Way paved for foreign equity push for India’s railways, defence
India on August 6 took a major step forward in big-ticket reforms, allowing varying levels of enhanced foreign equity in the crucial defence hardware industry and railroad infrastructure, keeping with the promise made in last month’s national and rail budgets. According to officials, the decision was taken on August 6 at a crucial meeting of the cabinet, presided over by Prime Minister Narendra Modi, who has himself promised “Bullet Trains” in India and a best-in-the-world infrastructure, inclusive of railways, that will help a person travel between any two parts of the country within 24 hours. The foreign investment cap in the defence sector, that has an allocation of $38 billion for this fiscal, has been hiked to 49 percent from the present 26 percent, in a move that can potentially help India curb its import bill on military hardware, 70-75 percent of which is sourced from overseas. In the crucial railways sector, for which the Modi government has estimated the investment required at a whopping $38 billion in 10 years, 100 percent foreign equity has been allowed in areas such as high-speed train systems, suburban railroad network and dedicated freight projects to be implemented in public-private partnership mode. “India today is the largest buyer of defence equipment in the world. Our domestic manufacturing capabilities are still at a nascent stage,” Finance Minister Arun Jaitley had said in his budget speech July 10, calling for corrective measures. “We are buying a substantial part of our defence requirements directly from foreign players. Companies controlled by foreign governments and foreign private parties are supplying our defence requirements to us at a considerable outflow of foreign exchange,” Jaitley, who also holds the defence portfolio, said. “Currently we permit 26 percent foreign direct investment in defence manufacturing. The composite cap of foreign exchange is being raised to 49 percent with full Indian management and control through the Foreign Investment Promotion Board (FIPB) route.” Jaitley’s colleague, Railway Minister Sadananda Gowda, had made a similar pitch for the railroad network two days before him, while presenting his maiden rail budget. “Growth of railway sector depends heavily on availability of funds for investment in rail infrastructure. Internal revenue sources and government funding are insufficient to meet the requirement. Hence, Ministry of Railways is seeking cabinet approval to allow foreign direct investment in rail sector,” Gowda said. “There has also been a lot of talk about public private partnership for raising resources. Railways being a capital intensive sector have not been successful so far in raising substantial resource through public-private partnership route. It is my endeavour to pursue this in right earnestness. It is our target that bulk of our future projects will be financed through this mode, including the high-speed rail which requires huge investments.” Ranked among the world’s top five, the Indian railroad network ferries 23 million people and 2.65 million tonnes of goods daily, or 1.1 billion tonnes annually, from 7,172 stations on 12,617 passenger and 7,421 freight trains over more than 64,000 route km. With a network stretching from Baramulla in Jammu and Kashmir in the foothills of the Himalayas to the southern tip of Kanyakumari in Tamil Nadu, the Indian Railways is also among the largest employers with an estimated 1.4 million people on its rolls. Despite this, the country is still underserved by the railways given the demand on one side and the huge investments required to satisfy the same.
Railways readying for action on FDI
With the Union government clearing the way for foreign direct investment (FDI) in the railways, the Railway Board is devising a plan for operations, maintenance and construction projects. The ministry is in the process of readying a strategy to suit the diverse range of projects, and the minimum requirement for private entities, according to a senior official. The draft of a sector-specific policy is ready. It is expected to have some stringent conditions for Chinese companies. They might not be allowed in projects involving border and sensitive areas, officials from the department of industrial policy and promotion told Business Standard. This was needed for getting the home ministry to agree.
The biggest change is in the ministry’s approach. It is now ready for flexibility in contractual conditions. The railways will informally consult the private sector and finalise the model concession agreements, said the official. “We want to get maximum private investment, whether foreign or domestic, into rail projects. This time, the ministry is keen to listen to the private sector about what kind of projects interest them,” said a senior official, on condition of anonymity. The idea is to make the process more dynamic, though private companies are sceptical about Indian Railways’ ability to do away with its ingrained non-entrepreneurial approach. For rail connectivity projects, the 2012 policy notified by the ministry with various models such as annuity-based and build-operate-transfer will continue to serve as the guiding principle to frame model concession agreements, with clear concession periods and revenue sharing agreements, say officials. The government has so far had public-private partnership (PPP) projects implemented by creation of a Special Purpose Vehicle or by creating a special purpose company for gauge conversion and last-mile port connectivity. As for private entry into operations, a senior Board official said: “It is too early to comment on how we will execute it but private players will be very interested if operations in last-mile connectivity in port projects are handed over.” The time taken for loading and inconsistencies in timetables, lack of modern signalling and other delays are everyday problems, stemming from the unprofessional attitude of railways, said a private player, also an operator with Container Corporation of India. Others say high haulage charges, no control over operations and non-committal attitude to timely delivery are further deterrents. The recent Comptroller and Auditor-General report on six PPP projects from 2000 to 2012 said these were marred by arbitrary concession periods, weak project monitoring and lack of a model concession agreement. These led to an additional financial burden was Rs 128 crore. A further Rs 218 crore was lost due to delay in project implementation.
FIPB clears 14 FDI proposals worth Rs 1,528 cr
The FIPB has approved foreign direct investment (FDI) proposals worth Rs 1,528.38 crore from 14 firms, including ACME Solar Energy and Sinclairs Hotels. The proposals were considered by the Foreign Investment Promotion Board at its meeting held on July 4. It rejected the FDI proposals of six companies and deferred decision on seven others, said an official statement. Of the proposals approved, pharma company Laurus Labs will invest R600 crore; ACME R275; Sinclairs Hotels R41.52 crore and Golden Agri Resources (India) R485.9 crore. The proposals of Agilent Technologies, Christine ComarmondMargotin, HLG Enterprises, Gstaad Hotels and three others have been rejected. In the case of Ventura (India) Pvt, government has asked it to re-approach FIPB with necessary court order. Ventura sought approval for issuance of shares to a foreign IT company for acquiring its branch office in India pursuant to a court approved scheme of demerger. Broadcasting firm INX Music Pvt has withdrew its proposal of undertaking additional activity of broadcasting of a non news and current affairs channel. There were three proposals that did not require FIPB approval — Kemin Industries South Asia Pvt, Gavis Pharma, US and Ferrero India Pvt.
India eyes $40-bn pipeline from Russia to import gas
In a move aimed at ensuring India’s energy security, the Narendra Modi-led government plans to import huge volumes of natural gas from Russia. The Centre is working out the contours of a $40-billion (Rs 2.4 lakh-crore) mega onland pipeline project carrying gas from Russia to India, in one of India’s biggest energy projects till date. Top government officials told HT that the move follows Prime Minister Narendra Modi’s recent meeting with Russian President Vladimir Putin in Brazil on the sidelines of the Brics summit. The Prime Minister’s Office (PMO) along with the ministry of petroleum and natural gas are preparing a blueprint to examine the feasibility of this new project, they added. An announcement on this initiative is expected to be made in December when the two leaders meet at the India-Russia annual summit to be held in New Delhi. China has already finalised a similar gas pipeline deal with Moscow for importing gas. New Delhi, sources said, also plans to import crude oil from Moscow and the logistics for the same are being worked out. “Russia so far has directed majority of its oil and gas supplies to the West… however, the scenario may be quiet different in the coming years especially in the wake of its gas pipeline to China and the one now proposed till India,” a senior oil ministry official said. Two routes are being considered for the gas pipeline project. One is from Russia’s southern border to India via the Himalayas and the second from Russia - Astrakhan - Khazakstan — Uzbekistan and then along the Turkmenistan- Afghanistan-Pakistan route to India (TAPI gas pipeline). The proposed project from Russia to India is almost four times the cost of the $10-billion (or Rs. 60,000-crore) Iran- Pakistan-India (IPI) gas pipeline project, also called the peace pipeline, which has failed to take off due to security concerns over the pipeline traversing through Pakistan and has been on the drawing board for the past many years. “This government (under Modi) is taking all steps that will lead to a reduction in India’s oil import bill... apart from this proposed pipeline, reviving and pushing the other two projects — IPI and TAPI are also being looked into at the highest level,” he added. The cost of the other onland gas pipeline project from Turkmenistan to India via Afghanistan and Pakistan (or the TAPI) project is also close to $8-10 billion. GAIL India Ltd will be associated with this project along with a consortium of other state-owned oil and gas companies including Oil and Natural Gas Corp (ONGC), Oil India Ltd and Indian Oil, the official said.
Textile policy to focus on new export markets
With an aim to grab one-fifth of the global textile business and increase exports to $300 billion in the next decade, the Government proposes to rejig labour laws, make special efforts to attract foreign investment and enter new markets with high export potential, such as Japan, China, Brazil and Russia. The proposals are part of the vision strategy framed by the expert committee on textiles, and will be used as inputs for the National Textile Policy. “The draft of the National Textile Policy will be placed before the Cabinet for approval after weaving in relevant comments from other Ministries and interest groups,” a Government official said. Labour laws for the high employment generating sector will also be re-visited to make them both investor and labour friendly. The textiles sector is the second largest employment generating sector in the country after agriculture, providing direct employment to about 35 million people. “There are a large number of workers in the unorganised sector who do not get benefits such as relief in case there are accidents. We are also discussing labour law flexibility with the Labour Ministry, but cannot elaborate on it now,” Textiles Minister Santosh Gangwar told Business Line. The textile sector has been demanding less restrictive rules on working ‘over-time’, relaxed norms for application of the Industrial Disputes Act, and permission for export-oriented units to employ workers on contract without any restrictions. The strategy paper also proposes making special efforts to attract Foreign Direct Investment (FDI) into the sector with special attention to high priority sub-segments of fabrics, processing, garments, technical textile and textile machinery manufacturing. “Individual countries and firms should be targeted for attracting FDI. Tailormade SEZs and textile parks may be created with requisite facilities to suit requirements of international investors,” it said. Market diversification is a primary area where the Ministry intends to focus. With the EU and US constituting 50 per cent of the total textile and apparel exports from India in 2012, the expert committee said that a higher share in global trade (currently, it is at 5 per cent) can be attained only if Indian exporters also start looking beyond traditional products and markets. “Specific strategies for achieving significant market penetration with a market share and product-mix target need to be evolved for individual countries such as Japan, China, Brazil, Russia,” it said. “We intend to keep exporting to the EU and the US, as these are our key markets. But, we shouldn’t be putting all our eggs in one basket as we will suffer more when those economies get hit. That is why there is a pressing need to diversify,” a Government official said.
In boost to infra sector, RBI eases lending norms
In a significant easing of guidelines for refinancing project loans, where the reworked loan will not be considered a restructured asset, the Reserve Bank of India (RBI) has dropped the threshold for partial take-out financing by new lenders to a minimum of 25% of the outstanding loan from 50% now. The 50% limit was proving to be a hurdle for new lenders to enter a consortium as most of the larger banks
were already members. The central bank has also tried to ensure promoters have enough skin in the game by saying they must bring in additional equity, if needed, to pare the debt and make the debt equity ratio and debt service coverage ratio acceptable to the banks. Also, the RBI now has no objection to the loan having been restructured in the past as long as it is a standard asset on the books of existing lenders at the time of refinancing. Vikram Limaye, managing director and CEO, IDFC, observed that the new rules clarified the issue that banks were facing of genuine refinancing being classified as restructured loans. “The new guidelines will facilitate refinancing,” Limaye told FE. Recasts will not be treated as restructured assets, either on the books of existing or the ne w lenders provided the aggregate exposure of all lenders to the project is over Rs 1,000 crore. However, the restructuring facility will be available only once for a project. MS Raghavan, CMD, IDBI Bank, said the new rules would also make it easier for firms to service the debt. K Subrahmanyam, executive director, Union Bank, said the fresh norms would enable a host of banks to add exposure to the infra space. The central bank said the project should have started commercial operations after achieving the date of commencement of commercial operations and the repayment period should be fixed by taking into account the life cycle of and cash flows from the project, and boards of the existing and new banks should be satisfied with the viability of the project. “The total repayment period should not exceed 85% of the initial economic life of the project/concession period in the case of public-private partnership projects,” the RBI added.
Ministry signs flexi-MoUs for skilling labour
The Labour Ministry, which has invited partnership proposals from India Inc to help meet the Government’s push for skilling youth, on August 8 signed four flexi-MoUs with Tata Sons, Flipkart, Raymonds and the Gujarat Industrial Power Company Ltd (GIPCL). “Industry can help us in assessing apprentices, identifying gaps in training, especially with regard to last-mile employability,” Labour Secretary Gauri Kumar said at the event, organised by Confederation of Indian Industry (CII). In a statement, CII said flexi-MoUs were ‘first of its kind’ and would give companies the flexibility to design training programmes at Industrial Training Institutes tailored to their specific needs. Under the MoUs, online market leader Flipkart, which is working on a mission ‘Flipkart Karigaar Ke Dwaar’, will benefit artisans and small and micro enterprises in building their capabilities and improving their competitiveness, while Tata Sons will provide ‘thought leadership’. Raymond will conduct training programmes on customised garment manufacturing in formal men’s wear, such as shirt-making, trouser-making, jacket-making and so on. GIPCL has adopted two ITIs in tribal-dominated areas of Gujarat where it will provide two courses — instrument mechanic (power plant) and electrician (power plant). Chandrajit Banerjee, Director General, CII, said human capital was the force behind economic growth and the industry “will make India the talent capital of the world.”
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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.
