global oil prices ($ 115 a barrel) and the Ukraine-Russia standoff. But, as the rains picked up in August, the monsoon deficit came down to 18 per cent. Crude prices too have softened to a shade over $100 a barrel.In economic measures, the big developments include introducing 100 per cent FDI in the railways; raising FDI in defence to 49 per cent and relaxing FDI norms in real estate. The flagging off of the high speed railways and the Make in India pitch during the Independence Day speech to the nation have also added to the economic lustre.In governance, the smaller cabinet was a step in the right direction. The scrapping of Group of Ministers and empowered Group of Ministers to facilitate faster decision making. In foreign policy, the Modi government is looking to build bridges with neighbours. The other plus points included the tough stance at the WTO summit against the Trade Facilitation Agreement to protect Indian farmers and the lead taken to create a BRICS Bank.However, a great positive factor with the NDA government has been a productive Parliament. It managed to pass 13 of the 20 bills introduced. In 167 hours in the Lok Sabha, only 14 hours were lost to disruptions; in the Rajya Sabha there were 142 hours of work and 34 hours of disruptions.The flagging off the Mumbai-Ahmedabad bullet train and forming a high speed rail corridor called the Diamond Quadrilateral too has evinced investor interest. It also went ahead and hiked railway tariffs, that would go some way to improve finances for the Indian Railways.While these positives are there, some negatives are also there. This includes the failure of the government to push through the bill raising FDI in insurance to 49 per cent; no clear roadmap for the introduction of the Goods and Services Tax (GST) and the Direct Taxes Code (DTC); postponing a decision on the hike in natural gas prices and the Food Security Plan by three months each.The first 100 days have not been as action packed as what PV Narasimha Rao had when he took over the reins in 1991. It’s still early days for Modi. He still has another 1,726 days as PM. Write to Anup@businessworld.inanupjayaram@gmail.comTweet: @anupjayaram
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It was expected to be one item that would definitely make it to the Union Budget ever since the Bharatiya Janata Party (BJP) spoke about tax terrorism in its Election Manifesto. But, finance minister Arun Jaitley decided to stay away from removing the retrospective taxation proposal brought in by the UPA government in 2012.Instead, Jaitley talked about the sovereign right of government to undertake retrospective legislation being unquestionable. He stated that all fresh cases from the retrospective amendments of 2012 (in respect of indirect transfers and coming to the notice of the Assessing Officers) will be scrutinised by a High Level Committee to be constituted by the Central Board of Direct Taxes (CBDT) before any action is initiated in such cases.However, that does not provide any relief for Newbury, UK-based Vodafone that is saddled with a tax bill of approximately Rs 20,000 crore. Reacting to the Budget, Vodafone issued a statement saying: “We note the finance minister’s announcement that existing cases arising from the 2012 retrospective tax law should follow the lawful process in which they are currently being adjudicated. Vodafone will therefore continue the process of international arbitration initiated under the India-Netherlands Bilateral Investment Treaty.” It goes on to add that from the outset, Vodafone has maintained that there was no tax to pay – a view upheld by India’s Supreme Court – and the retrospective law in any case concerned tax on the gain made by Hutchison: Vodafone, as the buyer, clearly made no capital gain whatsoever. That does not do much to improve global investor sentiment in India. That is important for Jaitley who is looking to raise Rs 45,471 crore in this fiscal from the communications sector. That is more than the Rs 40,847 crore raised in the last fiscal. For Jaitley to achieve this target, he needs to have a successful auction of radio spectrum across the 800/900/1800/2100MHz bands. However, by still not resolving the retrospective tax issue could lower global investor sentiment. That is important since Indian telecom operators are already under high levels of debt post the last two auctions.It is one thing to talk about a high level committee without exactly specifying the details. Says Rajiv Anand, Tax partner, Delotite India: “The FM has not removed the retrospective amendments made in 2012 to the Income Tax Act. What is not clear is what the high level committee be required to do, especially when the Act clearly requires indirect transfers to be subject to tax in India. It could just be that the committee would be given the mandate to scrutinise each transaction to ascertain if the arrangement had substance or was it entered into to avoid India capital gains tax liability.”That means the government will have to come out with a clear stand over the next few days. Else, it is difficult for global investor sentiment to improve.
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DV Sadananda Gowda’s maiden Railway Budget is a medley of old and new. While the most significant announcement related to introducing foreign direct investment (FDI) in the railways, the minister did not forget to introduce 51 new trains and initiate surveys for 18 new lines.He has gone ahead with Narendra Modi’s plan of introducing high speed trains (160-200 kilometres) on nine corridors on the Diamond Quadrilateral (connecting metros and high growth centres). All that will entail an investment of Rs 900,000 crore. Add to that Rs 60,000 crore ($10 billion) for introducing bullet trains on the 534 kilometre on the Mumbai-Ahmedabad route. That would work out to an annual capital expenditure of around Rs 50,000 crore.It will take five years to introduce a bullet train once work on building the corridor starts. Rather than announce a series of bullet trains, Gowda has listed only one. Building that would be a learning experience for the railways and the country as a whole.Read Also: Gowda Moots FDI, PPP To Boost Ailing RailwaysRead Also: Sensex Slumps 500 PtsRead Also: Highest-ever Outlay For A Railway BudgetRead Also: Railway Budget: Industry ReactionsSince internal revenues and government funding are insufficient to meet the needs of the railways, the FDI will help. That’s critical as railway finances are in bad shape. The transporter ended the year with an operating ratio of 94 per cent, which means that out of every Rs 100 that the railways earn, it spends Rs 94.While there were big announcements, the biggest problem with Gowda’s Budget was a sheer lack of detail. There is no clarity on what will be the level of FDI — 26 per cent, 49 per cent, 74 per cent or even 100 per cent? On the high profile bullet train and the high speed corridors on the Golden Quadrilateral, there are no timelines mentioned.That’s surprising since Gowda went out and mentioned that in the last 30 years, 676 projects worth Rs 157,883 crore were sanctioned. Of that, only 317 projects were completed and the balance 359 projects will require Rs 182,000 crore. Also in the last 10 years, 99 new line projects worth Rs 60,000 crore were sanctioned of which only one project is complete. Four projects that were planned 30 years ago are still not complete. Yet, Gowda has gone out on a limb and sought surveys for 18 new lines.Gowda did not have to go in for a fare hike since he had done that a few days ago. The recent hike would provide the railways an additional Rs 8,000 crore this fiscal. However, the minister made no mention of the Rail Tariff Authority. What he did mention in passing was that periodic revision in passenger fare and freight rates, as approved by this august House, will be linked to revisions in fuel prices in order to insulate the Railway revenues from fuel cost escalation. Again, there is no clarity on how frequently will fares change? Is there a scope of fares falling in the eventuality that fuel prices fall? How will it be passed on to consumers?There has been an increased focus on passenger amenities at stations (escalators, lifts, cleanliness), on trains and for booking tickets (e-ticketing, mobile booking). Like mentioned earlier, one needs to wait for the detailed guidelines on each of the initiatives to see how well it can rolled out quickly. The boost to railway investment will lead to all round growth of infrastructure industries. That in turn can lead to faster GDP growth. That hopefully should be clear in the next few days.
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It took three years for the Acworth Committee recommendations of 1921 to separate the Railway Budget from the Union Budget to be implemented. It’s been a good 90 years since the split happened in 1924. At that time, the railway budget accounted for 70 per cent of the country’s budget. Today, it accounts for less than 15 per cent of the Union Budget.The idea behind the separation was to make the railways financially autonomous. Ninety years later, we all know that is simply not the case. The whole idea behind the railway ministry was to provide largesse to their constituencies in the form of new trains. Over the past decade, the railway ministry has been held by allies of the UPA that included Mamata Banerjee (Trinamul Congress) and Lalu Prasad Yadav (Rashtriya Janata Dal).There was no focus on improving the quality of the network. What no minister looked at was to beef up the network. That shows in the numbers. In 1950, the Indian Railways had a network of 53,596 route kilometres. In the 64 years since then, the railways have managed to add a mere 11,004 route kilometres of track. That’s just 172 kilometres a year. In sharp contrast, China which had 21,800 route kilometres in 1950 now has 103,144 route kilometres. Forget that, it added 12,800 kilometres of high speed track; which is more than the entire distance added by India.Much before the Modi government presents its first railway budget in Parliament, railway minister Sadananda Gowda has gone ahead and hiked passenger fares by 14.2 per cent and freight by 6.5 per cent. That gives him a cushion to begin with. It’s time Modi and his minister talk in terms of expanding the network faster, add manufacturing capacity, introduce faster trains initially leading to super fast trains over the next few years and improve on safety and cleanliness.Read Also: Putting Railways On TrackTo do that, the railways should be run as a professional enterprise. It should go ahead and split the railways into a series of corporations that compete. It has already set up many corporations—RITES, IRCTC, Konkan Railway Corporation, High Speed Rail Corporation, Railtel and Indian Railway Finance Corporation.Next, it is time the government went ahead and scrapped the Railway Budget. What India needs is a professionally run railways. So will the Modi government go ahead and do something that has been suggested many times over, but which no government has gone ahead and done?That shall be clear in the next few hours.
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Prime Minister Narendra Modi clearly means business. It looks like tough times are starting. Less than a week after he talked of tough decisions to put the Indian economy back on track, the action has begun with the railways. Union railway minister Sadananda Gowda hiked passenger fares by 14.62 per cent across all categories and freight tariffs by 6.47 per cent, which shall be effective June 25. The hike should help the Indian Railways raise Rs 8,000 crore in a year.Essentially, it is a flat 10 per cent hike for passengers and 5 per cent for freight. The variable Fuel Adjustment Component (FAC) approved in last year’s rail budget accounts for the balance 4.2 per cent in passenger fares and 1.47 per cent in freight. The FAC was introduced in October 2013 by the UPA government. Under this, the railways introduced a fuel charge on passenger fares which led to a 2 per cent increase under the FAC in higher classes and around 3.5 per cent in lower classes. Similarly freight rates were increased by 1.7 per cent under the FAC.While the hike in prices will definitely hit consumer budgets (especially monthly suburban users) it will provide the railways with some leeway to provide better services. Already political leaders including Jayalalithaa have started the campaign for reversing the hike. Modi should not agree to any such demands.That’s because the railways needs funds for modernisation. Currently, the railways’ needs Rs 4.5 lakh crore to complete existing projects. During April-May 2014, the Indian Railways reported an increase of 7.05 per cent in revenues at Rs.16,405.26 crore by ferrying 180.63 million tonnes of commodities. During the same period last year, the railways carried 171.84 million tonnes freight generating Rs.15,324.25 crore.This is quite likely the first step towards re-invigorating the railways. While this hike is not enough, the Modi government is expected to allow FDI in the railways primarily to bring in the latest technology to run high-speed trains across the country. That fits into the BJP manifesto that talked of building a Diamond Quadrilateral (a high speed railway grid connecting the major cities).Interestingly, the rail fare hike has come in a few days before the Railway Budget is presented in Parliament. However, this could well be an indication of how things are likely to change in the future. For starters, there is no reason to continue with a railway budget, a legacy from the Raj. Then the government will not need a railway budget to be presented to Parliament. It can link fares to a basket of fuel prices. As diesel and electricity rates rise, it could pass it on to consumers dynamically.What, however, is needed, is to expedite the building of the freight corridors (Delhi-Mumbai and Amritsar-Howrah). The time is ripe to cleanse the railways of being a tool to cater to the whims of successive railway ministers. This could well be the first step in that direction.
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The increase has been steady, but it did not hit people immediately. It was one of the smartest moves by the UPA-II ministry — to hike high speed diesel (HSD) prices by 50 paise every month. And it has yielded results, without too much of a bickering, except when it was first announced in January 2013. With the Narendra Modi government continuing with the policy of the UPA-II government, diesel prices in Delhi have risen to Rs 57.28 per litre in June from Rs 47.65 per litre in January 2013. That has resulted in reducing the under-recovery on diesel to an all-time of Rs 2.80 per litre from Rs 4.41 per litre before the hike. It had stood at Rs 8.37 a litre in March. While the gradual hike in prices is important, what has also aided the fall in under-recovery this time round is the strengthening of the rupee vis-à-vis the US dollar. Currently the rupee is trading at Rs 59.03 to the dollar. It is believed that if the rupee rises to Rs 56 per dollar, the under-recovery will be wiped out. With the rupee strengthening against the dollar, the government is in a position to finally decontrol diesel prices. That’s important since diesel accounts for 44 per cent of India’s fuel consumption while petrol accounts for 10 per cent. With petrol already decontrolled, it means that more than half of India’s fuel consumption will be at market prices. While that is good, the impact on state-owned oil marketing companies (OMC) continues. As of June 2, OMCs are incurring a combined daily under-recovery of about Rs 262 crore on the sale of diesel, kerosene and domestic LPG. This is, however, less than the Rs 318 crore daily under-recoveries during the previous fortnight. While the under-recovery in diesel has come down, it is still Rs 32.87 per litre of kerosene. In the case of domestic liquefied petroleum gas (LPG), the under-recovery is to the tune of Rs 432.71 per cylinder. The government will now have to look closely at hiking the prices of LPG and kerosene which are generally perceived to be the common man’s fuel. With the rupee strengthening against the dollar, the price of the Indian basket of crude oil was $ 107.14 (Rs 6324.47) per barrel (bbl) on 30 May as against US$ 107.59 (Rs 6330.60) per bbl on 29 May. Anupjayaram@gmail.comanup@gmail.com
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His plate is quite as full as that of his predecessor. Soon after assuming office, Ravi Shankar Prasad, India’s new minister for communications and information technology who is also the minister for law and justice said: “The Atal Behari Vajpayee government is remembered for the National Highways project. We will be known for the broadband highway.” As part of this, Prasad is looking to improve mobile connectivity in the North-East, Ladakh and the Andaman & Nicobar Islands. That would be a boost to a wide range of industries that depend on high speed connectivity. According to global internet content delivery company Akamai’s State of the Internet Report for Q4 2013, the average broadband connection speed in India at 1.5mbps was the lowest in the Asia-Pacific region. South Korea leads the pack at 21.9mbps followed by Japan at 12.8mbps and Hong Kong at 12.2mbps. China is more than double of India at 3.4mbps. He went on to add that, “I am aware of the problems of the telecom department. It has been in the news for all the wrong reasons and one of my first priorities will be to set things right.” Over the last few years, the Indian telecom sector has been hit by regulatory uncertainty that included the 2G spectrum scam. Post that while some telecom operators exited the country, the rest have seen a decline in profits. Prasad wants to make the department transparent. The two priority areas for the ministry will be to improve the quality of services (QoS) and boosting investor confidence in the country. QoS is a big issue in India where the biggest problem faced by mobile consumers is call drops and lack of network coverage. Prasad pointed out that since FDI in telecom is 100 per cent, it must be used to ensure that more investment flows into the country. “The way things have happened in the past have diluted investor confidence. We need to change that.” Prasad is also pushing for a softer regulatory regime. However, he insisted that those need to be followed by industry.Hemant Joshi, Partner, Deloitte Haskins & Sells, said the telecom minister appears to have realised the power of telecom as a growth enabler and instrument to serve the masses which can add 15% to India GDP. The new Government seems to have a strong vision for the telecom industry and want to portray a positive image nationally and internationally. The incoming telecom minister is in favour of transparent, clear and stable regulatory and legal regime for telecom industry in order to remove the uncertainty and policy paralysis masking the telecom sector. India desperately needs relaxed M&A policy to help in consolidation of the hyper competitive industry and to make investment friendly environment. We expect the new government will fulfill the “Broadband for all” demand through fast implementation of broadband highways across the length and breadth of the country. This will lay ground for good e-Governance model as well as enable growth of other sectors such as healthcare, banking, education, etc, said Joshi. Focus ITFor the IT department, Prasad said since information technology is an area of great growth. Another focus area for the minister will be electronics manufacturing in the country. That could be a positive in the longer term thanks to potential for boosting employment in the country. “Manufacturing as a whole needs a big push in India, but manufacturing of electronics sector can be given further boost, which can bring considerable number of employees,” he added. That’s going to take a lot of wooing. Over the past few years, many of the large global original equipment manufacturers have set up shop in Vietnam and Taiwan. That would make it a lot more difficult to get investment in India, more so after problems at Nokia’s manufacturing facility in the country at Sriperumbudur near Chennai.anupjayaram@gmail.comanup@businessworld.in
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As the new government takes over later this month, among other things it will need to fend off a couple of arbitration cases that it has acquired from the UPA-II. Both cases — Vodafone and Reliance Industries — relate to retrospective issues. Vodafone International Holdings BV (VIHBV) commenced international investment arbitration against it under the Bilateral Investment Treaty (“BIT”) between India and the Netherlands. That arises from the government’s 2012 enactment of retrospective taxation on VIHBV’s acquisition of indirect interests in Hutchison Essar Ltd in 2007. While Vodafone got a reprieve from the Supreme Court in January 2012, the UPA-II government amended the IT Act, 1961 during the Budget session to impose a retrospective provision to tax deals like Vodafone-Hutchison. It was done during the tenure of then finance minister and now Indian President Pranab Mukherjee. That one move has been perceived globally as truly investor-unfriendly. Read Also: Vodafone Begins Arbitration Against India In Tax Dispute Read Also: Will BJP Settle Voda Issue If It Comes To Power?Read Also: Reliance, Partners Take Govt To Arbitration Over Gas Pricing As a telecom industry analyst states: “The government should have backed off after the SC gave Vodafone a clear verdict.” However, the then government believed that the Rs 20,000 crore from Vodafone would help reduce the country’s fiscal deficit. More Stories By Anup JayaramMeanwhile, Reliance Industries (RIL) with its partners, BP and NIKO issued an arbitration notice to the government seeking implementation of the domestic Natural Gas Pricing Guideline 2014 notified on 10 January 2014. While the Rangarajan committee had approved doubling of gas prices to $8.4 from April 1, the Election Commission stopped the government from announcing the new price until the election code of conduct is in force. Now that period is over, RIL is seeking payment at the higher price with retrospective effect. RIL stated that the delay in notifying the price has meant that the parties are unable to go ahead with planned investments of $4 billion this year. The three parties shall endeavour to work with the government to achieve a prompt and efficient resolution of this dispute, RIL said. However, in these arbitration times, the government got some succour from Norway’s Telenor that has decided to withdraw arbitration proceedings. That’s because the UPA-II government allowed it to set-off the Rs 1,658 crore that it had paid for the all-India licence in 2008. All said, the new government will be in for interesting times.anup.jayaram@gmail.comanup@businessworld.in
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