The real estate industry has been going through a challenging phase. The end-users’ decision to buy has been delayed on expectations of interest rate cuts, fiscal incentives and softening prices. The rising construction costs, delay in approvals and higher capital costs are the key concerns of developers. The industry was thus expecting the government to meet some of its pressing demands.
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Cairn India Ltd, India's largest private sector crude oil producer, said on Wednesday it would cut spending by about 60 percent for the fiscal year starting April 1, as falling oil prices hurt profitability and make project expansions unviable. The company, a unit of London-listed Vedanta Resources Plc, is revising capital expenditure, or capex, for the 2015-16 financial year to $500 million from $1.2 billion, while deferring the rest, Cairn India said in a statement. Vedanta Resources Chief Executive Tom Albanese said in January the company would apply "a meaningful reduction" to its previously planned $2 billion spending across businesses in the coming fiscal year. Cairn India will undertake projects that are economically viable at current oil prices, the company said. Cairn, which plans to spend $3 billion over three years to boost oil production and natural gas output in Rajasthan, lso said it expected volumes to grow this year despite the reduction in spending. (Reuters)
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The sustained reduction in global crude oil prices since July 2014 provided the government of India with an array of macro and microeconomic options. It also provided the finance minister the much-needed space to deal with the Budget allocations for 2015-16. So significant was the impact of the oil price drop that given the large import quantum, the Indian economy seems to have turned around. On the back of strong policy initiatives, the government has also managed to turn the sentiments of doing business in India positive.The positive shock of oil price reduction was also well utilised. Especially since it was unpredictable as to how long this benefit will be available, oil prices were maintained until October 2014, and thereafter the opportunity was used to bring long-awaited diesel fuel consumer price decontrol. The policy will, ostensibly, remain in force for some time to come. However, given the affordability demonstrated by consumers, the government chose to keep the savings mostly (up to 66 per cent) with itself rather than pass them on to consumers. The excise duty on fuel was increased to build exchequer earnings, and the tax is also being treated as de facto carbon tax. Concurrently, the carbon tax on coal is also being raised.As the macroeconomic indicators reveal, the situation has improved significantly during FY 2014-15. The release of the new series of national accounts revealed that the economy has been performing much better than what was being depicted earlier. The improvements in some of the macro aggregates of the economy in 2013-14 got further strengthened in 2014-15. Economic growth as measured by the growth in gross domestic product (GDP) at constant market prices was estimated at 5.1 per cent and 6.9 per cent, respectively, during 2012-13 and 2013-14. Driven by lower food and fuel prices, the headline inflation measured in terms of the wholesale price index (WPI) (base year 2004-05=100), which remained persistently high at 6 per cent to 9 per cent during the period 2011-13, moderated to a low of 3.4 per cent in 2014-15 (April-December). Like WPI inflation, retail inflation as measured by consumer price index (CPI), hovering in the range of 9 per cent to 10 per cent for the past two years, moderated significantly since the second quarter of 2014-15 and declined to an all-time low of 5 per cent in the third quarter of the year. Pushing ‘Make in India’The Budget proposals have been acknowledged by analysts from the perspective of positive contributions made to further Make in India, improve ease of doing business, ensure availability of funds, rationalise taxes, better enforcement of tax laws and provide for investment in infrastructure.The oil and gas sector is attempting to make the best of the government’s push to make in India. The sector is advocating the introduction of policies to manufacture not only goods, but also deliver services. The sector absorbs a significant quantum of services from imports coupled with a drain on foreign exchange. Policy development is also awaited. Meanwhile, provisions such as the reduction in withholding tax from 25 per cent to 10 per cent for royalty on technology purchase is an important and welcome measure. It will significantly cut input costs of Indian companies and encourage many to set up shop in India. Paring of corporate tax rates in a telescopic manner will make India an attractive destination. Oil and gas sector infrastructure can hope to benefit from the real estate investment trust (REIT) provisions made very favourable now. Carving out investments made in infrastructure and availing of the trust benefits announced last year will give a fillip to the building of infrastructure in this sector.What’s New, What’s ChangedThis Budget introduced the definition of ‘ place of effective management’ as a place where key management and commercial decisions concerning the conduct of business of an entity as a whole are made. Oil and gas companies invest in assets overseas for equity oil, for deploying core competency of the company in refining, contracting, and for trading in products. In such businesses, the taxability would be carefully analysed. The provision may lead to restructuring or significant changes in internal processes in the companies.The most significant change heralded by the Budget though is that of rolling out goods and services tax (GST). With only a year given to companies for implementing GST, they would have to swing into action. However, the road map is unclear. The changes in income-tax (I-T) platforms will need significant attention. In any case, logistics in the sector are set to change substantially.A silent revolution is happening in the oil and gas sector since the new government took over. The commitment to arrest leakage of subsidy is demonstrated by strongly pushing for the direct transfer of cooking gas subsidy. In his Budget speech, finance minister Arun Jaitley reiterated the commitment of deploying I-T to turn this into a national-level initiative. The dividends of this success will be enjoyed by the economy in the coming fiscals with enhanced savings in subsidies.Accelerated UnburdeningThe oil sector, albeit with the blessing of external factors, provided the economy with reduced inflationary pressures, savings of exchequer costs and contributions to collections. The effect has been on an accelerated footing — within eight to nine months. The sector now expects rapid policy reforms for accelerated unlocking of hydrocarbons by exploration and production companies, and the creation of gas, liquified natural gas (LNG) and marketing infrastructure to develop the gas market. This is much needed for environmentally benign economic development. The author is Leader, Oil & Gas, PwC India(This story was published in BW | Businessworld Issue Dated 23-03-2015)
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With the target for Renewable Energy increased substantially to 1,75,000 MW by 2022 (including 1,00,000 MW from solar power; 60,000 MW from wind, 10,000 MW from biomass and 5,000 MW from small hydroelectric projects), the Budget, in a sense, reinforces the resolve of the government to push for clean and green energy. The increase in clean energy cess to Rs 200 per tonne of coal from the present Rs 100 per tonne will increase the tariff for thermal electricity by around 5 paise per unit, but would also double the resources in the national clean energy fund and provide additional impetus to the clean and green energy vision. The announcement of five ultra mega power projects of 4,000 MW each in plug-and-play mode, i.e., with all clearances in place pre-bidding, envisages a total investment of Rs 1 lakh crore. The move towards building larger projects, which bring in economies of scale, efficient fuel utilisation and faster capacity addition, is a step in the right direction. With pre-requisites like fuel, land and approvals in place, the development cycle of the projects will reduce considerably and will also lead to effective utilisation of existing natural resources as only what can be provided for will get planned. Another positive for renewable energy is the tax pass-through status considered for alternative investment funds in categories 1 and 2, and the clarity on General Anti-Avoidance Rules — that they will not be implemented with retrospective effect. A large portion of equity investment in renewable energy is expected to come from private equity capital, which is sourced from global markets. These clarifications are expected to provide a further impetus to private equity inflows into the sector. Tax-free bonds, which have been suggested for the roads, railways and irrigation sectors, could have been considered for the power sector as well. This could have helped reduce the cost of funds for institutions funding the power sector and the associated benefits could have, in turn, flowed to projects and eventually to end-consumers. With increase in service tax from 12.36 per cent to 14 per cent, the cost of third-party operation and maintenance for power projects (including renewable energy projects where the major operating cost is operation and maintenance expenses) may increase marginally and may prompt project developers to go for in-house operation and maintenance. Larger developers of projects in solar and small hydro domains are in any case engaged in operations and maintenance in-house. With economies of scale favouring larger developers, the size per project of renewable projects (wind and solar) is also expected to increase in coming quarters. Lots of projects are presently stuck because of fresh capital. Establishment of a national infrastructure fund with an initial corpus of Rs 20,000 crore from the government may provide some help to the sector. Overall, the Budget is quite positive for companies like ours — PTC India Financial Services — which are engaged in financing renewable projects within the power sector, as there will be a lot more projects coming up over the next few years. Also, with non-banking financial companies being brought into the ambit of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, the recovery process of NBFCs will become more robust and help us get better control over non-performing assets. The author is MD & CEO, PTC India Financial Services (This story was published in BW | Businessworld Issue Dated 23-03-2015)
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The Union Budget holds significant promise for the manufacturing sector, which is evident from the steps outlined to increase the contribution of manufacturing in India’s gross domestic product (GDP). The finance minister rightly pointed out that at 17 per cent of GDP, which is 1 per cent lower than last year, India’s manufacturing sector has considerable distance to cover. And for sustainable economic growth, the manufacturing sector must be at the forefront. A key factor that drives global investment in manufacturing is local demand — not just need, but need coupled with the ability to pay. The fact is that while India has a large population and therefore a large ‘need’, the ability to pay is still modest and therefore ‘demand’ is relatively weak. In absolute terms, even a 1 per cent growth of the US economy is equivalent to a more than a 10 per cent growth of our economy and for a manufacturer, the US market offers far better profitability. The most significant challenge that our economy faces is sluggishness of demand. This is particularly in the case of capital goods due to almost stalled investment in the infrastructure sector. The Economic Survey estimated total stock of stalled projects at Rs 8.8 lakh crore or 7 per cent of GDP.While the country as a whole has grown substantially, the manufacturing sector remains tepid, registering only a 1.2 per cent growth during the current fiscal. The Budget tries to find the right way to build and leverage domestic demand by making domestic manufacturing more attractive. This is a better path as opposed to imposing import barriers. Further, exports too will need to be supported by competitive financing as that is what competing countries are offering. The Budget clearly provides a roadmap for demand generation, which in turn will attract investment, create jobs through manufacturing and entrepreneurship, all of which play a vital role in the success of the Make in India campaign.That the government is focusing on revitalising the public-private partnership model for infrastructure development and is projecting itself as an equal partner in risk will encourage private sector participation in key sectors. After all, it is infrastructure that will provide the requisite boost to manufacturing. Rationalisation of taxation and phased reduction in corporate tax are welcome steps. The positive sentiment should result in more investments.With a much higher share of revenue now being given to the states, they should be prodded to allocate sufficient funds for infrastructure development. Better coordination is needed among states and between states and the Centre for driving big projects to completion. The allocation of Rs 70,000 crore for infrastructure sector and tax-free bonds for rail and road projects will spur growth in core sectors. The other crucial aspect is our ability to innovate and design locally. Most of the products, particularly capital goods, are designed outside India. While as a country we have done well to adapt and use the latest technology, we have done little to develop it ourselves. We have been unable to even build in a substantial manner on technology that has already been transferred. We continue to rely on foreign technology. Innovation is a prelude to manufacturing; that’s why ‘designed in India’ is in many cases more important than Make in India. Indian brands can occupy the world stage only if they are designed in India. Innovation, research and development, all need the right talent. It is heartening to see a concerted effort towards encouraging innovation and skills with the announcement of Atal Innovation Mission and setting up of educational institutions. Brand India can succeed only if Indian firms invest in manufacturing. Indian firms in turn can sustain investment in manufacturing only if they invest in innovation, design and technology. The author is President & CEO, GE South Asia(This story was published in BW | Businessworld Issue Dated 23-03-2015)
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A surge in demand for renewable energy in India coupled with a capital injection from the country's second-richest man will help wind turbine maker Suzlon Energy turn profitable after six years of losses, its chairman said. Suzlon has been under pressure for a few years due to a slowdown in global sales and a surge in costs to service debt taken on in acquiring a German company in 2009, forcing it to restructure $1.8 billion of debt after a bond default in 2012. "Next financial year we will be in profit ... 100 per cent," Tulsi Tanti told Reuters on Tuesday. He also said the company had reduced a major portion of its debt through asset sales and could exit the debt restructuring programme within a year. Suzlon, which had outstanding debt of 165 billion rupees ($2.7 billion) at the end of 2014, has sold some assets in the last couple of years and in January agreed to sell its German unit, Senvion SE, for $1.12 billion. The company, whose operations were impacted by tight working capital, also sold a 23 percent stake in itself for $290 million to Sun Pharmaceutical Industries Inc's billionaire founder Dilip Shanghvi and his associates. Suzlon shares have doubled in three months, as investors cheered the firm's efforts to reduce its leverage. The Indian government's target to almost triple installed wind capacity to 60,000 megawatts (MW) by 2022 has also helped sentiment. Prime Minister Narendra Modi has made renewable energy a priority for his government as he looks to address India's chronic power shortages and fulfil an election promise of round-the-clock power to all Indians by 2022. "In the next 3 years, we are expecting an average of not less than 40 percent growth in order book," Tanti said, adding the company was actively looking to offload some non-core assets to further reduce its debt. Suzlon's order book stood was 1,147.50 MW, valued at 72.5 billion rupees ($1.17 billion), at the end of December. Following the sale of Senvion, which made up 70 per cent of the company's revenue in 2014, Tanti said the company was keen to grow its international business aggressively in North America, Latin America, China and Turkey. These overseas markets together with India account for 70 per cent of the global wind energy market, Tanti said. Suzlon's wind farm in Uruguay was commissioned by the Presidents of Brazil and Uruguay. "Suzlon's Wind Energy Farm in Uruguay was inaugurated by President of Brazil Dilma Rousseff and President of Uruguay, Jose Mujica," the company said in statement on Monday. It said that the farm is the first of its kind joint venture between Brazil and Uruguay to harness wind energy. Uruguay aims to increase its energy from renewables in its total primary consumption to 50 per cent by 2015 as compared to about 40 per cent in 2012. The 65.1 MW project will light up 20,300 households in Uruguay with clean energy. The company will, in the future, look to increase its 25 per cent stake in its joint venture in China, the world's largest wind energy market, he said, but declined to give details. Tanti said the company's focus on wind and solar hybrid projects and large-scale offshore wind parks will help it double market share in India to 50 per cent in the next three years. (Agencies)
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Railway Minister Suresh Prabhakar Prabhu has a reputation for being a no-nonsense person. And his maiden railway budget on February 26 has lived up to that.
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Petrol price was today hiked by Rs 3.18 per litre and diesel by Rs 3.09, the second increase in rates this month on rising international oil rates. The increase is effective from midnight tonight. A litre of petrol in Delhi will cost Rs 60.49 from tomorrow as against Rs 57.31 currently while diesel will cost Rs 49.71 per litre as against Rs 46.62 at present, oil companies announced here today. Prior to the increases this month, petrol price had been cut on ten occasions since August 2014 and diesel six times since October 2014. Cumulatively, petrol price had been cut by Rs 17.11 per litre in ten reductions since August and diesel by Rs 12.96 a litre since its deregulation in October. This trend was reversed when rates were raised on February 16. "Prices of petrol and diesel were last revised upwards with effect from February 16 by Rs 0.82 per litre and Rs 0.61 a litre respectively (including state levies at Delhi)... Since the above price revision, there has been further steep increase in international prices of both petrol and diesel," Indian Oil Corp (IOC) said in a statement. Also, the slight depreciation in rupee-dollar exchange rate together with firming international rates warrant increase in retail selling price of petrol and diesel, it said. Fuel prices would have been lower but for four consecutive excise duty hikes since November totalling Rs 7.75 a litre on petrol and Rs 7.50 on diesel. "The movement of prices in international oil market and INR-USD exchange rate shall continue to be closely monitored and developing trends of the market will be reflected in future price changes," the IOC statement said.(PTI)
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