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RISING ORDERS SHOW INVESTMENT REVIVAL

inMUMBAI: If order inflows are a harbinger of an improvement in the investment cycle, India Inc has reason to feel happy. In the quarter ended September this year, companies received about Rs 67,000 crore worth of fresh orders, up 45 per cent on a quarter-on-quarter basis and the highest in the past four quarters (see chart).

 

The momentum has continued into the quarter ending December, too, with companies reporting fresh orders of about Rs 20,000 crore so far this quarter. In the December quarter of FY13, companies had received Rs 41,654 crore worth of new orders.

 

Capital goods companies accounted for about 85 per cent of the overall order inflow in October, followed by construction & infrastructure firms (12 per cent). The rest is accounted for by information technology services companies and offshore service providers, data compiled by Business Standard Research Bureau show.

 

The order inflow in the July-September quarter was, however, lower compared to the year-ago period, though the pace of decline moderated sharply compared to fall in the previous quarter, hinting at a recovery in the coming quarters. During the second quarter, the inflow of fresh orders declined 2.6 per cent on a year-on-year basis, against the 27 per cent annual decline in the June quarter.

 

Optimism is also visible in new projects data released by the Department of Industrial Policy and Promotion. In the April-August period this year, a total of Rs 2.6 lakh crore of new investment proposals have been cleared by the department, against Rs 2.48 lakh crore during the corresponding period last year (see table).

 

Analysts are, however, keeping their fingers crossed, saying the uptick could be due to select projects getting off the ground, rather than a secular rise in capital expenditure.“We don’t see any immediate surge in order books, as companies are still in a wait-and-watch mode. We need to see data for at least the next two quarters before arriving at a firm conclusion,” says Kunal Sheth, capital goods analysts at Prabhudas Leeladhar.

 

Others on the Street are more bullish. “There are clear signs of movement on stalled projects and recovery in the corporate capex cycle. Leading capital goods and engineering companies such as Bharat Heavy Electricals Ltd (Bhel) and Larsen & Toubro (L&T) are now reporting new orders, indicating a recovery in the investment cycle,” says Devang Mehta, senior vice-president and head (equity sales), Anand Rathi Financial Services.

 

Overall, orders for equipment for 9,000-Mw power projects have been placed or finalised so far this financial year, according to estimates by Antique Stock Broking. Cumulatively, companies had won Rs 1.32 lakh crore worth of fresh orders across sectors during the first seven months of this financial year.

 

In the past month, Bhel has bagged fresh orders amounting to Rs 12,081 crore. Of these, engineering, procurement and construction orders amount to Rs 7,800 crore, while L&T has bagged orders worth Rs 8,072 crore. IL&FS Engineering and Construction Company received two contracts amounting to Rs 1,412 crore. Analysts suggest the capital goods sector will be a significant beneficiary of a revival in the domestic capex cycle. Emerging segments such as green energy corridors, intra-state transmission projects and substation automation will drive growth, they add.

 

Within the capital goods sector, they expect L&T to gain from dedicated freight corridors. According to reports, Dedicated Freight Corridor Corporation of India plans to award orders worth about $7.5 billion in FY15-FY16 — $4 billion in civil construction and $3.5 billion in electrical/signalling.

(Source: Business Standard, October 31, 2014)

 

FAILURE TO INK TAX PACT WITH US MAY HURT INDIA

 

NEW DELHI: The government’s ability to keep a secret could determine whether it will be able to sign a key accord with the US before the year-end deadline. It’s not just private capital flows that face the risk of higher withholding tax there if India is unable to sign the pact on exchanging data related to bank accounts, but interest earned on RBI’s US treasury bond holdings could also face such levies, potentially hurting government finances.

 

This goes to the heart of the misgivings the government had with regard to passing on 627 names of overseas account holders to the Supreme Court in the black money case — information that had been obtained from other countries under bilateral treaties. Such data are usually meant to be kept confidential and revealed only if the information leads to prosecution.

 

The government was forced to pass on the list after the apex court insisted. The latter then handed the ‘sealed cover’ to the special investigation team (SIT), which is probing the matter. SIT had the names anyway, the Centre having given it the list on June 27. India cannot sign Foreign Account Tax Compliance Act ( FATCA) accord before December 3, when SC will hear the case next.

 

This has raised the prospect that India could miss the December 31 deadline for signing the pact. Unless it’s made explicit that New Delhi will respect confidentiality clauses, it may not be able to sign the accord.

 

RBI has already written to Finance Minister Arun Jaitley seeking early accession to the agreement, arguing that a delay could have serious consequences for the country’s financial sector.

 

“We are awaiting clarity on signing the agreement,” said an official, expressing the government’s helplessness in the matter.

 

 

 

The central bank transferred its entire Rs 52,679-crore surplus from its earnings to the government earlier this year, immensely improving finances and alleviating fiscal slippage concerns. Not signing FATCA could put this under a cloud. The apex court has directed the Justice MB Shah-led SIT to look at the issue of confidentiality clauses along with other matters in international treaties after the government sought clarity. SIT has been asked to give a report by end-November to the apex court.

 

FATCA was enacted by the US in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act to combat tax evasion by its nationals holding investments in offshore accounts and over 100 countries have already signed it.

 

There are two options under FATCA — an individual financial entity can enter into an accord with US revenue authorities or a country can sign the agreement covering its financial entities, saving them the trouble of doing so individually. Without a treaty, payouts by US financial entities would face a mandatory withholding tax of 30%.

 

If the court endorses confidentiality clauses incorporated in international treaties to protect data, India will have to rush through domestic processes, including Cabinet approval for the agreement, officially sign FATCA and notify it, something that should be possible in 27 days. However, any lack of clarity on confidentiality or hiccups in meeting the deadline could lead to serious economic consequences.

 

RBI, which manages the country’s debt, parks a large chunk of its money in US treasury bonds. Its holdings were pegged at a little more than $79 billion as of September. Under inter-governmental agreements (IGA), central banks are completely exempt from any requirements. Under FATCA, if an IGA is not signed, they are otherwise exempted except for their earnings on investments in certain categories.

 

To be sure, US has provided for grandfathering — which means the provisions will not apply — for treasury bonds outstanding on March 18, 2012, and which have not been materially modified since. But there is a risk that the penal provisions of the new rules under the pact could apply beyond that cutoff. This would hurt the country’s reserves as well as the surplus transfer to the government by the central bank.

 

Indian companies could also face difficulties in raising external commercial borrowings or see their costs go up as payouts to noncompliant jurisdictions would mean an additional withholding tax outgo of 30% not just in the US but also in other countries, including OECD nations that have endorsed it. Breaches of the confidentiality clause could also expose India to similar risks.

(Source: The Economic Times, October 31, 2014)

 

LIC SEES OPPORTUNITY IN DIVESTMENT OF ONGC AND SAIL

 

MUMBAI: After mark-to-market gains of over 30% from the ONGC stake sale in FY12, LIC is looking forward to the government’s divestment programme to raise its stake further in the oil & gas company if the shares are offered at an attractive price, said a source.

 

Apart from ONGC, the insurer sees SAIL as an attractive opportunity. The government plans to sell 5% stake in ONGC and 5% stake in SAIL to meet its Rs 58,425-crore disinvestment target. At current market prices, the government’s stake sale in ONGC and SAIL could fetch the exchequer Rs 16,993 crore and Rs 3,440 crore, respectively.

 

Among other stake sales lined up by the government, Coal India could fetch Rs 22,754 crore to the exchequer at the current market price. Disinvestments in REC and PFC together could raise Rs 3,279 crore. The 11.4% stake sale in National Hydroelectric Power Corporation (NHPC) could fetch Rs 2,515 crore.

 

The government has already initiated the valuation process for HZL (29.5%) and Balco (49.%) stake sale. Estimates suggest the exchequer could get Rs 22,000-25,000 crore from both the companies. In both the companies, majority of the stake is owned by London-listed Vedanta Resources.

 

According to reports, the government has raised its FY15 disinvestment target by 41% over last year to Rs 80,000 crore.

 

The previous government had missed the disinvestment target for five consecutive financial years. In FY11 and FY12, the government had raised Rs 22,144 crore and Rs 13,894 crore , respectively, through disinvestment, against the budgeted target of Rs 40,000 crore each year. In FY13, it had raised Rs 23,956 crore, against the target of Rs 30,000 crore. In FY14, the government raised Rs 16,027 crore against the target of Rs 40,000 crore. The target in revised estimates was scaled down to Rs 16,027 crore.

 

Finance minister Arun Jaitley had recently said the government’s disinvestment programme was on track and a schedule for the stake sale would be announced soon.

(Source: The Financial Express, October 31, 2014)

 

TOP TELCOS DIAL MINISTER TO DEFER AUCTIONS

 

KOLKATA: India’s top four carriers have sought the telecom minister’s urgent intervention to defer the upcoming auction and ensure that operators whose permits expire in 2015-16 be allowed to “continue with their existing in-use spectrum” till sufficient additional airwaves across bands are available for sale.

 

In a joint letter to Ravi Shankar Prasad, the telecom operators have reiterated the regulator’s call for simultaneous auctioning of airwaves “across the 900 MHz, 1800 MHz, 2100 MHz and 800 MHz bands, through a big-bang” spectrum sale.

 

The letter – written by Bharti Airtel MD & CEO Gopal Vittal, Vodafone India MD & CEO Marten Pieters, Idea Cellular MD Himanshu Kapania and Reliance Communications CEO (consumer business) Gurdeep Singh – was also marked to Prime Minister Narendra Modi, as the four companies sought to mount pressure on the government to defer the auctions which are tentatively scheduled to start in February 2015.

 

The letter also suggested that during the intervening period the licensees, whose initial term expires in 2015-16, pay “the price discovered in February 2014 for 1800 MHz with the 900 MHz multiplier” as proposed by the Telecom Regulatory Authority of India (Trai). “This may be adjusted subsequently, if required, for the price discovered in the next round of auctions,” it said.

 

India’s biggest operator Bharti Airtel has 900 MHz holdings in 13 non-metro circles, of which six will expire by April 2016. Vodafone and Idea, the next two firms, have the same efficient spectrum in nine non-metro service areas, of which six and nine, respectively, will lapse by April 2016. Anil Ambani-led Reliance Communications’ seven 900 MHz permits expire in December 2015.

 

According to the letter, the “common representation to offer a practical solution to the critical problem of inadequate spectrum availability for the next auction is in public interest as it will protect government revenues, ensure continuity of services, secure existing investments and maintain/restore investor confidence in the sector”.

 

More so, since “conducting auctions in an environment of spectrum shortage, has serious implications on investments, predatory pricing, continuity of services and most importantly, on public interest,” the chief executives added in their letter.

 

Besides these suggestions, the letter also proposed an alternate action plan, in case spectrum supply constraints prove a long-term challenge for the government.

 

If it takes too long to resolve the bandwidth supply constraints, the “government can auction all 900 MHz spectrum allocated to the 1996-2000 licensees together when state-run Bharat Sanchar Nigam and Mahanagar Telephone Nigam’s permits come up for renewal,” the letter said.

 

In its recent spectrum pricing recommendations, Trai had warned that failure to add airwaves across bands to the auction pool would trigger an artificial scarcity and lead to fierce bidding by players desperate to win back their airwaves, which are being offered for sale as their permits expire in 2015-16. Such a scenario, it had warned, would add to the industry’s indebtedness, which is already reeling under a burden of over Rs 2 lakh crore.

 

In an accompanying note on business risks being faced by the four operators, the chief executives warned about the likelihood of “business disruptions, including potential closure in the 11 circles” where permits are due for extension in 2015-16,” in the event operators failed to win back expensive spectrum in the 900 MHz band.

 

The government is scheduled to auction a total of 104 units of airwaves in the 1800 MHz band and 184 units in the 900 MHz band next February. Trai has suggested a base price of Rs 2,138 crore per unit of 1800 MHz spectrum for 20 circles, about 10% higher than the reserve price fixed for the February 2014 auctions. In the 900 MHz band, the base price for 18 circles adds up to Rs 3,004 crore, which is 1.5 times the price of 1800 MHz.

(Source: The Economic Times, October 31, 2014)

 

REVIEW PANEL ON GREEN LAWS GETS EXTENSION

 

NEW DELHI: A high level committee, which has been reviewing green laws to suggest appropriate amendments to bring them in sync with the government’s development goals, has got another month to finalize its report. The move comes even as the Centre is keen to change couple of key legislations during the winter session of Parliament.

 

It is learnt that the committee, headed by former cabinet secretary T S R Subramanian, has been sounded out to finish its work by November 28 so that the government can bring certain amendments during the remaining 17 sittings of the winter session.

 

The month-long session, beginning on November 24, will have 22 sittings till December 23.

 

“After getting suggestions of the panel, the government will need a few days to draft the required amendments. That’s why the committee was initially asked to submit its report by October 28,” said a senior official.

 

The panel was set up on August 29 and asked to submit its report in two months. The panel is examining laws pertaining to environment protection, forest conservation, wildlife protection and prevention of air and water pollution.

 

Though the government has not elaborated on its objectives in the terms of reference (ToR) of the four-member panel, the committee chairman is learnt to have clarified its mandate during one of its public consultations.

 

Quoting the panel chief from his speech at a public consultation in Bangalore last month, the Environment Support Group (ESG), which works with a variety of environmental and social justice initiatives, said the former cabinet secretary had explained that the primary goal was to suggest changes which would ensure development.

 

The ESG quoted Subramanian as saying that the country was very poor and it was “essential to streamline environmental clearance process that thwarted (economic) growth”.

 

“Subramanian also shared that it was a matter of concern to the government that several development projects were getting mired in litigation on environmental grounds, leading to needless delays,” the ESG said in a statement.

 

Subramanian, at the same time, insisted that the committee had the mandate to “propose necessary changes that would help improve the quality of life and environment”.

 

The ESG also referred to the committee’s chairman remarks in which he said that the ministry of environment and forests had never proposed a public consultation exercise but he had suggested that this should take place.

 

Former environment secretary Viswanath Anand, retired judge of Delhi High Court Justice A K Srivastav and senior advocate and former additional solicitor general K N Bhat are the other three members of the committee.

 

The ESG and various other members of civil society have put a list of demands before the environment ministry to make this process more representative, keeping in mind concerns of people. They demanded that the “ministry must first come out with a white paper discussing the nature of the reforms that it proposes in environmental, forest conservation and pollution control laws”.

 

Referring to the consultation mechanism, they said, “Adequate facilities must be made to ensure that anyone interested can participate with dignity and without being inhibited by language or geographical location. To ensure this, the process must be devolved by enlisting the support of state and local governments.”

(Source: The Times of India, October 31, 2014)

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