India’s Economic Performance and Business imperatives: Repositioning India - Narendra Modi’s Foreign Policy

Repositioning India - Narendra Modi’s Foreign PolicyJuly 2015

INDIA’S ECONOMIC PERF RMANCE &

BUSINESS IMPERATIVES

BMR Advisors | 01

Executive Summary 2 - 3

A. India’s Macroeconomic assessment and prospects 4 - 5

B. PM Modi’s Foreign Policy: Repositioning India 6 - 11

C. Foreign Trade Policy 2015- 2020 12 - 13

D. Sectoral Updates 14 - 27

E. Conclusion 28

Annexure I – One year of Modi Government: The India Inc. Verdict

Annexure II - References

CONTENTS

Prepared by: Aastha Dara and Dipti Chawla

Contributions by: Abhishek Bali, Jyoti Bhowmick, Siddharth Tandon, Sarabjeet Singh and Saurabh Kanchan

Edited by: Mukesh Butani

Copyright © 2015, BMR Business Solutions Private Limited, All Rights Reserved

INDIA’S ECONOMIC PERFORMANCE & BUSINESS IMPERATIVES

,QGLD·V� �HFRQRPLF� JURZWK� DQG� KLJK� GRPHVWLF� LQÁDWLRQ�between 2011 and early 2014 visibly shrank opportunities for the country. Given this, any increase in domestic consumption and high GDP growth could change the economic outlook of both India and the world, especially after China’s economy showed signs of stress and slow-down.

The Narendra Modi government set unprecedented expectations and has made good progress over the last year. India’s economic weightage is now the highest ever assigned to any emerging market.

In fact, international rating agencies like IMF and World Bank have predicted that India will surpass China’s annualised economic growth rate by the end of 2015-16.

Pro tempore macroeconomic statistics also bespeak a remarkable beginning for the new regime, with GDP WRXFKLQJ� D� �� SHUFHQW� UDWH� �� DQG� LQÁDWLRQ� VHW�to be at a viable 8 percent. The investment scenario LQFKHG�XS�ZLWK�)',�HTXLW\�LQÁRZV�LQFUHDVLQJ�E\�DERXW��percent1��),,� LQÁRZ�UHJLVWHULQJ�D� UHPDUNDEOH� LQFUHDVH�of over 800 percent over 2014-15. Mint Street and North %ORFN� FRQWLQXH� WR� VWDQG� FRPPLWWHG� WR� ÀVFDO� GLVFLSOLQH��monetary stability and reforms to resuscitate investment.

Broadly, on the economic front, the country discerned three important trends. Foremost, there was a global dip in commodity prices that led to a gainful payoff for oil importing countries as their import costs abruptly reduced from over US$ 110 a barrel to around US$ 60 a barrel. This oil price fall cushion was in turn used wisely. Unlike in other countries, the government did not pass WKH�HQWLUH�EHQHÀW� WR�FRQVXPHUV� LQ� WKH� IRUP�RI� UHGXFHG�prices; instead, it ameliorated its green credentials

by increasing indirect tax levy on fuel prices while the H[FKHTXHU� XWLOLVHG� WKH� H[WUD� UHWXUQV� WR� IXQG� LWV� ÀVFDO�GHÀFLW�EXUGHQ��6HFRQG��WKH�JRYHUQPHQW·V�DFFHSWDQFH�RI�the Fourteenth Finance Commission’s recommendations IRU�GHYROYLQJ�PRUH� IXQGV� WR� WKH�VWDWHV��7KH�ÀJXUH�QRZ�stands at 42 percent of total net revenue collection, up from the earlier 32 percent. Third: the revived economic growth forecasts lead by IMF, which in its April 2015 report revised its forecast for India to 7.5 percent (following India’s GDP base revision from 2005-06 to 2011-12), ahead of any other major developing economy, including China.

On the diplomatic front, Prime Minister Modi has displayed extreme personal enthusiasm and revelled in the international attention he has been receiving VLQFH�DVVXPLQJ�RIÀFH��:KLOH�IROORZLQJ�WKH�EURDG�IRUHLJQ�policy direction set by his predecessors Manmohan Singh and Atal Bihari Vajpayee, Modi has been bold enough to make important departures. The PM’s main foreign policy objectives have been the revitalisation of the stalled partnership with the United States, sensitive management of the China challenge, productive engagement with neighbours in the subcontinent, Asia and other emerging economies, leveraging India’s inherent strengths in soft power and moving New Delhi towards pragmatic internationalism.

The government has been successful in passing some of the key bills in Parliament, such as the Black Money Bill, expected to bring back the money stashed in offshore banks, and the Companies Amendment bill for increased ease of doing business. It hopes to pass the much debated and long standing GST and Land Acquisition bills in the monsoon session of Parliament.

The social schemes have been impressive in their reach to the common man. The Jan Dhan Yojana, The Pradhan

EXECUTIVE SUMMARY

1Press information Bureau, Government of India Cabinet KWWS��SLE�QLF�LQ�QHZVLWH�3ULQW5HOHDVH�DVS["UHOLG ��

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Mantri Jivan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Atal Pension <RMDQD� VFKHPHV� SURYLGH� FRYHU� WR� RYHU� �� PLOOLRQ�EHQHÀFLDULHV��2I�WKHVH��WKH�-DQ�'KDQ�<RMDQD�KDV�EHHQ�D�mega success, with the government opening 115 million bank accounts for households, surpassing its preset target of 75 million. The Ministry of Rural Development has brought in some new initiatives under MGNREGA to check delayed payments, such as a mobile monitoring system, and to ensure better quality of assets created by setting “outcome oriented” targets.

The government is also working towards curbing corruption; this is evident in the transparent execution of the Telecom Spectrum Auction and the Coal Block Auction. Asserting that India’s infrastructure is mismatched with its growth ambitions, the government has proposed a sizeable INR 700 billion increase in investment, apart from a slew of steps to spur its growth.

Owing to these unprecedented efforts by the government, India is again being viewed positively and favourably

IURP�DQ�H[WHUQDO�YLHZSRLQW��$FFRUGLQJ�WR�WKH�:RUOG�%DQN�Development update, the Indian economy is in a much brighter spot and surely to grow at 7.5 per cent in the coming year.

:LWKLQ�WKLV�IUDPH�RI�UHIHUHQFH��WKH�UHSRUW�LV�VSOLW�LQWR�ÀYH�main sections:

Section A: assessment of India’s macroeconomic trends and prospects;

Section B: PM Modi’s foreign policy and his endeavour to reposition India globally;

Section C: the foreign trade policy of the government;

Section D: summarization of key developments in various ministries from a business agenda standpoint.

The annexure to this edition contains the summary of a CEO poll undertaken by BMR with Forbes India on the one-year performance of the Modi government.

The data points in the report pertain to the H12015 period.

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GDP

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8%

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India’s near-term growth outlook has improved and the balance of risks is now more favourable, helped by increased political certainty, several policy actions, lowered commodity import prices and reduced external vulnerabilities. All this has offered an opportunity to further strengthen the local business environment and enhance the quality of public spending. Continuous strong momentum in reforms will further unleash the SURGXFWLYLW\� WKDW� ,QGLDQ� ÀUPV� QHHG� � WR� FUHDWH� MREV� DQG�become globally competitive. On the macroeconomic front, the response to favourable terms-of-trade shock has led to an appropriately prudent mix of increased government savings and private consumption.

Revisions in the methodology to measure GDP in mid - February (2015) resulted in lifted (estimated) growth rates in recent and coming years by 1.5 to 2 percentage points. Under the new methodology, the base year has been shifted to 2011-12 from the earlier 2004-05, which is in line with global best practices and gives a better picture of economic activity. The revision in the base year for GDP and GDP calculation methods will imply revision to GDP growth numbers for 2014-15, as well as in GDP forecasts.

According to MOSPI2, India’s GDP advanced 7.5 percent year-on-year in the fourth quarter of 2014-15, up from a downwardly revised growth of 6.6 percent in the previous period, supported by strong expansion in manufacturing and services sectors. Gross domestic product (GDP) growth for 2014-15 was reported at 7.3 percent, as against earlier estimates of 7.4 percent. Manufacturing production grew 8.4 percent, while farm output was GRZQ��SHUFHQW��7UDGH��KRWHOV�DQG�RWKHU�QRQ�ÀQDQFLDO�VHUYLFHV�JUHZ��SHUFHQW�DQG�ÀQDQFLDO�VHUYLFHV�ZHUH�XS�10.2 percent. Mining and quarrying output expanded 2.3 percent, while electricity, gas and water supply was up

4.2 percent. Public administration and defence were up ��SHUFHQW��GRZQ�IURP�D��SHUFHQW�JURZWK�UDWH�LQ�WKH�previous quarter, mainly due to a fall in total expenditure of the central government.

A. INDIA’S MACROECONOMICASSESSMENTS AND PROSPECTS

2Press Note on Provisional Estimates of Annual National Income 2014-15 and Quarterly Estimates of Gross Domestic Product for the Fourth Quarter (Q4) 2014-��&HQWUDO�6WDWLVWLFV�2IÀFH��0LQLVWU\�RI�6WDWLVWLFV�DQG�3URJUDPPH�Implementation, Government of India, http://mospi.nic.in/Mospi_New/upload/

nad_press_release_29may15.pdf

8.4%

10.2%

4.2%

Manufacturing Production grew

FinancialServices were up

Electricty, Gas &water supply was up

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Construction advanced 1.4 percent compared to 3.1 percent in Q4 of 2014. The key indicators of construction VHFWRU� �� FHPHQW� DQG� FRQVXPSWLRQ� RI� ÀQLVKHG� VWHHO� ��registered a growth of 5.6 percent and 3.1 percent respectively.

In addition to GDP base revision, comfortable liquidity conditions should enable banks to pass recent reductions in the policy rate into their lending rates, WKHUHE\�LPSURYLQJ�ÀQDQFLQJ�FRQGLWLRQV�IRU�WKH�SURGXFWLYH�sectors of the economy.

Initiatives announced in the Union Budget to boost investment in infrastructure and improve the country’s overall business environment, together with a conducive RXWORRN�IRU�LQÁDWLRQ�VKRXOG�SURYLGH�FRQÀGHQFH�WR�SULYDWH�investors and deliver real income gains to consumers and lower input cost advantages to corporates.

It is however cautioned that the economic outlook is subject to both external and domestic risks. In the case of India, risks are still tilted to the downside, with the

BMR Advisors | 05

main external risk stemming from a surge in oil prices. Besides, further tightening of US monetary policy could have a disruptive impact on India’s exchange rate and ÁRZ�RI�LQYHVWPHQWV��

:KLOH�WKH�5%,�KDV�EXLOW�UHVHUYHV�WR�UHGXFH�,QGLD·V�H[WHUQDO�vulnerability, the risk remains, warranting vigilance. On the domestic front, a further weakening of bank and corporate balance sheets could pose risks to economic UHFRYHU\�DQG�ZHLJK�RQ�ÀQDQFLDO�VRXQGQHVV��

Additionally, with India’s tax-to-GDP ratio remaining stubbornly low, the country will need to explore alternative channels of long term investment, and revive WKH� 333� PRGHO� RI� ÀQDQFLQJ�� 6XUSOXV� ÀVFDO� VSDFH� FDQ�be generated by increasing the tax-to-GDP ratio and improving tax administration and compliance. Lastly, supply-side bottlenecks and structural challenges — particularly in the agriculture, mining and power sectors — are potential constraints to medium-term growth and job creation.

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In a progressively symbiotic world, distinctive efforts are needed to alleviate growing concerns of global investors. Modi’s extraordinary leadership in shaping new pacts and partnerships with not only the developed countries but other emerging nations has been an extraordinary story of repositioning India. No other Prime Minister realised, much less harnessed the growing political clout and power of a resurgent diaspora. Since the beginning of his mandate, PM Modi has given focus DQG� DPELWLRQ� WR� ,QGLD·V� PXIÁHG� DQG� LOO�GHÀQHG� IRUHLJQ�policy, keeping it aligned with the government’s primary goal of accelerating national economic development to IXOÀO�,QGLD·V�JOREDO�UHVSRQVLELOLWLHV�DV�WKH�ZRUOG·V�ODUJHVW�democracy.

The unveil of the bumper ‘Make in India’ campaign with LWV� IRFXV� RQ� PDQXIDFWXULQJ�� HQHUJ\� HIÀFLHQF\� DQG� MRE�FUHDWLRQ��WKH�UHFKULVWHQHG�¶/LQN�:HVW��$FW�(DVW·�SROLFLHV��growing emphasis on neighbours and the prominence of technology transfer have been vital ingredients in India’s renewed policy recipe. In pursuit of these, the leadership VXSSRUWHG�E\�VWUDWHJLF�IRUHLJQ�VHUYLFHV�RIÀFHUV��KDV�EHHQ�carefully calibrating its agenda.

:LWKLQ� KRXUV� RI� KLV� ZLQQLQJ� WKH� /RN� 6DEKD� HOHFWLRQV��Narendra Modi invited the leaders of SAARC nations and the country’s extended neighbourhood to his swearing-in ceremony on May 26, 2014, thus setting the tempo for enhanced and energised engagement with nations around India’s periphery. This diplomatic masterstroke was followed by travel by PM Modi and Minister of External Affairs Sushma Swaraj to a host of South Asian countries like Nepal, Bhutan, Bangladesh, Afghanistan and Sri Lanka. The outcome has been truly WUDQVIRUPDWLRQDO�� 7KH� UDWLÀFDWLRQ� RI� WKH� ODQG� ERXQGDU\�

B. PM MODI’S FOREIGN POLICY:REPOSITIONING INDIA*

agreement with Bangladesh by India’s Parliament, the signing of pacts on hydroelectricity by Nepal, the laying RI� WKH� IRXQGDWLRQ� VWRQH� RI� WKH� ,QGR�%KXWDQHVH� ��0:�

Kholongchu hydro-electric project, progress towards FRPSOHWLRQ�RI�,QGLD·V�ÁDJVKLS�SURMHFWV�LQ�$IJKDQLVWDQ�DQG�re-opening of the Colombo-Jaffna rail link after 24 years are notable examples of outstanding diplomacy.

* Note: This section covers recent developments in the Ministry of External Affairs

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In the spirit of true friendship, India rallied to help its QHLJKERXUV� LQ� GLVWUHVV�� :KHQ� D� FULSSOLQJ� ZDWHU� FULVLV�HQJXOIHG� WKH� 0DOGLYHV�� ,QGLD� ZDV� WKH� ÀUVW� FRXQWU\� WR�send consignments of water by sea and air in the well-executed ‘Operation Neer’. It also successfully wrapped up ‘Operation Rahat’, a massive evacuation exercise of nearly 4,000 nationals from volatile Yemen, where a Saudi-led air campaign left hundreds dead and injured. And when an apocalyptic earthquake struck Nepal, India ZDV��ÀUVW��WR�PDUVKDO�UHVRXUFHV�DQG�PDFKLQHU\�WR�DOOHYLDWH�the suffering of Nepali citizens.

India’s Look East Policy morphed into Act East, which envisages a more vigorous and proactive engagement with an economically vibrant region. The Act East policy ZDV�H[HPSOLÀHG� LQ� WKH�3ULPH�0LQLVWHU·V�YLVLWV� WR�-DSDQ��Myanmar, Australia, the Republic of Korea, Singapore and China, and the External Affairs Minister’s trips to Singapore, Vietnam, Myanmar, the Republic of Korea, Indonesia and China.

Filling the gap in many bilateral relations, the PM and Foreign Minister Swaraj together have engaged with nearly 101 countries over the past year, including global powers like the United States, Japan, Russia, China,

France, Germany and Canada, with two main foreign policy goals: to strengthen India’s diplomatic clout in its own strategic backyard and multi-directional diplomacy, involving reaching out to nations such as the US and China to stabilise ties and consolidating relations with partners such as Japan. To achieve this, international economics will require greater prominence in Indian foreign policy.

Operation

RAHAT

“Filling the gap in many bilateral relations, the PM and Foreign Minister Swaraj together have engaged with nearly 101 countries over the past year.”

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In fact, the hallmark of Modi’s foreign policy has been his ability to make China and Japan compete for investment opportunities in India, without upsetting either partner. During his tenure as Chief Minister of Gujarat (2001- 2014), Modi travelled twice to Japan and four times to China to attract investment. He enjoys a good personal relationship with Japanese Prime Minister Shinzo Abe, ZKR�SHUVRQDOO\�ZHOFRPHG�KLP��WR�.\RWR�GXULQJ�KLV�ÀYH�day trip in August-September 2014.

Japan has elevated its relationship with India to a ‘special global strategic partnership’, pledging US$ 35 billion in investment and announcing that it will GRXEOH�LWV�)',�LQ�WKH�QH[W�ÀYH�\HDUV�

Japan agreed to build bullet trains and smart cities in India. Although a much-anticipated nuclear energy agreement similar to that with the United States in 2008 was not VLJQHG�� PLOLWDU\� WLHV� ZLWK� -DSDQ� DUH� � QRZ� VLJQLÀFDQWO\�strengthened. Both countries agreed to establish a ‘two-plus-two’ security arrangement, bringing together foreign and defence ministers to hold regular maritime exercises and to continue Japanese participation in India–US drills.

2Q�KLV�SDUW��&KLQHVH�3UHVLGHQW�;L�-LQSLQJ�ÁHZ�WR�WKH�30·V�home town of Ahmedabad in Gujarat on the occasion of Modi’s 64th birthday on September 17, 2014.

Xi offered to invest US$ 20 billion in Indian infrastructure and manufacturing sectors-

a dramatic rise from the US$ 400 million investment in the past decade. China will also build high-speed rail links and construct two industrial parks in India.

To counter the effects of China’s plan to establish a new ‘Maritime Silk Route’ linking Europe to China via the Indian Ocean, Modi intends to launch ‘Project Mausam’, which will stretch from East Africa to Indonesia, allowing India to gain robust control over the Indian Ocean. Keeping this in mind, India purchased seven new oil

PM MODI’S FOREIGN POLICY: REPOSITIONING INDIA

and gas blocks from Vietnam in the South China Sea disputed by China.

PM Modi’s much anticipated visit to China was complex, owing to the decade-old unresolved border problem DQG�D�VZHOOLQJ�WUDGH�GHÀFLW� WKDW�WKUHDWHQV�WR�FURVV�86��40 billion this year.

Though Modi could not bring about a breakthrough on the border issue, he was successful in sealing several business-to-business pacts, with signed MoU’s amounting to US$ 22 billion. Another two dozen government-to-government pacts have also been signed in the areas of cooperation in skill development, railways, mining and minerals, broadcasting, tourism, ocean studies, establishing sister city relations and setting up of consulates in Chennai and Chengdu. Modi has pursued a smart foreign policy in the rest of Asia too.

Chinese President Xi Jinping

Modi and Xi sealed several business-to-business pacts, with signed MoU’s amounting to

US$ 22bn

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On September 6, Modi and Australian Prime Minister Tony Abbot signed a landmark civil nuclear energy deal. PM Modi has made some progress in India’s relationship with Pakistan. The last major breakthrough in Indo-Pak relations was orchestrated by the Vajpayee-led BJP FRDOLWLRQ��2Q�KLV�ÀUVW�GD\�LQ�RIÀFH��30�0RGL�met his Pakistani counterpart, Nawaz Sharif. Dialogue was constructive and the two partners agreed to hold foreign-secretary-level talks. However, after Pakistani High Commissioner to India Abdul Basit met with Kashmiri separatists in August 2014, India called off the scheduled foreign-secretary talks a week before they were scheduled.

:LWK�WKH�:HVW��0RGL�KDV�KDG�D�UREXVW��VWDUW��+LV�KDV�EHHQ�KLVWRULFDOO\�D�¶VZHHW�DQG�VRXU·�UHODWLRQVKLS�ZLWK�WKH�:HVW��tainted mainly by his ostracism by US and European governments following developments in Gujarat. India KDV�ODUJHO\�EHHQ�UHO\LQJ�RQ�WKH�:HVW�IRU�VWDWH�RI�WKH�DUW�technology to ensure global competitiveness and has

been entering into collaborations with different countries on various science and technology projects for building technology capabilities within India.

In the US, while Modi eschewed joining any ‘American alliances’, be it in the Middle East against Islamic terrorism or in Asia against China, he managed to revitalise US interest in India. Both sides reached an agreement to extend defence cooperation for another 10 years and expand trade and investment, especially in the defence sector. Modi also met with several business leaders and legislators to promote business opportunities in India. In the European Union, Germany and France are important strategic partners with India for trade and investment. The two nations together contribute a total cumulative foreign direct investment (FDI) of US$ 12 billion, positioning them among the top ten investors in the Indian market. Germany is also the second largest country in terms of technology transfer into India, after the United States. Finally, Canada, with a large Indian diaspora, has offered immense potential in the context of skill development and human capital.

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GLOBAL VISITS


The Prime Minister’s visit to France focused on energy and defence cooperation. Several collaborative efforts and initiatives were undertaken at both government and private sector levels.

Around 17 agreements were signed in the area of defence, space, nuclear and renewable energy.

French multinational group AREVA, the world’s largest nuclear energy player, signed agreements with the state-owned Nuclear Power Corporation of India Ltd (NPCIL) and Larsen and Toubro (L&T) for the development of the power sector, reducing the cost of energy generation and LQVWLOOLQJ� DQ� RYHUDOO� HIÀFLHQF\� LQ� WKH� V\VWHP�� $FFRUGLQJ�to the Economic Survey of 2014-2015, the renewable energy industry in India is expected to generate commercial opportunities worth US$ 160 billion. The untapped potential of the renewable energy sector calls for establishing greater international cooperation frameworks, focussing on sharing the expertise and WHFKQRORJ\� WR� PDQXIDFWXUH� HIÀFLHQW� UHQHZDEOH� HQHUJ\�systems and devices in India.

As an initiative to foster business-to-business interactions and knowledge sharing, India partnered with Germany at Hannover Messe business fair in 2015, thereby fuelling the national agenda of ‘Make in India’.

:LWK� WKH� FDPSDLJQ� OLRQ� VLWWLQJ� LQ� +DOO� �� RI� WKH� IDLU��participation was expected to regain eroding faith in Indian business and operating environment. India’s GHWHULRUDWLQJ�SRVLWLRQ�RQ�WKH�:RUOG�%DQN·V�HDVH�RI�GRLQJ�business ranking from 133 in 2010 to 142 in 2015 has LPSDFWHG�LQYHVWRU�FRQÀGHQFH��

7KH� 3ULPH�0LQLVWHU� VSHFLÀFDOO\� DGGUHVVHG� WKLV� LVVXH� DW�WKH�+DQQRYHU� IDLU�E\�ÀUPLQJ�XS�KLV� UHVROXWLRQ� WR�VHW�XS�a mechanism to improve economic links between India DQG�*HUPDQ\�DQG�UHJDLQ�LQYHVWRU�FRQÀGHQFH�WKURXJK�D�pro-investment attitude.

Establishing people-to-people links through improved cross-border employability and training was an important objective of Prime Minister Modi’s visit to Canada. Thirteen agreements were inked on skill development between the two nations, along with the uranium supply deal.

�:LWK�GXH�UHFRJQLWLRQ�RI�WKH��QHHG�IRU�D�VNLOOHG�ZRUNIRUFH�to boost manufacturing growth in India, Modi partnered with Canadian educational institutions and colleges to create job opportunities for youth. The two sides agreed to enhance cooperation in the areas of defence, nuclear energy and security, thus strengthening bilateral relations further.

The Prime Minister recently concluded his tour of Mongolia and South Korea, where he held bilateral talks and signed several pacts to strengthen India’s bonds with those nations.

Modi held wide-ranging discussions with his Mongolian counterpart and announced a US$ one billion credit line to Mongolia for infrastructure development.

The two sides agreed to increase defence cooperation, besides exploring potential for tie-ups in areas like the civil nuclear sector. In South Korea, Modi and President Park Guen-hye held discussions and resolved to add “new substance, speed and content” covering defence, trade and investment, and regional cooperation to take bilateral ties to a qualitatively higher level.


India partnered with Germany at Hannover Messe business fair in 2015, thereby fuelling the national agenda of ‘Make in India’.

PM MODI’S FOREIGN POLICY: REPOSITIONING INDIA

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South Korea decided to provide US$ 10 billion to India for infrastructure, development of smart cities, railways, SRZHU� JHQHUDWLRQ� DQG� RWKHU� GLYHUVLÀHG�areas, as the two countries agreed to upgrade their bilateral relationship to a ‘Special Strategic Partnership’.

The Prime Minister has begun his second year of diplomacy with a visit to Bangladesh, where he successfully inked the Land Boundary Agreement (LBA) between the two countries This will allow the RSHUDWLRQDOLVDWLRQ� RI� WKH� �� ,QGLD�%DQJODGHVK� /DQG�Boundary agreement and give effect to the acquiring of territory by India and transfer of territory to Bangladesh through retention of adverse possession and exchange of enclaves.

:UDSSLQJ� XS� WKH� \HDU�� WKH� ([WHUQDO� $IIDLUV� 0LQLVWHU�KDV� WHUPHG� WKH� ÀUVW� \HDU� RI� 0RGL� GLSORPDF\� DV�WUDQVIRUPDWLRQDO�� ZLWK� D� UHPDUNDEOH� �� SHUFHQW� JURZWK�in FDI and 800 percent growth in FII. Foreign currency reserves are at an all-time high of US$ 350 billion. Foreign LQYHVWPHQW�LQÁRZV�DUH�SUHGRPLQDQWO\�LQ�LQIUDVWUXFWXUH³mainly the telecom, oil and gas, and mining sectors—as well as to the services sector. FDI in manufacturing UHPDLQHG� ODUJHO\� FRQFHQWUDWHG� LQ� WKH� DXWR� VHFWRU��:LWK�the government opening up sectors such as insurance DQG�GHIHQFH��D�VWDEOH�ÁRZ�LV�H[SHFWHG�WR�FRQWLQXH�

India is on a path to alter its vision for growth and expansion by focusing on production and trade of higher value added products in technology intensive areas and by linking itself to the global value chain.

In response to the government’s renewed policy agendas, diplomatic initiatives like the ‘SAARC Yatra’ undertaken by Foreign Secretary S Jaishankar in March and the Prime Minister’s visits in April has sent positive signals to global partners. India’s collaboration with leaders of developed countries in key priority areas like technology WUDQVIHU��HQHUJ\�HIÀFLHQF\�DQG�VNLOO�GHYHORSPHQW�SURYLGHV�an opportunity to support its process of development.

39%

350bn

Foreign Direct Investment Growth

Insuranceand Defencesectors being

opened for FDI

ForeignCurrency Reserves

(US$)

:KLOH� GLSORPDWLF� LQLWLDWLYHV� VWUHQJWKHQ� FROODERUDWLRQV� RQ�paper and improve inter-governmental and business-to-business relations, it is essential to ensure a stable operating environment and ease of doing business for foreign investors. Stringent regulations and legal SURFHVVHV� UHTXLUH� DQ� RYHUKDXO� DQG� PRUH� HIÀFLHQW� DQG�effective practices must be adopted for easy conduct of business. The Prime Minister has relaxed the strict visa regime for several countries and hopes to attract around 11 million annual foreign visitors by 2018, thus HDVLQJ� WKH� LQÁRZ� RI� YLVLWRUV� DQG� LQYHVWRUV�� $GGLWLRQDOO\��it is essential to create a common platform for industry associations, investors, market leaders, fund raisers and key policy makers to highlight India’s investment potential, thus promoting the ‘Make in India’ campaign. The participation of foreign countries is likely to expedite India’s development process and make it easy to achieve JURZWK�WDUJHWV�HIÀFLHQWO\�DQG�HIIHFWLYHO\�


7KH�QHZ�ÀYH�\HDU�)RUHLJQ�7UDGH�3ROLF\3 announced on April 1, 2015, aims at increasing India’s share in world exports from 2 percent to 3.5 percent by 2020, doubling LW� IURP�86��ELOOLRQ�WR�86��ELOOLRQ��PDNLQJ�,QGLD�an important participant in the world trade scenario. The goals and objectives at the base of the FTP lay down a VSHFLÀF�URDGPDS�IRU�,QGLD·V�WUDGH�HQJDJHPHQW�LQ�FRPLQJ�years.

C. FOREIGN TRADE POLICY2015-2020

3Highlights of the Foreign Trade Policy 2015 -2020, Government of India Department of Commerce, Ministry of Commerce and Industryhttp://dgft.gov.in/exim/2000/highlight2015.pdf

Aim atdoubling India’sshare in the worldexports from

Exportobligation has

also been reduced from

USD$ 465bn to86'��EQ

A big step towards meeting the ambitious target is eradication of several export promotion schemes and clubbing them under two schemes, one for goods - the Merchandise Exports from India Scheme (MEIS) - and the other for services - Services Exports from India Scheme (SEIS) which replaced the Served from India Scheme. The duty scrips under these schemes are WUDQVIHUDEOH�� ZLWK� QR� FRQGLWLRQV�� 7KLV� GHÀQLWHO\� PDUNV�the government’s intent to phase out subsidies so as to FRPSO\�ZLWK�:72�UXOHV�

7KH� )73� LV� DOLJQHG� WR� WKH� JRYHUQPHQW·V� ÁDJVKLS�programmes like ‘Make in India’, ‘Digital India’ and ‘Skills India’. Special emphasis has been given to export of labour intensive products, agricultural products, high WHFK�SURGXFWV�DQG�HFR�IULHQGO\��SURGXFWV��:LWK�D�YLHZ�WR�boost ‘Make in India’, export obligation has also been UHGXFHG��IURP��WKH�HDUOLHU��SHUFHQW��WR��SHUFHQW��7KLV�will help exporters develop productive capacities for both local and global consumption. Another step of major FRQVHTXHQFH� LV� WR� H[WHQG� WKH� EHQHÀWV� DQG� UHZDUGV� RI�both MEIS and SEIS to units located in the SEZs, thus giving a much needed breathing space to the SEZs.

The policy also seeks to do away with complexities and develop an online procedure with a view to ‘ease of doing business.’ It has been decided to develop an online process to upload digitally signed documents by a Chartered Accountant/Company Secretary/Cost Accountant. In the new system, it will be possible to upload online documents. Henceforth, hardcopies of DSSOLFDWLRQV� DQG� VSHFLÀHG� GRFXPHQWV�ZLOO� QRW� QHHG� WR�submitted, thereby saving paper as well as cost and time. Landing documents of export consignments as SURRI� IRU� WKH�QRWLÀHG�PDUNHW�FDQ�EH�GLJLWDOO\�XSORDGHG��7KH�VLPSOLÀFDWLRQ�RI�WKH�SURFHVV�ZLOO�KHOS�H[SRUWHUV�LQ�D�big way by reducing transaction costs.

��WR��

BMR Advisors | 01

$V�DJDLQVW�D�\HDUO\�WUDGH�SROLF\��WKH��QHZ�ÀYH�\HDU�)RUHLJQ�Trade Policy promises to provide a stable policy regime. Commerce Minister Nirmala Sitaraman has assured that the policy will be closely monitored and subject to review after two and a half years. Further, apart from the existing Board of Trade, a Council for Trade Development and Promotion will be set up comprising representatives from states and Union Territories.

In conclusion, the Foreign Trade Policy 2015-20 is a positive approach towards strengthening the position of Indian trade in the world scenario. The steps taken will go a long way in not only making trade and commerce key contributors to India’s economic growth, but will also take the country to the next level in world trade UHODWLRQV��1RWDEOH�IHDWXUHV�WR�SURPRWH�ÁDJVKLS�VFKHPHV��and paperless e-transactions will give a healthy boost to India’s foreign trade curve.

“Apart from the existing Board of Trade, a Council for Trade Development and Promotion will be set up comprising representatives from states and Union Territories.”

BMR Advisors | 13


D. SECTORAL UPDATES

.H\�GHYHORSPHQWV�LQ�WKH�0LQLVWU\�RI�)LQDQFH�*67��$�VLJQLÀFDQW�VWHS�IRUZDUGThe 100th Constitutional Amendment Bill, 2015 (‘Bill’) was passed in the Lok Sabha on May 6, 2015. During the passage of the Bill, intense qualitative debate took place in the Lok Sabha wherein members of different political parties participated. Subsequently, when discussion came up in the Rajya Sabha, the Central Government referred the Bill to the select committee of the upper house after persistent pressure from the opposition parties for scrutiny of the Bill. Some key concerns raised by the opposition and the industry include:

�� 'HÀQLWLRQ�RI�WD[DEOH�HYHQW�–The Bill proposes to levy GST on ‘supply’ of goods and services. However, no GHÀQLWLRQ�RI�¶VXSSO\·�KDV�EHHQ�SURYLGHG�LQ�WKH�%LOO

�� 5HYHQXH�1HXWUDO�5DWH��¶515·� – Finality with respect to the RNR is critical, as a high RNR could prove to be counterproductive. Expectations are that RNR will not be more than 20 to 22 percent

�� *67�&RXQFLO�– Composition of the GST Council and the voting rights split between the centre and states LV�D�VLJQLÀFDQW�FRQFHUQ��7KH�*67�&RXQFLO�ZLOO� WDNH�VLJQLÀFDQW�GHFLVLRQV�VXFK�DV�ÀQDOLVLQJ�WKH�UDWHV��UDWH�bands of GST

�� &RPSHQVDWLRQ�WR�VWDWHV�– States are apprehensive about a timely release of compensation by the Central Government towards losses incurred in the initial years of implementation of GST. This is due to bitter experience in relation to compensation for CST rate reductions

�� SHUFHQW� DGGLWLRQDO� WD[ – This tax will be origin based and therefore not in sync with the principle of destination based GST. Further, as no credit will be available for the said tax against output GST, it will add to the cost of doing business

�� 'LVSXWH�UHVROXWLRQ�- The Bill has done away with the concept of Goods and Services Tax Dispute Settlement Authority for adjudicating disputes between the Central Government and state governments. Clarity RQ�WKLV�DVSHFW�ZLOO�EH�VLJQLÀFDQW�IRU�DOO�VWDNHKROGHUV

�� 7D[DELOLW\�LQ�-DPPX��.DVKPLU – The Bill does not VSHFLÀFDOO\� DGGUHVV�ZKHWKHU� WKH�6WDWH�RI� -DPPX��Kashmir (‘J&K’) will be brought within GST

Currently, the select committee of the Rajya Sabha comprising 30 members is deliberating the GST Bill. The FRPPLWWHH�KDV�LQLWLDWHG�PHHWLQJV�ZLWK��RIÀFLDOV�IURP�WKH�ÀQDQFH�PLQLVWU\�DQG�LV�VODWHG�WR�PHHW�VWDWH�DQG�LQGXVWU\�RIÀFLDOV� VKRUWO\�� 7KH� FRPPLWWHH� LV� H[SHFWHG� WR� VXEPLW�LWV� UHSRUW�ZLWKLQ� WKH� ÀUVW�ZHHN� RI� WKH�PRQVRRQ� VHVVLRQ�of the Rajya Sabha beginning in mid-July, 2015. The Finance Minister has in the meanwhile indicated that the government aims to put in place the GST Council before August end in order to meet the GST rollout target date of April 1, 2016.

:KLOH�DSSURYDO�RI�WKH�%LOO�LQ�WKH�/RN�6DEKD�LV�D�VLJQLÀFDQW�achievement for the Central Government, the Bill is yet to be passed by the Rajya Sabha (where the ruling party is QRW� LQ�PDMRULW\�� 6XEVHTXHQWO\�� LW�ZLOO� UHTXLUH�UDWLÀFDWLRQ�by more than 50 percent of the states and assent from the President, before the Constitution ultimately stands amended.

With momentum gathering for GST, it is expected that the government and the industry come together to ensure a swift transition to GST by April 2016, a timeline that the Finance Minister has reiterated after the conclusion of the recent session of Parliament.


XQ),1$�DQG�%ODFN�0RQH\�LQ�,QGLDThe Undisclosed Foreign Income and Assets (Imposition of Tax) Act (UnFINA) or the Black Money Act, as it is now popularly known, was passed by both houses of Parliament and will come into effect from April 1, 2016. Over the past few months, the debate has focussed on directives and strict penal consequences. Conversations around the Black Money Act have been relegated to the QXPEHU� RI� \HDUV� RI� LPSULVRQPHQW�� ÀQHV�� FRPSOLDQFH�window and heavy penalties. This has led to a case of missing the forest for the trees.

In essence, the Act provides for monetary penalty and criminal liability for attempts to evade tax on foreign income and separate taxation of 30 percent in addition to 30 percent penalty (during the compliance window) RU� �� SHUFHQW� SHQDOW\� �SRVW� WKH� FRPSOLDQFH� ZLQGRZ��Hence, a defaulter may in theory have to pay 120 percent of undisclosed income with no exemptions, deductions, set-off or carry-forward of losses under the Income Tax Act or allied Acts. The Act also makes inducement or abetment of tax evasion a punishable offence. It is important to underline that the new Act does not cover

GRPHVWLF�EODFN�PRQH\��&RPELQHG�ZLWK�GHÀQHG�SXQLWLYH�measures of penalties and imprisonment, this is, in theory, a potent addendum to the growing net of laws and measures against money laundering.

It is expected that the government will provide a compliance window of 2 to 6 months, though optimally D�PLQLPXP�RI��PRQWKV�VKRXOG�EH�DOORZHG�IRU�WKRVH�ZKR�may want to avail of this one time opportunity, liquidate their assets and repatriate the proceeds to India. It is important to note that this is not an amnesty scheme. It is amply clear that the law has elements of the Income Tax Act, and hence by that singular measure is not radically new. Our law maker has either the foresight or was faced with an unaccounted income situation at the time of HQDFWPHQW� RI� WKH� ,QFRPH� 7D[� $FW� LQ� �� 7KLV� VKRXOG�QRW��FRPH�DV�D�VXUSULVH��HVSHFLDOO\�VLQFH�WKH�ÀUVW�PDMRU�law targeting black money came with the Bank Secrecy $FW��86$��$Q\�QHZ�ODZ�RU�GLUHFWLYH�WKDW�VHHNV�WR�LQÁXHQFH�WKH�VLWXDWLRQ�WKDW�,QGLD�ÀQGV�LWVHOI�LQ�VKRXOG�EH�innovative and radical enough to effect major evolutionary changes. The Black Money Act seems to take incremental yet important steps and widens the regulatory net.


:KLOH�EODFN�PRQH\��FUHDWHG�RXW�RI�LQFRPH�RU�DVVHWV�RQ�ZKLFK�WD[HV�KDYH�QRW�EHHQ�SDLG�LV�FODVVLÀHG�UHGHHPDEOH��infected black money is related to proceeds of crime - income generated from nefarious, anti-national and LOOHJDO�DFWLYLWLHV�VXFK�DV�GUXJ�GHDOLQJ��KXPDQ�WUDIÀFNLQJ��terrorism, corruption, etc.

It is worthwhile to note that the principle behind

major AML (anti money laundering) Compliance

norms are aimed at tackling infected black

money rather than redeemable black money.

A close look at the demand and generation of black money will give a better perspective on the prevalence of money laundering activities in India. Ever since the days of the License Raj, regimes of high taxation rates and extensive UHG� WDSH�� IHZ� EXVLQHVVHV� KDYH� � IRXQG� ÀQDQFLDO� VRODFH�in keeping a portion of their businesses off the books. Along with simplifying taxation (GST & other measures) and reducing the complexities of getting approvals and licenses (single window process), businesses will need to proactively rectify the evasion culture and wean off the QHHG�IRU�XQDFFRXQWHG�SURÀW�

The list of illegal and criminal activities that lead to the generation and use of black money is fairly long and perilous. It is these issues that will ultimately decide the success or failure of anti-money laundering laws. Infected black money is generated through these activities and does represent a clear and present danger. Hence any law that does not address the root cause of funding of these illegal and nefarious activities is window dressing, at best.

6XPPLQJ�XS��WKH�%ODFN�0RQH\�%LOO�DLPV�WR�IXOÀO�D�VSHFLÀF�objective related to the foreign income and assets of Indians and is an addition to multiple laws aimed at money laundering. If the government is interested in leveraging its power as the dominant political party and can coordinate various government agencies to tackle the issue, 5 distinct objectives will need to be achieved:�� By separating redeemable and infected black money,

it can cut the problem down to manageable size

�� The compliance window will lead to much needed revenue in government coffers

�� Offering businesses an ability to clean up their books and make a fresh start

�� 5HGHÀQH�� UHÀQH� DQG� UHJXODWH� WKH� SURFHVVHV� DQG�UHVSRQVH� RI� ÀQDQFLDO� LQVWLWXWLRQV� DQG� EDQNV� WR�safeguard them against money laundering

�� Develop focussed response and coordination between agencies to tackle infected black money

These would be huge wins for the present government DQG�LQ�WKH�FRXQWU\·V�ÀJKW�DJDLQVW�PRQH\�ODXQGHULQJ�

/DQG�$FTXLVLWLRQ�%LOOParliament saw much discontent and opposition during the budget session when with a view to bolster the ‘Make in India’ vision, the Land Acquisition Bill was tabled. Several amendments were made to the earlier ‘Right to Fair Compensation and Transparency in Land Acquisition, Resettlement and Rehabilitation (Amendment) Act (RECTLARR), which was passed in 2013 by the UPA government.

The amendments proposed in the new bill are expected to ease rules to acquire land such that the government can initiate a series of projects aimed at reshaping infrastructure in cities, setting up industrial corridors and building smart cities, expressways and high speed trains – all of which are land-intensive projects.

The new Land Acquisition Bill has eliminated the consent clause (taking prior approval from farmers) for acquiring ODQG� IRU� ÀYH� DUHDV� �� LQGXVWULDO� FRUULGRUV�� SXEOLF� SULYDWH�partnership projects, rural infrastructure, affordable housing and defence. It has also exempted projects LQ� WKHVH� ÀYH� DUHDV� IURP� VRFLDO� LPSDFW� DVVHVVPHQW� DQG�acquisition of irrigated multi-cropped land and other agricultural land that earlier could not be acquired beyond a certain limit. Also, the period after which unutilised land QHHGV�WR�EH�UHWXUQHG�ZRXOG�EH�ÀYH�\HDUV��RU�DV�VSHFLÀHG�at the time of setting up the project, whichever is later. The Act of 2013 says that if the land remains unutilised IRU� ÀYH� \HDUV�� LW� QHHGV� WR� EH� UHWXUQHG� WR� WKH� RZQHU��Another major amendment was that the land could be

SECTORAL UPDATES


acquired by any ‘private entity’ which could include a proprietorship, partnership, company, corporation, non-SURÀW�RUJDQLVDWLRQ�RU�DQ\�RWKHU�HQWLW\�XQGHU�DQ\�RWKHU�ODZ��that could earlier be owned only by a ‘private company’.

The opposition has labelled the Bill as

‘anti-farmer’, but the Modi-led government has

refuted the claim, saying that the ordinance has

been devised with a view to provide huge long

WHUP�EHQHÀW�WR�IDUPHUV�DQG�GR�DZD\�ZLWK�WKH�LOO�

HIIHFWV�RI�XQÀQLVKHG�XQGHUWDNLQJV�OLNH�WKH�1DQR�

car project of Tata Motors in the Singur area of

West Bengal.

Despite much resentment and uneasiness, the Bill made its way through the lower house while the government recently approved the ordinance to ease the Land Acquisition Act and push reforms.

The Land Acquisition Bill to provide long-termEHQHÀW�WR�IDUPHUV

0RQH\�UDLVHG�YLD�GLVLQYHVWPHQWV��,15�EQ�Source: Financial Times

'LVLQYHVWPHQW�3URJUDP��Despite the FY15 disinvestment proceeds being not encouraging and retrieving less than half the target of INR 584.25 billion at INR 242.27 billion, the Narendra Modi-led government, piqued by the muted growth in tax UHYHQXH��KDV�VHW�DQ�DPELWLRXV�WDUJHW�IRU�WKH�FXUUHQW�ÀVFDO�year and widened the ambit of stake sale programmes by including - apart from sale of residual stakes in private ÀUPV��¶VWUDWHJLF�GLVLQYHVWPHQW·�

The government has budgeted to raise INR 410

billion through equity sale in PSU and another INR

285 billion through strategic sales. It has listed

a dozen public sector undertakings, with Indian

Oil Corporation, BPCL, Dredging Corporation

Ltd and NBCC, Hindustan Aeronautics Ltd and

Rashtriya Ispat Nigam Ltd on the radar.

$FFRUGLQJ� WR� WKH� URDGPDS� EHLQJ� ÀQDOLVHG�� WKH�government plans to sell a 10 percent stake each in Engineers India Ltd, Nalco, NMDC and IOC. As much as a 15 percent stake will be divested in National Fertilizers Ltd, Hindustan Copper, ITDC, State Trading Corporation and MMTC. Besides, the government has also planned to dilute 5 percent in BHEL, NTPC, Rashtriya Chemicals and Fertilizers and Dredging Corporation.

It is likely that at current market prices, sale of IOC will IHWFK�DURXQG�,15��ELOOLRQ��(,/�,15��ELOOLRQ��1DOFR�,15�12 billion and NMDC INR 53 billion. Divestment in BHEL LV�H[SHFWHG�WR�JDUQHU��DURXQG�,15��ELOOLRQ��173&�,15��ELOOLRQ��5&)�,15��ELOOLRQ�DQG�'UHGJLQJ�&RUSRUDWLRQ�INR 0.6 billion.

400

300240 243

400 400 410

213

584

221

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PradhanMantri Jan

Dhan Yojana

The Centre in all likelihood will raise INR 10 billion, INR ��ELOOLRQ�DQG�,15��ELOOLRQ�IURP�WKH�VDOH�LQ�+LQGXVWDQ�Copper, ITDC and MMTC respectively, and another INR 2.4 billion and INR 1.4 billion from National Fertilisers Ltd and State Trading Corporation, respectively.

Kickstarting its divestment programme, the

government has already sponged over INR

15.5 billion by selling 5 percent of its stake in

SRZHU�VHFWRU�OHQGHU�5(&��5XUDO�(OHFWULÀFDWLRQ�

Corporation). The sell-off received potent

response from retail investors. The government

will be watching the markets closely and will

take the appropriate call when required.

7KUHH�0HJD�6RFLDO�6HFXULW\�6FKHPHV�/DXQFKHGEncouraged by the success of the ‘Pradhan Mantri Jan Dhan Yojana’, the Prime Minister launched three ambitious social security schemes – the Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Yojana and Atal Pension Yojana - which aim to provide access to essential social security protection for citizens, particularly the underprivileged and workers in the unorganised sector. The schemes are expected to address low coverage life or accident insurance and old age income in the country.

Under the accident insurance scheme, a person will be provided a cover of INR 2,00,000 for an annual premium of INR 12, including accidental death or permanent total disability.

The life insurance scheme will offer a renewable one-year life cover of INR 2,00,000 to all savings bank account holders in the age group of 18 to 50 years, covering death due to any reason for a premium of INR 330 per annum per subscriber.

The pension scheme focuses on the unorganised sector DQG� SURYLGHV� VXEVFULEHUV� D� À[HG� PLQLPXP� SHQVLRQ� RI�INR 1000 to INR 5000 per month, starting at the age of 60 years, depending on the contribution option exercised RQ�HQWHULQJ�DW�DQ�DJH�EHWZHHQ��WR��\HDUV��:KLOH�WKH�scheme is open to bank account holders in the prescribed age group, the central government will contribute 50 percent of the total contribution or INR 1,000 per annum, ZKLFKHYHU�LV�ORZHU��IRU�ÀYH�\HDUV�

The three schemes were simultaneously

launched at 112 centres in different states and

union territories by the respective chief ministers/

governors and union ministers.

The schemes will empower the government to improve the quality of infrastructure and deploy long term savings mobilised in other needy sectors, as the contributions are expected to be invested in productive sectors of the economy.

.H\�GHYHORSPHQWV�DW�<RMDQD�%KDZDQ1,7,� $D\RJ� WR� FRPH� XS� ZLWK� D� QHZ� FULWHULRQ� IRU�HVWLPDWLQJ�SRRU

SECTORAL UPDATES

BMR Advisors | 01%05�$GYLVRUV�_��

A task force headed by the vice chairman of NITI Aayog is expected to devise a new methodology to estimate the number of poor in the country. The 14-member WDVN�IRUFH�ZLOO�GHYHORS�D�ZRUNLQJ�GHÀQLWLRQ�RI�SRYHUW\�and prepare a roadmap for its elimination.

,W�LV�EHOLHYHG�WKDW�WKH��PLOOLRQ�SRYHUW\�ÀJXUH�

given by the UPA government will receive a

big bounce with the NITI Aayog likely to scrap

the controversial expenditure criterion and

suggest a 40 percent cut-off.

This is likely to put the number of poor in India at about 484 million, and will set a relatively realistic proportion of the population consistent over a period of time in order to track the growth process in the lower section of the population and to assess the reach of social security schemes.

7KLV�FHUWDLQO\�KDV�PDMRU�SROLWLFDO�VLJQLÀFDQFH��DV� WKH�JRYHUQPHQW� ZRXOG� EHQHÀW� IURP� WKH� VWDWLVWLF� DQG� EH�SHUFHLYHG�DV�SUR�SRRU��(DUOLHU��,QGLD�GHÀQHG�WKH�SRYHUW\�OLQH�EDVHG�RQ�D�PHWKRG�VHW�E\�D� WDVN� IRUFH� LQ��It was based on expenditure for buying food worth 2,400 calories in rural areas, and 2,100 calories in urban areas. In 2011, the Suresh Tendulkar Committee GHÀQHG� WKH� SRYHUW\� OLQH� RQ� WKH� EDVLV� RI� PRQWKO\�spending on food, education, health, electricity and transport. According to this, a person who spends INR 27.2 in rural areas and INR 33.3 in urban areas each GD\�LV�GHÀQHG�DV�OLYLQJ�EHORZ�WKH�SRYHUW\�OLQH��$�IDPLO\�RI�ÀYH�WKDW�VSHQGV�OHVV�WKDQ�,15��DQG�,15��in rural and urban areas respectively is considered

EHORZ�WKH�SRYHUW\� OLQH��7KHUH�KDV�EHHQ�FULWLFLVP�IRU�À[LQJ�the poverty line too low.

But a question worth considering is whether a 40 percent cut-off should be adopted nationally or state-wise. India has states with varying income levels, higher and lower poverty OHYHOV� DQG� ORZHU� DQG� KLJKHU� LQÁDWLRQ� UDWHV�� $� �� SHUFHQW�FXW�RII� LQ� WKH� QDWLRQDO� FRQWH[W� ZLOO� VKRZ� DUWLÀFLDOO\� KLJK�levels of poverty in states like Bihar, Madhya Pradesh and Chhattisgarh, spreading resources thinly; if instead the 40 percent cut-off is determined state-wise, it would enable sharper focus on the poor in the most backward states.

.H\�GHYHORSPHQWV�LQ�WKH�0LQLVWU\�RI�&RPPHUFH0DNH�LQ�,QGLD��SURJUHVV�VR�IDU

The ‘Make in India’ initiative aims at magnifying India as an investment haven and chartering the country as a global hub for manufacturing design and innovation. The campaign looks at providing a congenial environment to the business populace such that it can devote effort, resources and energy to productive work.

Major advancements in the Make in India campaign include

�� Defence Ministry of India’s mega deal with Rafale, under which procurements worth INR 1,100 billion (of ZKLFK��SHUFHQW�DUH�XQGHU� WKH� ¶0DNH� LQ� ,QGLD·�SODQ��KDV�EHHQ�FOHDUHG��WKH�ÀUVW�PDUNHU�LQ�WKH�0DNH�LQ�,QGLD�campaign .

�� Chinese companies have announced that they are keen to engage in the ‘Make in India’ campaign and establish manufacturing facilities. China’s telecom company Huawei Technologies Co Ltd has infused US$ 170 million to open a research and development FHQWUH� LQ�%DQJDORUH�� VDLG� WR�EH� WKH�ÀUVW�RI� LWV� NLQG� WR�be used to develop software components. It is also


the company’s biggest R&D centre outside China.

�� Indiabulls Mutual Fund has approached the securities market regulator SEBI to launch a new scheme that it says will invest in sectors including manufacturing and renewable energy that are H[SHFWHG�WR�EHQHÀW�IURP�WKH�HQWLUH�0DNH�LQ�,QGLD�initiative.

�� In January, the Spice Group announced that it would start a mobile phone manufacturing unit in UP and has signed a memorandum of understanding with the state government.

�� An initiative to establish 10 MSME-Samsung Technical Schools as a joint venture was discussed by the President and CEO of Samsung, HyunChil Hong, and the Union Minister for MSME, after which Samsung announced that it will manufacture the Samsung Z1 in its plant in Noida.

�� Hitachi has announced that it is committed to the Make in India initiative and proposed that it will increase its employees in India from 10,000 to 13,000 and set up an auto-component plant in Chennai.

�� Tata JLR (Jaguar Land-Rover) announced that it will move production of the Land Rover Defender to its Pune facility in 2016.

�� As part of the campaign, the government KDV� FRQFHSWXDOLVHG� ÀYH� LQGXVWULDO� DQG�economic corridors, now at different stages of implementation.

The oil ministry is seeking to appoint a consultant who can assist in preparing a strategy and roadmap for implementing the ‘Make in India’ campaign to make the country a manufacturing hub in the oil and gas sector.

In a recent survey conducted by Forbes India and BMR Advisors among senior industry leaders on the government’s business agenda in the past one year, it is revealed that 71 percent respondents believe that the ‘Make in India’ campaign will have the highest long-term impact on the economy, whereas only �� SHUFHQW� IHHO� VXIÀFLHQW� VWHSV� KDYH� EHHQ� WDNHQ� WR�stimulate the campaign. Improving logistics and

supply chain issues is believed to be an important factor that would lead to the success of the campaign, followed closely by labour reforms, incentivizing R&D investment and tax sops. (Refer to the annexure I on Page No. 30 for the detailed report)

.H\�GHYHORSPHQWV�LQ�WKH�0LQLVWU\�RI�&RUSRUDWH�$IIDLUV&RPSDQLHV��$PHQGPHQW��%LOOAfter recent amendments to the Companies (Amendment) Bill in December 2014, the Bill has once again made its way through the Cabinet, this time with more amendments. These have been made with a view to improve ‘ease of doing business’ and also to do DZD\�ZLWK�FHUWDLQ�GLIÀFXOWLHV��IDFHG�E\�EXVLQHVVHV�LQ�WKH�country. The amendments were approved at a meeting of Union Cabinet chaired by PM Narendra Modi, and are now part of the Companies (Amendment) Bill, 2014. This is the second time that changes have been proposed to the Companies Act, 2013, since the new government assumed power.

Post approval of the Bill there is no need for a company WR�ÀOO�D�GHFODUDWLRQ�IRUP�EHIRUH�FRPPHQFLQJ�EXVLQHVV�RU�exercising its borrowing powers. Besides, there will be rationalisation of the procedure for laying draft QRWLÀFDWLRQV� JUDQWLQJ� H[HPSWLRQ� WR� YDULRXV� FODVVHV�of companies or modifying provisions of the Act in Parliament.

Currently India stands at the 142nd position in the world in terms of ease of doing business – these changes could boost the nation into the top 50.

The changes

in the CompaniesAmendment

Bill could boostIndia into the top

50

SECTORAL UPDATES


.H\�GHYHORSPHQWV�LQ�WKH�0LQLVWU\�RI�Defence2QH�5DQN�2QH�3HQVLRQ�6FKHPHThe One Rank One Pension (OROP) scheme, which seeks to ensure that a uniform pension is paid to defence personnel who retire at the same rank with the same length of service irrespective of their date of retirement, has been a long-standing demand of over two million ex-servicemen. The call by the Armed Forces veterans’ for One Rank One Pension (OROP) was expected to be approved by April end. The government has made it clear that the OROP will be implemented with effect from April 1, 2014, promising to pay arrears in case of a delay.

5DIDOH�'HDO:LWK� D� YLHZ� RI� WDNLQJ� IRUZDUG� 0RGL·V� LQWHQWLRQ� RI�buying 36 Rafale Fighter jets from France under a government to government deal, Indian Defence Minister Manohar Parrikar and his French counterpart Jean-Yves Le Drian met in April, 2015. The defence ministers discussed modalities to reach an early conclusion to an inter-governmental agreement in the matter. French defence major Dassault Aviation, manufacturer of Rafale, is likely to enter into a joint venture with state-run HAL or a private player to set up a base to augment its existing production line in Merignac, France.

The deal is estimated to be over US$ 6 billion and will have about 30-50 percent offset. Government savings on the project could reach INR 600 billion-650 billion. The saving, according to the Indian Defence Minister, will be used to accelerate defence manufacturing in India, including speeding up of production of the long-in-gestation light combat aircraft.

.H\�GHYHORSPHQWV�LQ�WKH�0LQLVWU\�RI�$JULFXOWXUH6DWHOOLWH�6FKHPH�IRU�DJULFXOWXUH:LWK� � LQWURGXFWLRQ� RI� QHZ� WHFKQRORJLHV� IDUPHUV� FDQ� QRZ�look to the heavens to boost their crop. PM Modi aims to promote a ‘per drop, more crop’ approach to farming to maximise the use of scarce water, and to have a new satellite crop monitoring system working for this year’s monsoon in July.

Under this scheme, remote analysis will be used to assess soil moisture and crop development. This has the potential to cut input costs and raise yields where over half of workforce is involved in agriculture.

Apart from this, farmers will be able to access advisories on their mobile phones to help them choose seed varieties and apply the right fertilizers or time irrigation ‘shots’.

*RYHUQPHQW�WR�UROO�RXW�1DWLRQDO�&URS�,QFRPH�,QVXUDQFH�6FKHPH�Against the backdrop of recurrent agri-crises and mass farmer suicide, the government is keen to fast-track the introduction of the proposed National Crop Income Insurance Scheme, which has been delayed for various reasons.

The proposed scheme guarantees income to farmers in uncertain periods.

$V�SHU� WKH�VFKHPH��GXULQJ�SHULRGV�RI�ÁXFWXDWLQJ�SULFHV�D�farmer will have to bear a loss of 20 percent, and during yield losses due to natural calamities such as drought or unseasonal rains, 30-50 percent. All national insurance programmes will also come under this ambit.

The new scheme will ensure protection of livelihood and HQFRXUDJH�IDUPHUV�WR�SUDFWLFH�FURS�GLYHUVLÀFDWLRQ�


.H\�GHYHORSPHQWV�LQ�WKH�0LQLVWU\�RI�3RZHU�DQG�QHZ�DQG�UHQHZDEOH�HQHUJ\&RDO�%ORFN�$XFWLRQDespite the Supreme Court’s judgement to cancel allocation of 204 of the 218 coal blocks allocated VLQFH��DIWHU�WKH�HQDFWPHQW�RI�&RDO�0LQHV��6SHFLDO�Provisions) Act, 2015, the Coal Ministry earned cumulative proceeds of above INR 2,000 billion from WKH� ÀUVW� WZR� URXQGV� RI� HOHFWURQLF� DXFWLRQ� RI� � FRDO�blocks - 33 blocks have been auctioned so far, with WRWDO�UHWXUQV�DW�,15��ELOOLRQ��7KH�VXFFHVV�RZHV�its credit to the endeavours of the Ministry of Coal.

The government has allocated 67 coal mines, of which ��KDYH�EHHQ�JUDQWHG�WR�WKH�VWDWHV�DQG�WKH�UHPDLQLQJ�38 to central and state public sector units, including NTPC, DVC and steel giant SAIL. The allocation and auction of 67 coal mines is expected to fetch a total of INR 3353.70 billion for the states where the mines DUH� ORFDWHG��%HVLGHV�� ,15��ELOOLRQ�RI�YDOXH�ZLOO�EH�XQORFNHG�E\�ZD\�RI�WDULII�EHQHÀW�WR�FRQVXPHUV�LQ�WKH�form of lower electricity cost.

The auction of the coal mines has been a major success and has brought to the fore the national auditor’s claims that the allocation of mines over the years had caused sizable losses to the exchequer.

The auction of coal mines has been a majorsuccess

5(�,QYHVW��

5(�,QYHVW� ��ZDV� WKH� ÀUVW� 5HQHZDEOH� (QHUJ\�*OREDO�Investors Meet & Expo organised by the Ministry of New and Renewable Energy (MNRE). According to PM Modi, it was an effort to ensure universal energy access by the poor and to show that India has graduated from megawatts to gigawatts in terms of renewable energy production. The objective was to exhibit the government’s commitment to the development and scaling up of renewable energy to meet the national energy requirement in a socially, economically and ecologically sustainable manner.

5(�,QYHVW� LV� WKH� ÀUVW� PDMRU� SODWIRUP� IRU� LQYHVWPHQW�promotion in this sector, and will connect the global investment community with renewable energy stakeholders.

At the meet, public sector undertakings (PSUs) and private sector schemes made a commitment of 2.9-Gw of green energy. US solar power major SunEdison Energy committed 15,200 megawatts (Mw) - 10,000 Mw solar power and the rest in wind power.

Following closely in commitment is ReNew Power, which will set up 7,000 Mw solar power and 4,500 Mw wind power capacity. Azure Power will set up 11,000 Mw solar power capacity. Reliance Power and Adani Power have signed green commitments for 6,000 Mw of solar power each. Hero Future Energies will set up 5,150 Mw of renewable energy capacity. US company First Solar, which has a presence in the Indian photovoltaic cell market, has committed to 5,000 Mw of solar power.

Senior representatives from the renewable energy industry, equipment manufacturers, global financial institutions, public sector enterprises, regulatory authorities, central and state governments, research

SECTORAL UPDATES


institutions and academia participated in the three - day conference and exposition.

5RRIWRS�VRODU�SRZHU�SODQW�VFKHPHThe Ministry of State for Power, Coal and New and Renewable Energy launched the grid-interactive URRIWRS�VRODU�SURMHFWV�ZKHUHLQ��0:S�DJJUHJDWH�FDSDFLW\� KDV� EHHQ� VDQFWLRQHG� DQG� �� 0:S� KDV�been commissioned in various states. State electricity UHJXODWRU\� FRPPLVVLRQV� RI� �� VWDWHV� KDYH� D� QRWLÀHG�regulatory framework on net-metering/feed-in-tariff to encourage rooftop solar plants.

The Minister of State (IC) for Power, Coal and New and Renewable Energy stated that the scheme has D� SURYLVLRQ� RI� VXEVLG\� XS� WR� ,15� �� SHU�:S� IRU� WKH�JHQHUDO�FDWHJRU\�VWDWHV�DQG�,15��SHU�:S�LQ�1RUWK�Eastern states, Andaman & Nicobar and Lakshadweep islands, which is about 30 percent of the benchmark cost of the system. The ministry has proposed to make the scheme incentive driven rather than subsidy driven. The ministry also proposes to reduce subsidy on rooftop solar power plants to 15 percent from the present level of 30 percent due to a reduction in price of solar panels, the large target set for rooftop solar power plants and limited availability of funds.

.H\�GHYHORSPHQWV�LQ�WKH�0LQLVWU\�RI�3HWUROHXP�DQG�1DWXUDO�*DV3OXQJH�LQ�FUXGH�RLO�SULFHV�DQG�LWV�LPSDFWGlobal crude oil prices have declined almost 50 percent from US$ 108/bbl (Brent in June) to US$ 60/bbl now, as demand has weakened due to the potential slowdown in China, the fragile economic environment in Europe, Saudi $UDELD·V� UHIXVDO� WR� UHGXFH� SURGXFWLRQ�� 5XVVLD·V� UHÀQHULHV�increasing exports and high shale oil production in the US, reducing dependence on imports.

2LO�3ULFH�0RYHPHQWVSource: World Bank

Crude oil prices are expected to remain at low levels in the short term due to these reasons. However, it is believed that oil prices could marginally recover over the next 18-24 months with slower production growth and demand recovery (aided by lower prices). The production growth is expected to slow primarily from highly capital-intensive deepwater blocks and shale assets as shale-oil wells ZLWQHVV�PDWHULDO�IDOO��SHUFHQW��LQ�RXWSXW�SRVW�WKH�ÀUVW�\HDU�RI�RSHUDWLRQV�DQG�VORZGRZQ�RI� LQYHVWPHQW� LQ� � ÀHOGV�due to the uneconomical crude price.. Further, shale oil companies could face funding constraints due to negative IUHH� FDVK� ÁRZ�� VSHFXODWLYH� JUDGH� UDWLQJV� DQG� UHGXFHG�appetite in the US bond market for such papers. Besides, as per industry sources, global exploration and production (E&P) companies have started cutting capital expenditure (capex).

As far as India is concerned, falling crude is a blessing for the economy as it helps macro-economic management �ERWK�EXGJHW�DQG�ÀVFDO��E\�LPSURYLQJ�PDFUR�IXQGDPHQWDOV��LQÁDWLRQ�� ÀVFDO� GHÀFLW� DQG�FXUUHQW� DFFRXQW�GHÀFLW�� ,QGLD�imports almost 80 percent of its requirement, which constitutes over 30 percent of total imports. A fall of one dollar saves the country about INR 40 billion. Adding to


that, fall in international oil prices will reduce subsidies that help sustain domestic prices of oil products (LPG, kerosene).

Moreover, the lower price of crude is expected to facilitate the Reserve Bank of India in adopting a growth-centric approach while reviewing monetary policy.

It is estimated that a fall of US$ 10 in crude prices could reduce the current account GHÀFLW�E\�URXJKO\��SHUFHQW�RI�*'3�DQG�WKH�ÀVFDO�GHÀFLW�E\�DURXQG��SHUFHQW�RI�*'3�

However, it would be wrong to ignore the implications of falling oil prices on the markets and the way businesses operate. PSU upstream companies such DV�2,/�DQG�21*&�KDYH�VXIIHUHG�VLJQLÀFDQWO\��GXH�WR��a decline in global oil prices, as these did not translate into higher net realisations for nominated blocks, since the subsidy burden on LPG and kerosene is less sensitive to crude oil prices. ONGC suffered most, with SURÀWV�GURSSLQJ��SHUFHQW�IURP�,15��ELOOLRQ�ODVW�year to INR 35.71 billion in the third quarter of 2014-15; income also slowed to INR 20.30 billion from INR 23.51 billion.

The decline in crude prices have seen large inventory and adventitious losses for downstream companies. $� VLJQLÀFDQW� � LPSDFW� RQ� SURÀWDELOLW\� RI� *$,/·V� /3*�and petrochemical segments from lower crude prices KDYH� UHVXOWHG� LQ� ORZHU� UHYHQXHV� DQG� SURÀWV� IRU� WKH�FRPSDQ\��5,/��D�JLDQW�LQ�UHÀQLQJ�DPRXQWLQJ�WR�DERXW��SHUFHQW�RI�LWV�UHYHQXHV�DQG��SHUFHQW�RI�LWV�SURÀWV��KDV�VXIIHUHG�D� VKDUS� IDOO� LQ� LWV�JURVV� UHÀQLQJ�PDUJLQ�(GRM), down to US$ 7.30 a barrel from US$ 8.30. E&P companies like Cairn India have been hit hardest.

Thus falling crude may be a blessing for the country’s macroeconomic management on the one hand, but on the other, it poses a risk for many oil projects that will face a shut down. Around US$ 2 trillion is now globally invested in oil exploration and companies are trying hard to shelve production costs. It is going to be tough to continue production – there will either be cuts or smaller players facing bankruptcy when production becomes unviable for a long period.

Besides international oil companies, countries like Russia and OPEC states, who rely on crude exports, expect to witness economic meltdown, bankruptcies and sovereign defaults.

Russia is amongst the world’s largest oil producers, and its dramatic interest rate hike to 17 percent in support of its troubled Rouble underscores how heavily its economy depends on energy revenues, with oil and gas accounting for 70 percent of export income.

.H\�GHYHORSPHQWV�LQ�WKH�0LQLVWU\�RI�(QYLURQPHQW��)RUHVW�DQG�&OLPDWH�&KDQJH&DELQHW�DSSURYDO�RI�¶1DPDPL�*DQJH·�SURJUDPPHThe Union Cabinet chaired by PM Modi on May 13, 2015, DSSURYHG� WKH� ÁDJVKLS� ¶1DPDPL� *DQJH·� SURJUDPPH�integrating efforts to clean and protect the Ganga river. The programme has a budget outlay of INR 200 billion for WKH�QH[W�ÀYH�\HDUV��D��IRXU�IROG�LQFUHDVH�RYHU�H[SHQGLWXUH�in the past 30 years (Government of India has spent DSSUR[LPDWHO\�,15��ELOOLRQ�VLQFH��

The programme will be undertaken by the National Mission for Clean Ganga (NMCG) and its state counterpart organisations, the State Programme Management Groups (SPMGs). A three-tier mechanism has been proposed for project monitoring comprising of:

a) High level task force chaired by the Cabinet Secretary assisted by NMCG at the national level

b) State level committee chaired by the Chief Secretary assisted by SPMG at the state level

c) District level committee chaired by the DistrictMagistrate

The government is focussing on involving citizens living on the banks of the river to attain sustainable results.

Namami Gange will focus on pollution abatement interventions – namely: interception, diversion and WUHDWPHQW�RI�ZDVWH�ZDWHU�ÁRZLQJ�WR�RSHQ�GUDLQV�WKURXJK�bio-remediation / appropriate in-situ treatment / use of innovative technologies / sewage treatment plants �673V��HIÁXHQW�WUHDWPHQW�SODQW��(73V��UHKDELOLWDWLRQ�DQG�augmentation of existing STPs and immediate short term measures to arrest pollution at exit points on the riverfront WR�SUHYHQW�LQÁRZ�RI�VHZDJH��

SECTORAL UPDATES


7KH�ÁDJVKLS�¶1DPDPL�*DQJH·�programme would integrate

efforts to clean and protect the Ganga river. The programme has

a budget outlay of INR 200 bn IRU�WKH�QH[W�ÀYH�\HDUV�

7KH�SURJUDPPH�KDV�VRFLR�HFRQRPLF�EHQHÀWV�in terms of job creation, improved livelihood DQG� KHDOWK� EHQHÀWV� WR� D� YDVW� SRSXODWLRQ��dependent on the river.

.H\�GHYHORSPHQWV�LQ�WKH�0LQLVWU\�RI�(OHFWURQLFV�DQG�,QIRUPDWLRQ�7HFKQRORJ\1DWLRQDO�6XSHUFRPSXWLQJ�0LVVLRQ:LWK� WKH� REMHFWLYH� WR� VWHHU� ,QGLD� LQWR� WKH� OHDJXH� RI�world class computing power nations, the Cabinet Committee on Economic Affairs approved the launch of the ambitious INR 45 billion National Supercomputing Mission (NSM).

The Mission will be implemented and steered jointly by the Department of Science and Technology (DST) and the Department of Electronics and Information Technology (DeitY) over a period of seven years. These two departments will implement the mission jointly through two leading organisations, the Centre for Development of Advanced Computing (C-DAC) and the Indian Institute of Science (IISc), Bangalore.

The Ministry of Science and Technology will provide INR 28 billion towards the INR 45 billion required and the rest - about INR 17 billion – will come from the Department of Information Technology.

The mission envisions empowering national academic and R&D institutions spread across the country by installing a vast supercomputing grid comprising of more than 70 high-performance computing facilities.

These supercomputers will be networked on the National Supercomputing grid over the National Knowledge Network (NKN).

The mission has been conceptualised and evolved keeping in view India’s increasing computing demand IURP�WKH�VFLHQWLÀF�DQG�DFDGHPLF�FRPPXQLW\��LQWHUQDWLRQDO�technology trends and the emergence of supercomputing as D�EHQFKPDUN�IRU�VFLHQWLÀF�DQG�WHFKQRORJLFDO�DGYDQFHPHQW��The mission supports the government’s vision of ‘Digital India’ and ‘Make in India’.


.H\�GHYHORSPHQWV�LQ�WKH�'HSDUWPHQW�RI�7HOHFRP1HW�QHXWUDOLW\Few people realised the potential of the Internet when LW�ÀUVW�EHFDPH�SRSXODUO\�XVDEOH�LQ�WKH��V��%XW�QRZ�that it has become an integral part of society and incredibly important, Internet Service Providers (ISPs) across the world are trying to acquire the power to VKDSH� DQG� FRQWURO� ,QWHUQHW� WUDIÀF� DQG�KDYH� � JLYHQ� D�face to the net neutrality debate. Hidden under the guise of enabling the Indian population with faster and more reliable services, major players in telecom have adopted new policies that could undermine the basic building blocks of Internet access in India.

The net neutrality principle came into focus in India following mobile operator Airtel’s launch of an open marketing platform - ‘Airtel Zero’ - and the Telecom Regulatory Authority of India’s consultation paper on ZKHWKHU� WHOHFRP� ÀUPV� FRXOG� EH� DOORZHG� WR� FKDUJH�different rates for different uses of Internet data such DV�H�PDLO��EURZVLQJ�DQG�IRU�XVH�RI�DSSV�OLNH�:KDWVDSS��Viber and Skype. Consumers across the country have vehemently protested these restrictive norms and taken a stand in favour of net neutrality and net equality.

The Department of Telecom (DoT) has set up a six-PHPEHU�FRPPLWWHH��HQWUXVWHG�WR�VXEPLW�WKH�ÀQDO�UHSRUW�on net neutrality in India. The telecom commission will examine the report along with recommendations from the Telecom Regulatory Authority of India (TRAI) EHIRUH� LW�ÀQDOLVHV� LWV�VWDQG��7KH�FRPPLWWHH� LV�VDLG� WR�have met over 45 organisations including Facebook, Google, Flipkart, Amazon and ClearTrip to understand their views.

The ISPs have made it clear that if net neutrality prevails, they will have to raise data charges to over 6 times the present cost, in order to maintain viability. Despite all this, the DoT has made it explicit that the government is in favour of net neutrality.

7HOHFRP�VSHFWUXP�DXFWLRQThe much hyped and aggressively contested Indian WHOHFRP�DXFWLRQ�WKDW�HQGHG�LQ�0DUFK��DIWHU��GD\V�DQG� �� URXQGV� RI� ÀHUFH� ELGGLQJ� ZRQ� WKH� JRYHUQPHQW�a total of INR 11,000 billion. All the telecom giants competed for a hold of the airwaves, since losing would have caused operators to exit and sell infrastructure estimated at about INR 30 billion in each area of the vast 2G and 3G consumer base.

The three leading telecom players of the country - Bharti Airtel, Vodafone and Idea - have been successful in UHWDLQLQJ�DQG�H[SDQGLQJ�WKHLU�KROG�LQ�SUHPLXP��0K]��whereas Reliance Communication had to give up its KROGLQJ�LQ�WKH�VDPH�EDQG�LQ�ÀYH�FLUFOHV��

Depending on the band, carriers were expected to pay DV�PXFK�DV��SHUFHQW�RI� WKHLU� ÀQDO�ELG�ZLWKLQ��GD\V�of the auction’s conclusion and the rest in 10 annual instalments over a period of 12 years — with 2 years moratorium. The Department of Telecom (DoT) received a total upfront payment of INR 3323.77 billion, nearly INR 335 billion above the minimum due.

The proceeds of the auction are expected to keep the ÀVFDO�GHÀFLW�ZLWKLQ�WKH�WDUJHW�RI��SHUFHQW�RI�*'3�

The Department of Telecom (DoT) received a total upfront payment of

INR 3323.77 bn nearly INR 335 bn above the

minimum due.

SECTORAL UPDATES


$V�SHU�ÀQDO�UHVXOWV��,GHD�PDGH�D�WRWDO�FRPPLWPHQW�RI�,15� �� ELOOLRQ�� IROORZHG� E\� $LUWHO� DW� ,15� ��billion, Vodafone INR at 258.06 billion, Reliance -LR� ,QIRFRPP� DW� ,15� �� ELOOLRQ�� 5HOLDQFH�&RPPXQLFDWLRQV�DW�,15��ELOOLRQ��7DWD�7HOHVHUYLFHV�at INR 78.51 billion and Aircel at INR 22.50 billion. The auction design and scarcity of spectrum have resulted in exorbitant bids to secure rights. Payment for spectrum dues is expected to push up the debt on telecom operators to about INR 3500 billion from the current INR 2500 billion.

,QGLDQ�VSHFWUXP�DXFWLRQ��E\�RSHUDWRU�VSHQG

All this could mean a rise in mobile tariffs. This will be a hindrance to the pace of the ‘Digital India’ project, which seeks to connect every poor household in an inclusive digital vision.

.H\�GHYHORSPHQWV�LQ�WKH�0LQLVWU\�RI�/DERXU�DQG�(PSOR\PHQW(PSOR\HUV�3URYLGHQW�)XQG�2UJDQLVDWLRQ� WR� LQYHVW�LQ�WKH�VWRFN�PDUNHWThe government has allowed the retirement fund body EPFO to invest 5 percent of its core in exchange WUDGHG�IXQGV�ZKLFK�ZRXOG�DFFUXH�DQ�LQÁX[�RI�DURXQG�INR 50 billion into the equity market annually.

Under the scheme, there is a provision to invest in equity and related instruments, a minimum 5 percent and maximum 15 percent of all incremental accretions belonging to the fund. As per estimates, the EPFO’s incremental deposits for 2014-15 will be around INR 8,000 billion, though it is also estimated that the incremental deposits could be around INR 1,000 billion as the body had increased the monthly wage ceiling for coverage from INR 6,500 to INR 15,000 under its social security schemes in September 2014.

Elaborating on the provision the Labour Secretary said that EPFO will begin by investing 1 percent and go up to 5 percent by the end of WKH�ÀQDQFLDO�\HDU��

Following this, the Department of Disinvestment has initiated talks with the Labour Ministry to advise the EPFO to invest a portion of its funds in the exchange traded fund of PSU stocks.

$IIRUGDEOH�KRXVLQJ�VFKHPH�IRU�(3)2�6XEVFULEHUVIn the effort to bring NDA government’s vision of ‘Housing for all by 2022’ to actuality, the Labour Ministry is working on a mega affordable housing scheme that aims to draw over 50 million subscribers from the retirement fund body EPFO. In order to realise its grand vision, the ministry SODQV� WR� FROODERUDWH� ZLWK� 368� EDQNV�� KRXVLQJ� ÀQDQFH�FRPSDQLHV��VWDWH�RZQHG�FRQVWUXFWLRQ�ÀUPV�OLNH�1%&&�DQG�housing authorities such as DDA, PUDA and HUDA to build DIIRUGDEOH�KRPHV�DW�D�SULFH�WR�EH�À[HG�E\�WKH�JRYHUQPHQW��7KH� PLQLVWU\� LQWHQGV� WR� VSHFLÀFDOO\� WDUJHW� �� SHUFHQW� RI�EPFO subscribers who fall under the low income category, with basic wages of less than INR 15,000 per month. It would also target mid-income and high-income subscribers with different facilities and schemes. The Prime Minister’s 2IÀFH�UHFHQWO\�DVNHG�(3)2�WR�GHSOR\��SHUFHQW�RI�(3)2�funds or INR 700 billion as loans for low-cost housing that can help in creating 350 thousand affordable homes.

'LIIHUHQW�IDFLOLWLHV�DQG�EHQHÀWV�DUH�FXUUHQWO\�EHLQJ�HYDOXDWHG�that will be offered to EPFO subscribers such that they can purchase homes under the scheme. One such facility includes allowing EPFO subscribers to withdraw their PF deposits as part-payment for a house. As per current rules, subscribers can withdraw money from their PF accounts for EX\LQJ�KRXVHV�RQO\�DIWHU�FRQWULEXWLQJ�IRU�DW�OHDVW�ÀYH�\HDUV��The ministry may even allow subscribers to pay equated monthly instalments (EMIs) for their loan through their PF account.

The scheme, however, will be optional for EPFO subscribers, as there is no need to provide affordable houses to those who already own one.

7RWDO�$PRXQW�5DLVHG��,15��WULOOLRQSource: Department of Telecom (DOT)


E. CONCLUSION

+RZHYHU�� WKHUH� LV� D� KXJH� XQÀQLVKHG� DJHQGD� ORRPLQJ�large that needs focussed rework. Some lacunae include ensuring faster implementation of strategies, releasing of sidelined assets, ensuring optimum outcomes from large borrowings with absolute guaranty particularly for roads and railways and lucid coordination between ministries and states.

The government will also have to manage several budgetary commitments, particularly legislative changes like a bankruptcy code, alternate dispute redressal PHFKDQLVP� DQG� ÀQDQFLDO� VHFWRU� OHJLVODWLRQV�� ,W� VKRXOG�come up with a tax regime that is genuinely sympathetic - moving towards competitive tax rates and, more importantly, in line with the benchmark practices of other Asian countries. The cohesion with an overhauled path RI�ÀVFDO�FRQVROLGDWLRQ�PD\�LQYROYH�GLIÀFXOW�GHFLVLRQV�RQ�revamping subsidies, particularly if exogenous variables regress or oil prices rise sharply.

The government should lead a national campaign to liberalise its digressive labour laws. Markets can be used as agents of change. Obdurate restrictions on domestic trade in farm should be eliminated; infrastructure needs to be built faster, which necessitates a better law for acquiring land, a simplistic tax regime and state-run banks could be unfettered of political meddling, recapitalised and put in independent private hands.

The government needs to shift its focus from concrete sectors like infrastructure and defence, towards policies that could manage agrarian crises. As farming continues WR�EH�D�QRQ�SURÀW�YHQWXUH��D�VLQJOH�FURS�IDLOXUH�FDQ�SXVK�

The Modi regime is running fast, but it may have to run twice as fast if it wants to make a conclusive and macroscopic difference in the way India lives today. Believed to be the country’s most charismatic Prime Minister, Narendra Modi is often labelled India’s best bet to meet the soaring expectations of its young citizens�

farmers into a spiral of poverty and indebtedness. The current crisis in agriculture has been triggered by the drought in 2014, the collapse of the global commodity super cycle and fears of another bad monsoon. The shrinking spending on the social sector programs - or death by neglect, as in the case of the Mahatma Gandhi Rural Employment Guarantee Scheme – has only compounded problems.

In addition, the nature of farming has undergone a major overhaul. For example, horticulture has emerged as the dominant sector in the agrarian economy, surpassing IRRG� JUDLQ� RXWSXW� IRU� WKH� ÀUVW� WLPH� LQ� \HDUV�� *LYHQ� LWV�perishable nature and link to the price cycle, it is prone to volatile risk behaviour, which can’t be addressed by VKRUW�WHUP�ÀVFDO�VRSV��

Lastly, the government needs to focus on intangible assets like education, health and environment. There is still much to be done and Modi’s agenda for the near future is full. He has focused on skilling in his early months, but there has been regrettably little thought given to education reform, particularly on de-bureaucratising higher education regulation and knowledge formation.

Public spending on health suffered cuts in this year’s national budget, even though the country’s health care system is vastly unfunded. Sharper emphasis on administrative revamp and on delivery mechanisms outside current government structures is also expected. Devolution of power and reliance on capable colleagues would lead to faster and effective implementation of strategies.



ONE YEAR OF MODI GOVERNMENT: THE INDIA INC. VERDICT:KDW�GR�WRS�LQGXVWU\�OHDGHUV�WKLQN�RI�WKH�1DUHQGUD�0RGL�OHG�JRYHUQPHQW·V�performance in the past year?Forbes India-BMR Advisors survey has some answers

ANNEXURE I

0HWKRGRORJ\The poll was conducted in April 2015 to assess the reforms and measures introduced by the Modi Government. In order to develop the questionnaire, we conducted research on current developments including Government policies, challenges and opportunities for ease of doing business in India and market sentiment for initiatives like ‘Make in India’ campaign etc.

Leveraging our network of industry leaders, 55 CEOs, MDs, Chairman, Presidents and CFOs of Indian and multinational companies were interviewed across various sectors. The survey was conducted through an internet based survey portal by circulating a dedicated web link. The respondents were personally contacted to FRQÀUP�WKH�SDUWLFLSDWLRQ�RI�HDFK�UHVSRQGHQW��7KH�SROO�LV�anonymous in nature.

$QDO\VLV�DQG�NH\�ÀQGLQJV,Q� RQH� RI� KLV� ÀUVW� VSHHFKHV� DIWHU� KLV� DSSRLQWPHQW� DV�India’s prime minister, Narendra Modi promised to work KDUG��DQG�VDLG��́ :KHQ�ZH�PHHW�LQ��,�ZLOO�JLYH�\RX�DQG�my countrymen a report card.” The Modi government is SRLVHG�WR�FRPSOHWH�LWV�ÀUVW�\HDU�LQ�RIÀFH�DQG�SHUKDSV�WKLV�LV�D�JRRG�WLPH�WR�WHVW�LWV�SURJUHVV�WRZDUGV�WKDW�ÀQDO�UHSRUW�card.

Forbes India and BMR Advisors conducted a survey this April among senior industry leaders on the government’s business agenda in the past one year. It included 17 questions on the performance of the government and steps taken to develop the business environment in the country.

BMR Advisors undertook a poll on the one year business agenda of the Modi Government targeting CEOs, MDs, Chairman, Presidents and CFOs in the Indian industry. The poll was designed to garner opinions from business leaders across divergent industries, on steps taken for India’s pro-business and pro-economic development, their opinion on the major hits and misses so far along with insights on the future top priorities of the Modi Government.

The responses indicate an overwhelming belief in the steps taken by the government to usher in economic growth. At least 87 percent respondents believe the government has been pro-business and economic development; 78 percent feel steps taken by the government will lead to a better investment climate/business potential for investors in India. To a question on the performance of key government ministries, the Ministry of Finance (65 percent) and the Ministry of Power (68 percent) were ranked as the better performers.

)LUVW�SXEOLVKHG in Forbes India issue dated 15th May, 2015

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Measures taken by the key ministries include the e-auction of coal and telecom spectrum (85 percent respondents praised it), efforts to bring back black money from foreign bank accounts, Jan-Dhan Yojana, and the direct transfer of subsidies. Nearly two-thirds of respondents believe that the realignment of ministries with the objective of ‘Minimum Government and Maximum Governance’ has shown positive results. However, 60 percent of UHVSRQGHQWV� KDYH� H[SUHVVHG� FRQFHUQ� WKDW� WKH� ÀUVW�EXGJHW�RI�WKH�0RGL�JRYHUQPHQW�LV�\HW�WR�IXOÀO�LWV�SURPLVH�RI�LQWURGXFLQJ�D�QRQ�DGYHUVDULDO�DQG�VLPSOLÀHG�WD[�UHJLPH

About 55 percent of respondents believe that appropriate steps have been taken to improve the ease of doing EXVLQHVV�LQ�,QGLD��,Q��,QGLD�UDQNHG��RXW�RI��HFRQRPLHV�� LQ� WKH�:RUOG�%DQN·V� LQGH[�RI�HDVH�RI�GRLQJ�business. Although 71 percent believe the ‘Make in India’

campaign would have the highest long-term impact on WKH� HFRQRP\�� RQO\� �� SHUFHQW� EHOLHYH� VXIÀFLHQW� VWHSV�have been taken to stimulate the campaign. Respondents believe that further steps need to be taken to improve the MSME (micro, small and medium enterprises) sector, which is at the core of the campaign. One-fourth of the respondents believe that credit availability through a dedicated SME bank is critical, followed by 23 percent DVNLQJ�IRU�VXSSO\�FKDLQ�HIÀFLHQFLHV�

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ONE YEAR OF MODI GOVERNMENT: THE INDIA INC. VERDICT

Respondents believe India’s growth has been muted by a backlog of stalled projects in the power and infrastructure sectors. A majority of respondents feel a single-window clearance system for projects, the introduction of the Land Acquisition Bill, and faster environmental clearances are imperative for the revival of these projects. They also feel that an effective public-private partnership model, a clear and stable tax regime, and a viable long-term assurance IRU�ÀQDQFH�DUH� UHTXLUHG� WR�GHYHORS� LQIUDVWUXFWXUH� LQ� WKH�country.

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Respondents indicated that the government has set the stage by introducing various initiatives in one year, and believe that it should walk the talk by introducing measures for effective implementation of all its initiatives.

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A BUSY YEAR FOR ARTICULATING REFORMSThat said, Administrative changes in the tax ecosystem are called for as India can ill-afford a perception-based risk to investor sentiment

compromises such as levying a super-rich tax and increasing the median rate of service tax and excise duty.

A targeted return to 8 percent sustained growth ZLWKRXW� FDXVLQJ� ÀVFDO� LPEDODQFHV�DQG� UHLQIRUFLQJ� ÀVFDO�consolidation parameters through achieving current account surplus are stand-out proposals.

Arguably, accelerated growth targets looked achievable LQ�WKH�ÀUVW�\HDU�LWVHOI��SHUKDSV�*RG�ZLOOHG�WRR��DV�FUXGH�RLO�fell below 60 percent of 2014 peak levels and the rupee found new stability (not without blips, though) largely due WR�D�ZHDNHQLQJ�RI�WKH�HXUR��,QÁDWLRQ�ZDV�DOVR�FXUWDLOHG��

The government’s continued commitment to usher in Goods and Services Tax (GST) reform in less than a year and a clear policy statement to bury the Direct Taxes Code (DTC) is suggestive of clarity on the tax-reforms agenda.

Besides, the government’s courage to push ahead with land reforms by resorting to the ordinance route, enhance the foreign direct investment (FDI) limit in insurance and the auction of national resources is remarkable. The latter two were legislated.

Among other policy-level reforms, re-institutionalisation of the Planning Commission as NITI Aayog is laudable,

Mukesh ButaniChairman - BMR Advisors


It is too early for any attempt to assess the National Democratic Alliance (NDA) government’s performance at the helm. Nonetheless, there is no gainsaying that the journey of reviving macro-economic fundamentals has begun extremely well, though the fruits of reform measures will play out in the future. As an optimist, I tend to look ahead in the direction the Modi administration can lead the country over the next four years of its present tenure. Hence, at the outset, any thought of denouncing the government’s endeavours in setting the tone for reforms is ruled out.

More often, election manifestos are a statement of the electorate’s aspirations and political planks. Undeniably, though, it can take even a majority government time to turn the corner, all the more so if it inherited weak macro-economic fundamentals and a decade of policy inaction. The 2015 Budget-eve witnessed a momentous shift from a Centre-biased resource allocation formula to a more inclusive principle of cooperative federalism through enhanced allocation of resources to states.

There were two credible policy milestones: First, the rail EXGJHW�� DQG� WKHQ�� WKH� IXOO� ÀQDQFH� EXGJHW³DQG� WR� EH�IDLU�� WKH�JRYHUQPHQW�SXOOHG�RII� D� ÀQH� MRE� LQ� DUWLFXODWLQJ�strategic reforms that will be ushered in the near to medium term, even though it meant making unavoidable


lest the institution is inevitably rendered a relic. The reinvigorated institution has embarked on a path of revitalising a spirit of innovation in policy making and administration. That said, while it has been a busy year for articulating reforms and carrying out small repairs to re-energise the growth engine, there is certainly more ground to cover.

First, the ongoing Budget session of Parliament will lead the way as it holds in its hands the fate of two VLJQLÀFDQW�UHIRUPV��/DQG�UHIRUPV�DQG�WKH�DSSURYDO�RI�WKH�Constitutional Amendment Bill to push ahead with GST.

Given the new formula for resources sharing, the government will back itself to get state consensus. Adding adequate capacity and capabilities within the tax administration will be the key to a successful transition to D�QHZ�XQLÀHG�UHJLPH�RI�LQGLUHFW�WD[HV��

7KH�IDWH�RI�ODQG�UHIRUPV��WKRXJK��KDQJV�ÀUH��,W�LV�KRSHG�WKDW�political groups will set aside their ideological differences and allow a breakthrough to end the impasse, which is clearly a stepping stone towards realising the country’s potential. Perhaps, there is a need to look beyond the cloak of short-term pain to enjoy sustainable long-term macro-economic advantages.

A recent uptick in macro-economic indicators gives the government some headroom to relentlessly pursue FDI reforms in strategic sectors such as insurance, real

estate, defence and private banking.

Allowing these sectors to freely access capital markets with adequate safeguards could offer next-generation opportunities that will revitalise industrial growth and improve the pace of capital formation.

The policy move could yield huge positives, especially if the Reserve Bank of India’s (RBI) limit on corporate debt for foreign portfolio investment is liberalised beyond the present cap of $51 billion.

(QFRXUDJLQJ�PRUH�IRUHLJQ�FDSLWDO�LQÁRZV��WKRXJK�FDSLWDO�account convertibility seems a distant reality, requires a calibrated approach weighing the risks of currency ÁXFWXDWLRQ�DQG�DGYHUVH�EDODQFH�RI�WUDGH��7KH�GUDIW�UHSRUW�

of the Sahoo Committee is a step in this direction and I anticipate that the recommendations it has made will be heeded. From a tax ecosystem standpoint, administrative reforms, both for direct and indirect taxes, require immediate attention as India can ill-afford a perception-based risk to investor sentiment.

Tax to GDP ratio, the historical barometer of tax reforms, may not remain an appropriate benchmark as the focus shifts to evolving a taxpayer-focussed administration.

Also, the government’s approach to comprehensive reforms proposed by the Tax Administration Reforms Commission (Tarc), including a proposal to integrate the two apex administrative authorities for direct and indirect taxes (Central Board of Direct Taxation and Central Board of Excise and Customs), will be important to watch out for.

Tarc’s recommendation on embracing more sophisticated Alternative Dispute Resolution (ADR) forums such as DUELWUDWLRQ�UHFRQFLOLDWLRQ� LV� VLJQLÀFDQW�� ,� KRSH� WKDW� WKH�domestic tax law and bilateral tax treaties are calibrated to embrace ADRs to provide an effective dispute resolution framework. Besides, the Ministry of Finance is expected to announce its stated position on the OECD-G20’s H[WHQVLYH�UHSRUW�RQ�¶%DVH�HURVLRQ�DQG�SURÀW�VKLIWLQJ·��7KH�aim is to ensure that the work output of the Organisation for Economic Cooperation and Development (OECD) is not resorted to selectively by the administration.

There are other areas that require repairs. There is a need to especially rein in repeated instances of tax disputes, often resulting in frivolous demands and protracted OLWLJDWLRQV��7KH� ÀQDQFH�PLQLVWHU·V�SURSRVDO� WR� FRQVWLWXWH�a panel is welcome. It may also necessitate legislative ÀQH�WXQLQJ� RI� VHOHFW� SURYLVLRQV� LPSDFWLQJ� FURVV�ERUGHU�investment.

Clearly, there is a very long way to go before we realise WKH�EHQHÀWV�RI� WKH�UHIRUPV�DJHQGD�WKDW�KDV�EHHQ�UROOHG�RXW� E\� WKH� FXUUHQW� JRYHUQPHQW�� :KLOH� WKH� RIIVKRRW� RI�macro-economic recovery is visible, the key will lie in the implementation of structural reforms, which will lead the way for a sustainable growth trajectory.


INDIA’S ECONOMIC PERFORMANCE & BUSINESS IMPERATIVESINDIA’S ECONOMIC PERFORMANCE & BUSINESS IMPERATIVES

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34. ,QGLD�EULHÀQJ��KWWS��ZZZ�LQGLD�EULHÀQJ�FRP�QHZV�LQGLD�EULHÀQJ�IGL�UHIRUP�E�F�HFRPPHUFH�YQR�OLFHQVH�SURSRVHG��KWPO�

35. Namami Gange Programme, http://www.thehindu.com/news/national/rs-20000crore-budgetfor-namami-gange-scheme/article7201467.ece

36. Global visits, http://www.livemint.com/Politics/5VhifnzzMsBcOr7enJ1ACO/The-charm-offensive-that-worked.html, http://www.livemint.com/Opinion/zqLP6PJOhGTSC67CGnydpK/Narendra-Modis-foreign-policy.html

37. GDP, http://www.tradingeconomics.com/india/gdp-growth-annual

38. FDI, http://mintonsunday.livemint.com/news/heatwave-deaths-gdp-growth-and-missed-nutrition-WDUJHWV��KWPO


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