NEW DELHI: In order to make India a better place to do business, the government is working to cut down the time for registering a business from 27 days to a single day. Towards this end, it has readied a raft of measures, such as, single registration for all labour laws, overhaul of tax systems, reduction in the number of permits required, easing up property registration, quick electricity connection and property registration – measures that are expected to make the country a friendlier investment destination.
Currently, India has the reputation of being a notoriously difficult place to do business. According to The World Bank’s ” Ease of doing business” index, India ranked 134 out of 189 countries in 2014, behind China (ranked 96) and behind neighbours Pakistani (110) and Bangladesh (130). During the launch of the ‘Make in India’ campaign, Narendra Modi had announced that his government would take steps to bring the country’s ranking among the top 50.
The Department of Industrial Policy and Promotion (DIPP) has been made the nodal agency for pushing these procedural reforms. In turn, DIPP has set a time frame of 3-6 months for implementing the changes. It has asked all ministries to come on board and work to reform the regulatory structure and overhaul the investment climate. States are also being encouraged to join the Centre’s efforts to improve the regulatory structure and cut down delays.
Among the focus areas are reforms of the tax system. It has been suggested that the number of taxes be reduced and online payment of taxes allowed. Education and higher education cess, dividend and withholding taxes can be incorporated under corporation tax to simplify the process, officials said. The Minimum Alternate Tax (MAT) for developers of special economic zones (SEZs) and units in SEZs is proposed to be abolished. There is emphasis to expeditiously implement the Direct Tax Code and goods and service tax (GST).
“To achieve all this, the government, along with the states, will need to carry out radical measures on a war footing,” said an official, who did not wish to be named.
The DIPP has set timelines for various reforms for ministries and departments. For example, it has been suggested that there should be no inspection for low risk business and computer based selection for high risk ones. There is also a proposal for a uniform policy and procedure for all states so as to enable the single-window clearance system, along with a combined application form with an institutional mechanism to provide various approvals.
The DIPP has cited examples from various countries such as Malaysia, New Zealand, Canada, Rwanda, Turkey and UAE for easing up the processes and reduce delays. It has also been suggested that the requirement of minimum paid-up capital for starting a business should be done away with, as 90 countries have no such requirement.
For removing hurdles in getting electricity for businesses several measures have been identified which include removing the requirement of pollution control certificates for providing a connection. State electricity boards and the power ministry have been asked to simplify procedures of getting an electricity connection.
(Source: The Times of India, October 22, 2014)
FOREIGN FUNDS LAPPING UP INDIAN CORPORATE BONDS
MUMBAI: Foreign funds are buying more Indian corporate bonds as there is no sign that the $25-billion limit on government securities — close to being exhausted — is going to be raised. Overseas portfolio investors have used up nearly half the overall investment limit in corporate bonds compared with 37 per cent four months ago. But foreign portfolio investors, or FPIs, can invest another Rs 1,23,580 crore to exhaust the full limit of $51 billion (about Rs 3,11,813 crore) in corporate bonds.
“The fiscal and inflation target looks more achievable now than ever before,” said Ashish Vaidya, executive director and head of trading and asset liability management at DBS Bank. It places India in a sweet spot as the country gets the opportunity and time to rebuild its economy. “This helps create a positive trigger on both the rates and equity markets side and, hence, overseas investors find India an attractive investment destination, especially at a time when the rest of the world is struggling for growth,” he said.
According to Prime Database, total monthly corporate bond issuances have surged 76 per cent to about Rs 43,880 crore in September from Rs 24,874 crore in June. With falling crude oil prices, India’s fiscal deficit is set to improve.
It is estimated at 4.1 per cent of GDP in 2014-15. In September, retail inflation rose at a slowerthan-expected 6.46 per cent from a year earlier, the lowest since January 2012. RBI aims to bring it down to 6 per cent by January 2016.
Globally, the growth outlook is bleak and developed economies like the UK and other European countries are expected to keep interest rates low. With US yields falling close to 2 per cent, arbitrage opportunities may be drawing more funds. The FPIs’ liking for India is reflected in corporate bonds issued by state-owned companies, particularly those with more than 50 per cent government holdings, which are treated as semi-government securities.
“The spread, or gap, between triple-A rated corporate bonds and the benchmark government bond has narrowed to 50 bps from 70 bps two months ago,” said Neeraj Gambhir, managing director and head, fixed income, Nomura Fixed Income Securities. “Having exhausted the government bonds limits, many overseas investors are buying Indian corporate securities as yields are attractive.”
FPIs have also evinced interest in corporate securities with twoto-five-year maturities but with one-year put options in most cases. “Overseas investors in those bonds have the flexibility to exercise the put option after one year but enjoy the duration of a five-year bond,” said Arun Srinivasan, senior vice-president, investments, ICICI Prudential Life Insurance. Investors can get their money back using the put option, while a rally in higher-duration bonds would earn them a profit. “A relatively stable currency with positive outlook is drawing overseas investors to India,” said Ajay Manglunia, senior vice-president, Edelweiss Financial Services.
“Corporate bonds are the flavour of the season… The demand is also reflected in the aggressive bidding of large foreign banks for corporate bonds especially those issued by PSU companies.” Some favoured issuers in the public sector space are Rural Electrification Corp, Power Finance Corp, Power Grid, SAIL and Food Corporation of India.
(Source: The Economic Times, October 22, 2014)
RAJAN REJIGS RBI OPERATIONS, CREATES 4 CLUSTERS
MUMBAI: Reserve Bank of India governor Raghuram Rajan has finalized organizational restructuring of the central bank by reassigning responsibilities of deputy governors under four new clusters. However, the missing piece in the exercise is the chief operating officer — which entails appointment of a fifth deputy governor by the government through an amendment of the RBI Act.
A key element of RBI’s restructuring has been the separation of supervision and regulatory functions. It also involves the merging of some departments but the central bank has made it clear that there will not be any redundancies.
The RBI is also expected to induct some lateral talent as part of its skill-building attempt.
Deputy governor H R Khan will be responsible for the organizational cluster that has been defined as financial markets and infrastructure. These include departments like external investment, government accounts, payments and settlements, foreign exchange and internal debt management. Deputy governor Urjit R Patel continues to hold charge of monetary policy and research, which will include departments of communication, economic and policy research, financial market operations, and monetary policy department.
The newly christened department of banking regulation, which comes under the ‘regulation and risk management’ cluster, is part of deputy governor R Gandhi’s portfolio. Gandhi is also responsible for regulation of finance companies, deposit insurance, financial stability unit, currency management and risk monitoring. Deputy governor S S Mundra will oversee department of banking supervision, consumer education and protection, financial inclusion, human resource and development and cooperative bank supervision.
Last week, the RBI announced that it has promoted three senior officials as executive directors, M D Patra, K K Vohra and G Mahalingam. While one promotion was in lieu of an existing vacancy, the other two are against additional positions created due to the restructuring in the RBI. The central bank had kicked off the restructuring exercise after its board of directors gave an approval in its meeting on August 14. On the issue of the COO position, the RBI was asked to hold consultations with the government.
Earlier in an interview to TOI, Rajan had said that the objective of the restructuring was to get maximum effect with minimum change. “Our aim is to identify strengths and weaknesses. Plug weaknesses, and in a very small way bring in new talent. But we want to keep it minimal because this is a home-grown organization and we want to keep it that way for the most part.”
(Source: The Times of India, October 22, 2014)
INDIA TO TAKE MOSCOW ROUTE TO CHANNEL OIL PAYMENTS TO TEHRAN
NEW DELHI: India oil refiners’ payments to Iran, which continue to be stymied by sanctions on Tehran despite interim leniency shown by the US and five other world powers to the Persian Gulf country, may finally get easier with Moscow agreeing to play intermediary. Russia, which recently signed an agreement with Iran for oil purchases from the West Asian country, would institute an oil swap mechanism with India that will mean that practically New Delhi will have to pay Russia for Iranian oil with Moscow assuming the risk of routing the funds to Tehran.
The new arrangement, sources said, may be part of a package deal encompassing defence and energy sectors that India and Russia are slated to negotiate in detail during President Vladimir Putin’s visit to India in December. India’s immediate payment to Iran of $900 million in two tranches beginning next week will be made through the existing mechanism where Indian oil companies deposit funds in rupees in an Indian bank.
Iran then appropriates the money based on a series of back-to-back transactions in different currencies that are initially channelled through the Reserve Bank of India (RBI).
Indian oil refiners’ combined dues to Iran currently stand at close to $6 billion. Frozen oil revenues from India and elsewhere have been a problem for Iran for the last few years.
The difficulty in making payments has also resulted in India cutting down its oil purchases from Iran drastically in recent years: Of India’s total oil imports of 189 million tonnes (mt) last year, just 11 mt or 5.8% came from Iran. India had imported over 21 mt of crude from Iran in 2009-10.
According to sources privy to the discussions between the India and Russia, the idea is to streamline payments for oil shipments from Iran. They added that energy security, besides defence trade, will be topping the agenda of Putin’s visit to India. “Both sides are working on a ‘vision document’ that will be released during the summit where energy security will be a highlight. It will be dealing with three major areas: gas pipeline; oil pipeline and most importantly getting the Iranian crude oil to India through Russia,” said an official.
As per the current mechanism for payment that has seen many alterations due to the sensitivity of the matter, India deposits the funds in rupees in an Indian bank, which is later utilised by Iran to pay for its imports from India.
PSU refiner Mangalore Refinery and Petrochemical (MRPL) consumes most of the Iranian crude oil in India, followed by the Ruias-promoted Essar Oil. The country’s biggest refiner Indian Oil Corporation uses little volume of Iranian crude oil.
After the sanctions on the Islamic country by Western powers for its alleged nuclear activities in 2012, India has reduced its imports from Iran and started buying more from other suppliers such as Colombia, Mexico and Venezuela. In FY14, India bought 11 mt of crude oil from Iran and volumes are likely to remain the same in the current financial year.
In 2009-10, crude oil imports from Iran were to the tune of 21.20 mt, which reduced to 18.50 mt in 2010-11; 18.11 mt in 2011-12; and 13.14 mt in 2012-13.
India’s proposed payment of $900 million to Iran will be on top of $ 1.65 billion it had paid in June-July this year. Iran and the US, China, France, Germany, Britain and Russia agreed in July to extend a six-month interim accord until November 24 as they could not meet a July 20 deadline for concluding a long-term deal to end their nuclear dispute.
(Source: The Financial Express, October 22, 2014)
GOVT MAY RAISE FII CAP FOR PSBs TO 25 PER CENT
MUMBAI: The government is planning to raise foreign institutional investors’ (FIIs) limit in public sector banks (PSBs), keeping in mind the capital requirements under the Third Basel Accord. The move comes in the wake of a rising interest among overseas investors to own PSBs’ shares, given the expectations of economic revival, sources in the finance ministry and investment banking told FE.
Sources said the Centre plans to raise FII limit from the current 20% in 25-30% range. The government is also working on making it uniform with private sector banks over a long period because the larger PSBs require a sizeable amount of equity and are grappling with the ownership-cap issues compared with the smaller banks.
Banks may have the option to conduct a public issue to include retail investors, but bringing in retail investors will mean added costs and discounts despite the recent 25-50% correction in share prices of some of the PSBs. Conducting an institutional issue is the best option available, sources said.
“They (the government) have decided on certain things and have already moved a Cabinet note. You may get best value in an offshore issue or a QIP in general, but the foreign cap has limited headroom. So, the government is working on some kind of mechanics for all cap-related issues. They will soon take a call,” said a source.
Foreign investors are betting on an upturn in the economic cycle after the Lok Sabha election, and looking at next best options in the banking space to play the India growth story given the limited headroom in private sector banks and some of the leading state-owned banks.
“For FIIs, to play the India growth story, banking is the safest bet because the sector has exposure to all the large sectors, and is directly related with the infra sector. Offshore investors are gung-ho about state-owned banks and there is a lot of interest because the economy is expected to revive,” said an investment banker with a foreign investment bank.
Investment bankers, who are in constant touch with overseas clients, acknowledge the fact that FIIs concerns over PSBs’ profitability and asset-quality issues have abated. Overseas funds view state-owned banks at par in terms of their lending behaviour and expect these banks to move out of the NPA (non-performing assets) cycle together.
“NPAs of SBI and Vijaya Bank or United Bank are similar. Since FIIs are close to hitting their limit in SBI, they prefer to play the next best option because the characteristics are pretty similar. And this time, the situation is not cyclical, the moment economy begins to turn, there will be a huge surge in the share prices,” said another investment banker. FII holding in Bank of Baroda (BoB) was at 18% in the quarter ended September. In case of Punjab National Bank (PNB), FII holding stands at 17.36%. Others like Oriental Bank of Commerce, Union Bank of India, and State Bank of India have FII holding in the range of 11.2-12.7%.
In contrast, FII ownership in some of the smaller-sized banks like Central Bank, Indian Overseas Bank, Vijaya Bank, IDBI Bank, and United Bank of India stands at 0.25-3.1% of the stipulated 20%.
Finance minister Arun Jaitley, in the Budget speech, had estimated banks’ equity requirements at Rs 2.4 lakh crore by 2018 to meet Basel-III norms, and that recapitalisation of PSBs was the top priority. Fitch Ratings had estimated banks’ total capital requirement at over $200 billion (about Rs 12.28 lakh crore at the current exchange rates), of which state-owned banks will account for 85% share. Except for SBI and BoB, PSBs would find the capital requirements more challenging.
(Source: The Financial Express, October 22, 2014)