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Demonetisation ‘key step’ in formalising economy, tackling black money: Arun Jaitley defends noteban

As India completes two years of demonetisation today, Finance Minister Arun Jaitley has once again come out in support of the exercise explaining how the noteban by the government helped in formalising the economy. Arun Jaitley said that demonetisation helped in tackling black money and expanding the tax base. “Demonitisation is a key step in a chain of important decisions taken by the Government to formalise the economy,” Arun Jaitley wrote in a blog.

Adding further Arun Jaitley said that demonetisation was basically aimed at ensuring that weaker sections become part of the formalised economy and moving towards digitisation. “Demonitisation compelled holders of cash to deposit the same in the banks. The enormity of cash deposited and identified with the owner resulted in suspected 17.42 lakh account holders from whom the response has been received online through non-invasive method,” he wrote. The launch of Unified Payment Interface (UPI) in 2016 helped immensely in digitisation of the economy, he added.

Indian norms on PCA, capital are conservative, rule-based: SBI report

Indian regulations on capital requirements, provisioning for sour assets and prompt corrective action (PCA) restricting regular activities by lenders are conservative and rule-based, SBI’s research wing has said in a report. It did not call for any relook in the report which comes amid a heated debate between the Government and the RBI over such aspects.

“Whether a rule-based or a discretion-based approach works better remains a matter of empirical debate till date,” it said, while commenting on the PCA and provisioning norms. It compared the Indian PCA framework — which was set in last year and has impacted 11 state-run lenders so far which have a high net non-performing-assets ratio, negative return on assets or lower capital buffers — with the US’ FDIC. The report, released Monday, said being traditionally more conservative helps in withstanding crisis and early recognition of the problem leads to timely corrective measure.

“While it may be difficult to vouch for either a rule-based approach or a discretion-based approach to policy making, empirical research does suggest (Greg Mankiw) that discretion-based approach could also serve the desired purpose if the regulator has credibility,” it said.

Many countries, including India have also asked banks to maintain capital at levels higher than the Basel-III floor, it said, pointing out US has set the capital buffer level at 5 per cent and 6 per cent for systemically important entities. RBI has asked banks to keep capital at 9 per cent. It can be noted that the Government is pitching for a relaxation on this front, so that it becomes on par with global experience.

The RBI has rejected the demand citing the higher incidence of NPAs in India. On provisioning, the SBI report said Indian banks are required to set aside money in a rule-based fashion and end up holding more provisions, while in the US, the norms are purely discretion-based with banks having to provide as per estimated/judgemental/modelling credit losses associated with the loan portfolio.

Budget 2018-19: Modi government may cut expenditure by Rs 50,000 crore

Its efforts to keep public spending robust notwithstanding, the Centre may have to trim the annual budgetary expenditure for the current financial year by Rs 50,000 crore, or 2% from the estimated level, and the axe could fall primarily on defence and some social-sector spending. Trimming of the budget to meet the tough fiscal deficit target of 3.3% of the GDP for FY19 has been necessitated because non-tax revenues could be significantly below budget target and uncertainties over indirect tax receipts, even though the government’s public assertions so far have been that the aggregate tax receipts would be in line with the budget.

Unlike the UPA government which had resorted to heavy expenditure reductions to keep the fiscal numbers from going awry, the NDA government hasn’t messed up with its original budget estimates much. Except in the FY15, when it retained the interim budget set by the UPA and had later to undertake a big (Rs 1,50,000 crore or 8%) reduction in the budget size, the NDA has ensured that the overall budget estimate is not visibly different from the original projections.

“The ministries or departments which are laggards in spending in the first half of this year may see budget cuts,” an official said. Ministries which are lagging behind in spending include telecom, food processing and sports, which spent only 30-40% of their annual budget in H1FY19. The defence ministry, which spent 57% of its budget of Rs 4.04 lakh crore in H1, however, could also end up spending a few thousand crores less than budgeted for the full year.

On the revenue front, the Centre may see a shortfall of Rs 20,000-25,000 crore on the disinvestment front (against target of Rs 80,000 crore) as many of the transactions planned for the year including ONGC-HPCL type deals are nowhere near implementation. No concrete proposal has yet come from the administrative ministries such as power, renewable energy and petroleum ministry in this regard. Last year, ONGC’s purchase of Centre’s 51% stake fetched Rs 36,915 crore, helping it garner a record Rs 1 lakh crore disinvestment revenue.

Tax revenues are also not doing that well. Net tax receipts (post refunds and devolution to states) grew just 7.5% in H1FY19 as against 19% required to raise the budgeted amount for the full year. The monthly gross (pre-devolution) GST revenue (excluding cess) for the Centre to meet its budget estimate is a little over Rs 54,000 crore.

As against this, it got an average of around Rs 39,000 crore in April-October. Although some improvement in collections is now seen (October GST revenue for Centre was around Rs 49,000 crore), the revenue gap is too wide to be bridged in the next five months.

In addition, the Centre is also likely to face a Rs 20,000 crore shortfall in telecom revenues, budgeted at Rs 48,700 crore, due to weak finances of telecom firms.

In FY18, the Centre shifted some planned subsidy expenditure from budget to the balance sheet of a PSU (FCI) to manage the fiscal deficit. Though it had released nearly 100% of the BE of 1.07 lakh crore to Food Corporation of India towards food subsidy for FY18, it converted Rs 40,000 crore from that into a five-year loan from the National Small Savings Fund in March, to contain fiscal deficit at revised target of 3.5%. A similar exercise can’t be ruled out this year as well.

The Centre has lined up plans to raise a massive Rs 1.7 lakh crore via the extra budgetary resources in the current fiscal, up 110% from FY18. This would help keep public spending robust, while private investments are still in the doldrums.

Kerala-Isro space tech park likely to go live from June

The Kerala government is preparing to set up a nano space technology Park with technical support from the Indian Space Research Organisation (ISRO). An MoU (memorandum of understanding) on this will be signed soon.

The state Cabinet has given the go-ahead for the space park initiative with the Vikram Sarabhai Space Centre (VSSC), the rocket science node of the ISRO, sources in the Kerala CMO told FE. The facility is likely to start functioning from June 2019.

The idea is to create a manufacturing hub for small satellites and rocket launching devices. This nano space park will enable start-ups in the space technology to upgrade themselves with the state-of-the-art common facility centre offered by the VSSC.

The state Cabinet has cleared permission to allow 3.94 acre of land in Technocity, Thiruvananthapuram, on 90-year lease, sources said.

 

Nissan had recently set up a facility for its global digital hub for manufacturing driver-less cars in the Kerala Capital. For the upcoming nano space park, Nissan is likely to be the research partner in artificial intelligence.

The ISRO, which had considered an incubation centre in tie-up with Kerala’s knowledge city, later dropped the plan over security reasons. However, since it already outsources manufacturing of satellites, the new common facility centre for start-ups was considered attractive.

What makes it an integrated ecology for space technology is the presence of Indian Institute of Space Science and Technology (IIST) in the vicinity to provide academic support.

As a precursor, data analysis start-ups will get going in January by working on data sent by ISRO satellites.

RBI relaxes ECB norms for infrastructure companies

The Reserve Bank has liberalised the norms governing foreign borrowings for infrastructure creation “in consultation with the Government”. The minimum average maturity requirement for ECBs (external commercial borrowings) in the infrastructure space raised by eligible borrowers has been reduced to three years from earlier five years, a notification said. Additionally, the average maturity requirement for mandatory hedging has been reduced to five years from earlier ten years, the central bank announced. The provisions have been reviewed and decisions taken “in consultation with the Government of India,” it added.

The move comes amid concerns surrounding the availability of funds following a liquidity squeeze and the difficulties being faced by non-bank lenders, especially those facing asset liability issues due to heavy reliance on short term funding for long term assets. This, along with defaults by infra lender IL&FS, has hurt the credit markets.

The Government has been unequivocal in suggesting remedial measures which will address the needs of the economy. Some measures reportedly suggested by the Government include a special window for NBFCs, and the RBI does not seem to be amenable for undertaking the measures. The relaxations in the ECB norms follow other moves by the RBI, including last week’s permission to banks to use credit enhancement to help NBFCs raise medium to long term funds.

Urjit Patel could resign as RBI governor on November 19: report

Reserve Bank of India (RBI) Governor Urjit Patel could resign at the central bank’s next board meeting on November 19, online financial publication Moneylife reported on Wednesday, citing sources in touch with the governor. The Indian government and the central bank have been fighting for weeks over how much autonomy the RBI should have as the administration of Prime Minister Narendra Modi seeks to reduce curbs on lending and to gain access to the RBI’s surplus reserves.

The rift worsened late last month when one of the bank’s deputy governors said in a speech that undermining central bank independence could be “potentially catastrophic”.

US exempts India from certain sanctions for development of strategic Chabahar port in Iran

The United States has exempted India from imposition of certain sanctions for the development of the strategically-located Chabahar Port in Iran, along with the construction of the railway line connecting it with Afghanistan, a State Department spokesperson said. The decision by the Trump administration, which a day earlier imposed the toughest ever sanctions on Iran and is very restrictive in giving exemptions, is a seen as a recognition by Washington of India’s major role in the development of the port on the Gulf of Oman, which is of immense strategic importance for the reconstruction of war-torn Afghanistan.

“After extensive consideration, the Secretary (of State) has provided for an exception from imposition of certain sanctions under the Iran Freedom and Counter-Proliferation Act of 2012, with respect to the development of Chabahar Port, construction of an associated railway and for shipment of non-sanctionable goods through the port for Afghanistan’s use, as well as the country’s continued imports of Iranian petroleum products,” a State Department spokesperson told PTI.

The US on Monday imposed “the toughest ever” sanctions on a defiant Iran aimed at altering the Iranian regime’s “behaviour”. The sanctions cover Iran’s banking and energy sectors and reinstate penalties for countries and companies in Europe, Asia and elsewhere that do not halt Iranian oil imports. However, Secretary of State Mike Pompeo said that eight countries — India, China, Italy, Greece, Japan, South Korea, Taiwan and Turkey — were temporarily allowed to continue buying Iranian oil as they showed “significant reduction” in oil purchase from the Persian Gulf country.

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