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Cabinet eases norms for FDI in retail, allows 26% in digital media

NEW DELHI, Aug 28: The Union Cabinet on Wednesday approved a raft of changes to foreign direct investment (FDI) rules, easing the local sourcing norms for overseas single-brand chain stores and permitting FDI through the so-called automatic route in contract manufacturing and coal mining for open sale.

“The changes in FDI policy will result in making India a more attractive destination, leading to benefits of increased investments, employment and growth,” a Cabinet statement said.

The changes come in the aftermath of a deceleration in economic growth a five-year low of low of 5.8% in the quarter ended March and a consumption slump signalled by high-frequency indicators, including automobile sales.

Most analysts expect the economy to slow further in the June quarter, GDP data for which will be released on Friday. Last week, finance minister Nirmala Sitharaman announced a number of measures to boost investor sentiment and spur economic growth.

“This government since 2014 has kept reforms as a part of the agenda. It is an ongoing process for us. It is not as if in this tenure, post 2019, we have forgotten the reform agenda. Not at all. Reform is a continuous process and we are treating it as a continuing endeavour,” Sitharaman said on Friday.

The reforms are part of India’s strategy to become a part of the global supply chain amid its disruption due to the US-China trade war.

In her first Budget speech on July 5, Sitharaman proposed examining suggestions to open the doors wider to FDI in the aviation, media and insurance sectors .

In single brand retail, the government on Wednesday allowed companies to conduct online retail trading prior to opening of physical stores, subject to the condition that brick and mortar stores come up within two years from the date online operations begin.

“Online sales will lead to creation of jobs in logistics, digital payments, customer care, training and product skilling,” the statement said.

To provide greater flexibility and ease of operations to foreign single brand retail entities with more than 51% FDI, the Cabinet decided that all procurements made from India by the entity for that single brand shall be counted towards local sourcing of 30%, irrespective of whether the goods procured are sold in India or exported. The current cap of considering exports for five years only was removed to give an impetus to exports.

So far, only incremental sourcing of the single brand entity was taken into account while current sourcing was not considered. From now on, total sourcing including by group companies will be considered for meeting the 30% local sourcing norm.

The Cabinet on Wednesday allowed 100% FDI in contract manufacturing, allowing large foreign electronics and pharmaceutical companies to directly invest in local or foreign contract manufacturers. This will give a big boost to the government’s Make in India policy, aimed at promoting foreign investment in local manufacturing.

“Manufacturing activities may be conducted either by the investee entity or through contract manufacturing in India under a legally tenable contract, whether on Principal to Principal or Principal to Agent basis,” the statement added.

The Cabinet on Wednesday allowed 100% FDI under the automatic route for coal mining as well as sale and export of coal. This is expected to end the monopoly enjoyed so far by state-run Coal India Limited which is seen as lacking the capability to mine coal fields.

So far, 100% FDI under the automatic route, which requires no prior approval, was allowed for coal processing plants as well as for coal mining for captive consumption by power projects, iron and steel and cement units.

Govt unveils package to spur economic growth

NEW DELHI, Aug 23: Finance minister Nirmala Sitharaman on Friday announced measures to revive growth, boost consumption and uplift investor and consumer sentiment, including rolling back the surcharge on tax on foreign portfolio investors (FPIs) announced in the budget, but stopped short of the full-blown fiscal stimulus many sections of industry have been seeking.

The measures include the upfront recapitalisation of state-owned banks (which could enable credit up to Rs 5 trillion) and steps to boost demand in the stressed auto sector. Specifically they addressed five issues: Infrastructure spending; concerns on tax terrorism; improving the lot of small and medium enterprises; boosting the prospects of the auto sector; and improving credit flow.

The finance minister also promised two more instalments of similar measures, one targeting the ailing real estate sector, in coming weeks. Stock markets rose in anticipation of the package after news of a press briefing called by the finance minister at 5 pm filtered out. BSE’s benchmark Sensex rose 0.63% to close at 36,701.16.

The Indian economy grew by 5.8%, the lowest in five years in the January-March quarter of 2018-19. GDP growth has declined consistently since last year. The auto sector, a weathervane of economic sentiment and also industrial health, has been especially hard hit with passenger car sales in July falling 30 % compared to a year ago. Against this background, the clamour for a revival package rose.

“Enhanced surcharge on FPI goes... surcharge on domestic investors also goes.. In other words, the pre-budget position is restored,” the finance minister said while announcing measures to achieve higher economic growth. The government was under pressure to roll back surcharge on high-networth individuals on July 5 that also impacted Foreign Portfolio Investors (FPIs) investing in the country through trusts. The controversial tax measures saw foreign investors pulling money out of Indian markets. The BSE Sensex fell 8% or 3,040 points between July 5, the day of the Union Budget and August 22.

High-networth individuals (HNIs) earning over Rs 2 crore a year will, however, continue to pay the enhanced surcharge as announced in the budget. The government may review the same after 75th anniversary of India’s independence, she said. The roll-back on FPIs will cost about Rs 1,400 crore to the government.

Sitharaman said she was confident that the tax departments would meet their revenue targets without resorting to any kind of coercion. “On or after 1st October, 2019, all notices, summons, orders, etc by the income-tax authorities shall be issued through a centralised computer system and will contain a computer-generated unique Document Identification Number (DIN) and any communication issued without computer-generated DIN shall be non est in law”, she said, adding that from October 1, all notices to be disposed off within three months from the date of reply. The finance minister also announced that the angel tax (the dreaded Section 56(2)(viib) of the IT Act would “not be applicable to start-ups registered” with DPIIT.

Homebuyers, particularly of the national capital region (NCR) and Mumbai, can expect more sops and policy reforms soon as the finance minister will announcement another stimulus package next week. “This is only the start... Next week again we shall be coming for one more set of announcement,” Sitharaman said, adding that the announcement could take place in the middle of the next week.

Sitharaman announced a relief package for the distressed automobile sector, which was resorting to layoffs and output cuts. The package included allowing additional 15 % depreciation on vehicles, deferment of one-time registration fee, lifting ban on purchase of vehicles by government departments and the launch of a scrapping policy for old vehicles. Coupons could be given to those scrapping their vehicles to be redeemed while purchasing a new vehicle, she said. This is similar to the cash for clunkers programme the US launched in 2008 in the wake of the economic crisis.

In order to allay customers’ fears that the BS-IV vehicles will be phased-out once BS-VI will be introduced, the finance minister said the BS-IV vehicles will remain operational for the entire period of registration if purchased on or before March 31, 2020. The clarification will help to clear BS-IV inventories as automakers will be selling BS-VI emission compliant vehicles only from April 1, 2020.

In order to resolve liquidity problems of micro, small and medium enterprises (MSMEs) she directed the Goods and Services Tax (GST) authority to clear all refunds within 30 days. “GST refunds [for MSMEs] pending since its launch [July 1, 2017] must be cleared within 30 days from today and all future refunds should be cleared within 60 days,” she said, adding that banks will issue improved one-time settlement plan for MSMEs.

The government departments and central public sector enterprises (CPSEs) have also been instructed to clear all pending payments of vendors, particularly MSMEs, she said. Delayed payments from them will be monitored by the Department of Expenditure and reviewed by the Cabinet Secretariat, she added.

The finance minister also announced measures to improve credit flow -- the lifeblood of an economy.

The front-ending of the recapitalisation of state-owned banks -- the government has already announced in the budget that it will invest Rs 70,000 crore in them -- will catalyse potential credit flows of almost Rs 5 trillion. Sitharaman also said banks will pass the benefit to consumers taking loans linked to the policy rate of the Reserve Bank of India. RBI has so far cut its policy rate by 1.1 percentage points since February and, according to the central bank’s own estimates, only 0.29 percentage points of this has been passed on to the customer.

Aadhaar-based KYC will be permitted for opening of demat accounts and investing in mutual funds, Sitharaman said.

She announced an additional Rs 20,000-crore liquidity support to the struggling housing finance companies (HFCs), a move aimed at enhancing their lending capacity. The Rs 20,000 crore is in addition to Rs 10,000 crore support announced earlier by the National Housing Bank (NHB).

Sitharaman proposed the creation to establish an organisation to provide credit enhancement for infrastructure and housing projects with an aim to enhance fund flows towards such projects. She also promised a review of arbitration awards.

The minister also said that violation of Corporate Social Responsibility (CSR) obligations would not be treated as a criminal offence and only as a civil liability.

Unprecedented In 70 Years: NITI Aayog Vice Chairman On Liquidity Crisis

NEW DELHI, Aug 23: NITI Aayog Vice Chairman Rajiv Kumar said the government recognises the problem in the financial sector

Describing the current economic downturn as an "unprecedented situation", NITI Aayog Vice Chairman Rajiv Kumar said, "From last 70 years (we) have not faced this sort of liquidity situation where the entire financial sector is in churn," news agency ANI reported. He also said the government "must do whatever it can to take away some of the apprehensions of the private sector".

The comments from the top economist come at a time the country's economy is facing the worst pace of growth in nearly five years.

"Government recognises absolutely that the problem is in the financial sector. Liquidity is turning into insolvency. Therefore you have got to stop that," he said.

Speaking on the liquidity situation, Kumar said: "Nobody is trusting anybody else. It's not just the government and the private sector, within the private sector, nobody wants to lend to anybody else."

"There are two issues. One, you may have to take steps which are out of the ordinary... Secondly, I think the government must do whatever it can to take away some of the apprehensions for the private sector," he added.

India's GDP or gross domestic product grew 5.8 per cent in the January-March period. For the financial year ended March 31, the economic growth stood at 6.8 per cent.

GDP growth is likely to slow down further to 5.7 per cent in the first quarter of the current financial year, due to low consumption, weak investments and an under-performing service sector, according to a report by Nomura.

Nomura however added that the economy is expected to see some recovery in the July-September quarter.

It attributed the slowdown to the ongoing crisis in shadow banks, which were funding the consumption drive before liquidity crisis hit them hard last September, as well as weakening global growth and the resultant demand slump.

Economy needs a larger push, Shaktikanta Das at RBI policy meet

NEW DELHI, Aug 21: Fixing India’s weak growth has become the highest priority while a benign inflation outlook has given the central bank room to cut rates although transmission remains inadequate, monetary policy committee meeting minutes showed.

The Reserve Bank of India (RBI) lowered its benchmark interest rates for a fourth straight meeting this month with a slightly bigger than expected cut, underscoring its worries about the near-five year low economic growth pace.

The six-member monetary policy committee (MPC) cut the repo rate by an unconventional 35 basis points (bps) to 5.40%.

“Given the current and evolving inflation and growth scenario at this juncture, it can no longer be a business as usual approach. The economy needs a larger push,” Governor Shaktikanta Das said in the minutes, released on Wednesday.

Annual retail inflation in July was 3.15%, down from an eight-month high of 3.18% in June and staying below the central bank’s 4% medium-term target for a 12th straight month, raising expectations for a cut in October.

Last week, a Reuters poll predicted the RBI would ease its benchmark rate by 25 basis points again to 5.15% at its October meeting, followed by a 15 basis point cut in the first quarter of 2020.

Since February, the RBI has cut the repo rate by a total 110 basis points (bps), but most Indian banks have not come close to following suit.

“Under prevailing circumstances, the immediate transmission should be considered not so much in terms of the bank deposit and lending rates but more specific rates influencing new investments such as housing loans, vehicle loans and long term bonds,” said one MPC member, Ravindra Dholakia.

Most members of the committee, however, felt rate transmission would be faster in coming weeks and months aided by surplus liquidity in the banking system.

The RBI is also looking to get banks to link some new loans to its key policy rate or other external benchmarks, Das said on Monday, as he pushes them to cut rates faster to stimulate growth.

“While they are giving stylised arguments to justify their recommendations, none of them has made a clear statement on the outlook or possible timelines for recovery,” said Rupa Rege Nitsure, chief economist at L&T Financial Holdings.

“A lot depends on how promptly fiscal authorities undertake remedial measures.”

Finance Minister Nirmala Sitharaman has recently held several meetings with industry leaders, who have called for stimulus measures, including tax rebates, to support consumer demand and private investment.

Pami Dua, another member of the MPC, said while monetary policy can impact cyclical factors, it has its limits when the slowdown is structural in nature.

“Therefore, investment-focused fiscal policy and active continuation of structural reforms are imperative at this juncture,” Dua said.

The government was looking into policy issues such as exempting foreign portfolio investor trusts from recently imposed high tax, deferring a proposal to raise minimum public share holding in listed companies to 35% from 25% and easing of banking credit, a source told Reuters on Friday.

“Given the evolving growth-inflation risk picture, monetary policy should be used judiciously,” member Chetan Ghate said.

Gloom in markets, car sales decline, core sector hit

NEW DELHI, Aug 2: Markets crashed to five-month lows on Thursday; macroeconomic data shows stronger signs of a slowdown; and car sales decline yet again

The Indian economy has been facing a slowdown for more than a year now. An emphatic victory for the BJP in the 2019 elections had generated hopes that the government would reciprocate for the mandate by providing a stimulus to economic growth. Early trends, both in the greenfield and financial sectors, suggest that such optimism is slowly losing momentum.

Stock markets, which had climbed to an all time high after exit polls predicted a BJP victory have crashed by almost 2500 points since the budget. Car sales continue to slide even as core sector growth has plummeted to 0.2% in June 2019

The Sensex shed 463 points, taking the slide since Budget on July 5 to 2,495 points

The index of eight core sector industries grew at 0.2% in the month of June, the lowest monthly growth since May 2015. These numbers also hint at problems beyond the core sector. For example, cement industry shows a decline in June. This means that the construction sector, which is an important source of non-farm employment, could be in trouble.

Carmakers recorded yet another month of fall in sales in July compared to last year

Maruti logged among the largest fall in auto sales, selling 96,478 vehicles in July 2019 as compared to 152,427 in July 2018

 

 

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