India Inc welcomes cut in key lending rates
India Inc on March 4 welcomed the central bank's surprise decision to reduce key lending rates by 25 basis points. "Coming on the back of a growth-oriented budget, the unexpected cut in headline interest rate by the RBI sends a huge positive signal that the central bank and the government are working in tandem to provide a robust scaffolding to growth," said Chandrajit Banerjee, director general, Confederation of Indian Industry (CII). According to Banerjee, eve while giving growth a fillip by reducing key lending rates the central bank has not lost the sight of inflation. "Clearly the government's intent is asset creation and therefore, a delay in one year in the fiscal consolidation road map should be viewed through the glasses of overall macroeconomic objectives. "CII also agrees with the RBI on the importance of the states' fiscal discipline since it is the overall deficit – central plus states, that should be the operating parameter, rather than just that of the centre." Banerjee concluded that the overall sound macroeconomic management and the clearly spelt out targets for fiscal deficit should allow the international ratings rating agencies to take a positive view of investment climate in India.Another business body PHD Chamber of Commerce and Industry said that Wednesday's rate cut will benefit the common man with softening of EMIs on loans and the ripple effect t will also improve market sentiment and enable businesses to raise equity. "Inducing demand scenario would be critical to re-fuel our economic growth trajectory and create jobs for millions of young work force. While containing the inflation, demand in the economy should remain intact," said Alok B. Shriram, president, PHD Chamber of Commerce and Industry. Continuation of rate cut in the coming would be critical to help demand to remain intact and sentiment for investments to strengthen and grow, he said. Angel Broking's chairman and managing director Dinesh Thakkar said that the surprise rate cut was in line with its expectations of a sharp rate-cutting cycle over the coming quarters. "Having got the comfort in the budget of the government's commitment to high quality fiscal consolidation, in our view, the RBI is likely to embark on an extended monetary easing cycle, with at least another 50-75 basis points more of rate cuts in FY2016," Thakkar said. "This is also aided by the substantial improvement in the current account balance, which has strengthened the rupee's fundamentals," he said. Thakkar added that given the stronger rupee and substantial global monetary easing the RBI is finally in a position to narrow the differential in interest rates in India vis-a-vis global interest rates which are still at historic lows. On Wednesday, the RBI reduced key lending rates by 25 basis points and said that it was expecting inflation to soften in the coming fiscal. However, it also expressed concerns over the postponement of fiscal consolidation target by a year. In its monetary policy statement of Jan 15, 2015 the Reserve Bank had reduced the repo rate by 25 basis point. However, it maintained interest rate stance in its sixth bi-monthly monetary policy statement of Feb 3. The RBI that time said it was awaiting more data on inflation and signals from the national budget.

Cabinet paves way for expanding Swacch Bharat Kosh
The union cabinet on March 4 cleared some enabling provisions to encourage participation of individuals and companies in the Swachh Bharat Kosh (SBK), sources said. They said the cabinet had cleared the provisions to enable people living in India and abroad and companies give funds to SBK. The SBK was set up in response to Prime Minister Narendra Modi's August 15 speech to achieve the objective of Clean India (Swachh Bharat) by the year 2019, the 150th year of the birth anniversary of Mahatma Gandhi through the Swachh Bharat Mission. The sources said the funds will be largely used for construction of toilets and contributions can be made to the fund under the corporate social responsibility provisions. The sources said contributions will get tax exemption.

India's forex reserves up $3.88 bn
India's foreign exchange reserves increased by $3.88 billion to $338.07 billion for the week ended February 27, Reserve Bank of India (RBI) data showed. The reserves had increased by $1.02 billion to $334.19 billion in the previous week (Feb 20). According to the RBI's weekly statistical supplement, foreign currency assets, the biggest component of the forex reserves, rose $3.90 billion at $312.20 billion in the week under review. The foreign currency assets had risen by $1.04 billion at $308.29 billion in the previous week (Feb 20). The RBI said the foreign currency assets, expressed in US dollar terms, include the effect of appreciation or depreciation of non-US currencies such as the pound sterling, euro and yen held in reserve. However, India's reserve position with the International Monetary Fund (IMF) in the week ended Feb 27 decreased by $4.6 million and stood at $1.63 billion. The value of special drawing rights (SDRs) was lower by $11.4 million in the week under review at $4.06 billion. Gold reserves for the week ended Feb 27 was static at $20.18 billion. The reserves had increased by $805.3 million at $20.18 billion in the week ended Feb 6.

Govt sets 2-6 percent inflation target, RBI gets free hand to fix repo
The finance ministry and the Reserve Bank of India (RBI) have agreed on sweeping changes in deciding interest rates with the central bank governor being handed out the exclusive mandate to decide on the issue to meet the government-fixed inflation targets. To begin with, an agreement between the RBI and the ministry has pegged the inflation target at under 6 percent by January 2016, with the goal for 201617 onwards set at 4 percent. Inflation has to stay within the 2-6 percent band from 2016-17 and any deviation for three consecutive quarters will have to be explained by the RBI as it would be treated as a “failure“ by the central bank to target inflation. In case of a failure, RBI will have to specify the reasons, suggest remedial actions and estimate the time period within which the target will be achieved once the corrective steps are implemented. RBI has joined the group of central banks like the US Federal Reserve and European Central Bank, which have inflation targeting as their main objective. However, at the insistence of the Finance Ministry, the agreement also said the objective “is to primarily maintain price stability, while keeping in mind the objective of growth“. Although RBI governor Raghuram Rajan had proposed that Parliament should mandate an inflation target, former governor Y V Reddy was staunchly against the central bank having inflation targeting as a single objective. His argument was that the two main components of inflation -fuel and food -were driven more by supply-side factors.Fuel costs depend on international prices and food prices are often linked to vagaries of the monsoon. Finance secretary Rajiv Mehrishi, who has signed the agreement with Rajan, however, clarified that factors such as drought or floods, which have a bearing on prices, will be factored in. The agreement targets inflation (RBI now uses retail inflation as the barometer) and gives the central bank a free hand in determining the policy rate -which according to the agreement is the repo rate. Finance minister Arun Jaitley said the RBI Act will be amended later this year to set up a monetary policy committee (MPC), which will decide on rates. Encouragingly , the government has given the RBI the flexibility to choose the operating target and procedure to meet the CPI (consumer price inflation) targets, so we would expect most of the Urjit Patel committee recommendations to be met,“ said Sonal Varma, economist with Nomura.

US to explore investment opportunities in Telangana, Andhra
A US diplomat said here on March 6 he will visit various districts of Telangana and Andhra Pradesh to interact with the industrialists for promotion of trade between America and the two states. Consul General Michael Mullins on March 6 told a delegation of Federation of Telangana and Andhra Pradesh Chambers of Commerce and Industry (FTAPCCI) that they are trying to understand the trade and investment opportunities He lauded the initiatives taken by Telangana on brand building and Andhra Pradesh on smart city, said a statement by FTAPCCI. The consul general invited FTAPCCI to SelectUSA Investment Summit happening on March 23-24 in Washington, which brings together investors from all over the world. He said the governments of both the countries and the private sector need to collaborate on trade and commercial issues of mutual interest with a view to facilitate trade and investment opportunities across various sectors. "Today, the India-U.S. bilateral cooperation is broad-based and multi-sectoral, covering trade and investment, defence and security, education, science and technology, cyber security, high-technology, civil nuclear energy, space technology and applications, clean energy, environment, agriculture and health," he said. Mullins informed that presently the trade with India is $100 billion and there is a potential that it can grow $500 billion by 2020. The delegation led by FTAPCCI president Shiv Kumar Rungta briefed the consul general about the activities. Rungta said FTAPCCI will be opening its branches in Vijayawada, Visakhapatnam and Rayalaseema shortly.

Task forces set up to make three cities smart
Union Urban Development Minister M. Venkaiah Naidu has set up three task forces to develop Ajmer in Rajasthan, Allahabad in Uttar Pradesh and Visakhapatnam in Andhra Pradesh as smart cities in collaboration with the US. "The task forces will have representatives from the urban development ministry, external affairs ministry, respective sate governments and cities and the US Trade Development Agency (USTDA)," the ministry said in a statement on March 4. The three committees were set up following a meeting between Naidu and US Commerce Secretary Penny Pritzker and an agreement with the state governments here on January 25. The US had offered to assist in the development of the three cities as smart during Prime Minister Narendra Modi's September visit to America and his dialogue with its President Barack Obama in Washington.

46 infrastructure projects in 33 cities underway: Venkaiah Naidu
To augment urban infrastructure in 33 cities across India, 46 projects were at various stages of implementation under the public-private partnership, Union Urban Development Minister M. Venkaiah Naidu said on March 4. Replying to a question from Nimmala Kistappa in the Lok Sabha, Naidu said the total cost of the projects underway was Rs.25,902.84 crore. "Of the various projects, 19 are related to mass rapid transport systems, 25 to solid waste management, water supply, parking lots, roads, fly-overs and road over bridges," Naidu said during the question hour, adding that 24 of them with an investment of Rs.1,659.32 crore were completed. As many as 16 urban projects pertaining to townships and housing attracted a cumulative foreign direct investment of $6,405 million (Rs.34,255 crore) since fiscal 2011-12.

CCEA approves Rs12,646 crore for six highway projects
The cabinet committee on economic affairs (CCEA) on March 5 approved six highway projects totalling 712km with an investment of Rs.12,646 crore. These projects, to be awarded under the engineering, procurement and construction (EPC) model, are divided into 10 packages under the national highways development project in states such as Uttar Pradesh, Madhya Pradesh, Odisha, Himachal Pradesh and West Bengal, the government said in a statement. Under the EPC model, the government pays a contractor to build a project awarded through competitive bidding. This comes in the backdrop of the National Democratic Alliance government trying to revive private investment in the roads sector. The entry of private sector firms is key to the government realizing its target for constructing roads. It is estimated that the government requires nearly Rs.2 trillion to fund 20,000km of road construction under the national highways development project over the next four to five years. In another decision, the CCEA extended the subsidy on domestic cooking gas, kerosene distributed through the public distribution system (PDS) and freight for their transport to far-flung areas. While petrol and diesel prices have been deregulated, prices of domestic cooking gas and kerosene are set by the government. In sync with the government’s strategy of trimming subsidies by using technology and direct cash transfers to plug leakages, finance minister Arun Jaitley on slashed the petroleum subsidy by half. The petroleum subsidy is estimated at Rs.30,000 crore for 2015-16, a cut of 50.22 percent from the revised estimate of Rs.60,270.00 crore for 2014-15. The Union Budget earmarked Rs.22,000 crore for the subsidy on domestic cooking gas and Rs.8,000 crore for kerosene. “The government was providing a subsidy of Rs.22.58 per 14.2kg LPG (liquefied petroleum gas) cylinder and Rs.0.82 per litre on PDS kerosene and Domestic LPG Subsidy Scheme, 2002. Besides, freight subsidy was also being provided to PDS kerosene and domestic LPG consumers in far-flung areas under the Freight Subsidy (for far-flung areas) Scheme, 2002. These two schemes ended on 31st March 2014,” the government statement added. The total cost of selling fuel below cost to be borne by oil marketing firms next fiscal year is estimated at Rs.42,500 crore. “Subsidies are needed for the poor and those less well-off. What we need is a well targeted system of subsidy delivery. We need to cut subsidy leakages, not subsidies themselves. We are committed to the process of rationalizing subsidies based on this approach,” Jaitley had said in his budget speech on Saturday.

Defence sector to be opened soon for lobbyists, agents
For greater transparency in defence deals, the government will soon open up the sector for lobbyists/agents, with the rider that companies will be heavily penalised if they violate stringent conditions, including disclosure of consultancy fee paid to their agents. Inter-ministerial consultations are on to finalise a revamped defence procurement policy by April, and the norms on defence lobbyists/agents /middlemen are expected to be part of this policy, official sources told FE. However, the government has decided that blacklisting of firms will be reserved only for the rarest of rare cases. This was because the UPA government had blacklisted as many as 12 firms, severely restricting the options of defence forces to source equipment and spare parts. Currently, many defence companies covertly use agents to strike deals, but they wash their hands off the agents’ activities in case of wrongdoing. According to defence ministry sources, the new norms will make it mandatory for companies to disclose the names of agents and the agency fees paid every year till the end of the contract. The norms will also specify that the nature of the relationship between the company and its agent will have to be included in the contract signed with the government. This is to ensure that companies can be held responsible for the acts of agents including bribery and other illegal acts. Firms failing to make such disclosures will have to pay a huge penalty in addition to the contract amount. Such companies and their officials would also face criminal charges. “The agent’s fee or consultancy will have to be declared in advance. Also, companies must inform the defence ministry within 15 days if they hire an agent or change consultants midway into negotiations,” said an official. “What is expected to be finalised at the meeting is a graded system of penalty depending on the enormity of the violation. The idea is to make violations prohibitively expensive so that there is no inducement to violate the conditions,” he added. The proposed changes in policy follow the new found pragmatism in the government as the action taken against companies by the previous government severely hit defence preparedness. Citing an example — of “blacklisted” Tatra Sipox, the company that supplies specialised vehicles on which nuclear and other missiles are mounted and carried — about 10 percent vehicles had to be grounded because of lack of spares, as investigations dragged on. Defence minister Manohar Parikkar finally allowed the forces to negotiate with another independent Tatra-Sipox entity that was not involved in the alleged wrongdoing.

HRD ministry increases fellowship grants by 55 percent
The government on March 3 increased fellowship grants to researchers at science and technology institutes by up to 55 percent, a move that will incur an additional expenditure of Rs.1,300 crore a year. With this, the centre has not only increased the monthly grants to researchers but also has done away with differential grant slabs. For example, all junior research fellows will get Rs.25,000 per month, up from Rs.16,000 per month in their first two years and Rs.18,000 in the next three years. Similarly, senior research fellows will get Rs.28,000 instead of Rs.18,000 in the first two years and Rs.20,000 in the next two years, according to a ministry circular, a copy of which has been reviewed by Mint. At the Masters in Technology (M.Tech) and Masters in Engineering (ME) level, the research grants have been increased to Rs.12,400 from Rs.8,000 earlier. An official with the human resources development (HRD) ministry said this will improve the research environment in India and encourage students to pursue a career in research instead of taking up jobs directly after bachelor’s degrees. It will benefit more than 75,000 researchers per year, the HRD ministry estimates. The ministry had earlier planned to implement the decision from February, but protests by research scholars in several cities pushed it to make it effective from October 2014 for PhD students and December 2014 for students pursuing M.Tech. The department of science and technology had effected a similar raise in grants in October last year but the ministry was undecided then. Anindita Brahma, academic secretary at IISc, said that parity in research grants is necessary to create a “healthy lab environment”. If a researcher under the science ministry gets a certain monthly grant and another researcher under HRD ministry gets less, it hampers the productivity and quality of research and “creates unnecessary divisions among fellows”, said Brahma. Pankaj Jain, a PhD student at IISc, said researchers welcome the ministry’s decision. Although the ministry has hiked the research grants, the onus is now on the institute to bear the extra expenditure from their own kitty, at least in 2014-15. “The additional cost, on account of this revision may be met by the individual institutes from their existing budgetary grants without any additionality in the current financial year, 2014-15,” its circular said. “During the next financial year 2015-16, the expenditure will be met, as first charge out of the sanctioned allocations to the institutions by the department of higher education." The ministry said this decision has been taken with approval from the department of expenditure of the finance ministry. The ministry communicated its decision to centrally funded institutions such as the Indian Institutes of Technology (IITs), the National Institutes of Technology (NITs), the Indian Institute of Science (IISc), Bangalore, the Indian Institute of Mines, Dhanbad, and others.

DISCLAIMER
This newsletter is compilation of news articles from various business-e-newspapers and in no way is an endorsement or reflection of Embassy of India, Berne views.