Economica and energy

Time for opening up of New Banks extended by Six Months

The RBI (Reserve Bank of India) on 3 June 2013 released certain clarifications on the guidelines issued for licensing of new banks. Based on the feedback received from the interested entities, the RBI increased the validity period of the in-principle approval of setting up of banks from one year to 18 months. RBI stated that intending applicants have brought out several complex issues pertaining to reorganization of the existing corporate structure, restructuring of businesses and meeting the regulatory requirements. Once the in-principle approval is given by the RBI for setting up of a bank, the promoter group has to set up a non-operative financial holding company (NOFHC) and the bank within 18 months from the date of in-principle approval. The bank has to start banking business within this period after getting the banking licence. The RBI had released the Guidelines for Licensing of New Banks in the Private Sector in February 2013. Accordingly, the RBI had stated that corporates and public sector entities with sound credentials, 500 crore rupees capital and a minimum track record of 10 years would be allowed to enter the banking business. The last date to submit applications is the 1 July 2013. The RBI had also invited queries from intending applicants seeking clarifications on guidelines.

Mechanism for Coal Supply to Power Producers approved

The Cabinet Committee on Economic Affairs (CCEA) on 21 June 2013 approved the following mechanism for supply of coal to power producers:

·         Coal India Ltd. (CIL) to sign Fuel Supply Agreements (FSA) for a total capacity of 78000 MW including cases of tapering linkage, which are likely to be commissioned by 31 March 2015. Actual coal supplies would however commence when long term Power Purchase Agreements (PPAs) are tied up.

·         Taking into account the overall domestic availability and actual requirements, FSAs to be signed for domestic coal quantity of 65 percent, 65 percent, 67 percent and 75 percent of Annual Contracted Quantity (ACQ) for the remaining four years of the 12th Five Year Plan.

·         To meet its balance FSA obligations, CIL may import coal and supply the same to the willing Thermal Power Plants (TPPs) on cost plus basis. TPPs may also import coal themselves. MoC to issue suitable instructions.

·         Higher cost of imported coal to be considered for pass through as per modalities suggested by CERC. MoC to issue suitable orders supplementing the New Coal Distribution Policy (NCDP). MoP to issue appropriate advisory to CERC/SERCs including modifications if any in the bidding guidelines to enable the appropriate Commissions to decide the pass through of higher cost of imported coal on case to case basis.

·         Mechanism will be explored to supply coal subject to its availability to the TPPs with 4660 MW capacity and other similar cases which are not having any coal linkage but are likely to be commissioned by 31 March 2015, having long term PPAs and a high Bank exposure and without affecting the above decisions.

Background
A proposal had earlier been moved for approval of CCEA for import of coal by CIL in order to meet the shortfall in the domestic coal requirement of the thermal power plants (TPPs) from time to time. In the meeting held on 5 February 2013, the CCEA had laid down certain guidelines for import of coal on cost plus basis/pooling of prices and also directed formation of an Inter-Ministerial Committee (IMC) to consider the cases of power plants with aggregate capacity of about 16000 MW which would be commissioned by 31 March 2015 but are not having any linkage for supply of coal. On the basis of the recommendations of IMC, the matter was further considered by CCEA in the meeting held on 22 April 2013. The CCEA inter-alia directed to consider the feasibility of higher cost of imported coal being allowed as a pass through in case of PPAs signed on competitive bid basis. The revised proposals submitted by Ministry of Coal (MoC) in pursuance of the above directions and in consultation with Ministry of Power and other Ministries were considered by the CCEA.

Foreign Investment Limit hiked by 5 Billion Dollar in Government Securities

The Union Government of India on 12 June 2013 enhanced the limit ofForeign Investments in Government Securities by 5 Billion US Dollar. This decision of the Government is an effort to increase the overseas capital inflows and strengthen the value of rupee. The enhancement has raised the total limit of investments from foreign entities to 30 billion US dollar from previous 25 billion US dollar. The notification released by the Union Government mentioned that the Foreign Institutional Investors registered to SEBI are only eligible for investment in the enhanced limit of 5 billion US Dollars. The investments can be made in categories named Sovereign Wealth Funds, Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks.

Five-Fold Increase in Power Generation in India

India witnessed a five-fold increase in the additional power generation capacity during the last nine years as per the official data released by the union government on 2 June 2013. It has gone up from over 3900 MW in 2004-05 to 20660 MW in 2012-13.
Over 9 lakh million units of power was generated in 2012-13 as against 5.8 lakh Million Units in 2004-05. The total installed capacity of electricity generation was more than two lakh 23 thousand MW as on 31 March 2013 while the demand was one lakh 35 thousand MW. Power sector has grown positively over the 11th plan period registering a growth rate of nearly 4 per cent in 2012-13.

Rice Support Price raised by 4.8 Percent

Union Government on 27 June 2013 raised the base price it will pay farmers for common rice to 1310 rupees per 100 kilograms from 1250 rupees as compared to year 2012. The government has set a minimum support price (MSP) for key crops to give farmers an incentive to produce supplies needed for welfare programmes that give cheap food to half a billion poor. The MSP help protecting the farmers from excessive price falls. India is one of the world’s major producers and consumers of grains. It has built up massive stocks of rice and wheat because of abundant harvests encouraged by these assured prices. The government is already making a plan to expand its food subsidy programmes which will need some extra supplies, but the country is still able to export both wheat and rice and sell at preferential prices to domestic bulk buyers.

Cap for Online Repatriation of Export Proceeds hiked

Reserve Bank of India (RBI) on 11 June 2013 raised the limit for online repatriation of export proceeds by over three-folds to 10000 US dollars. RBI also made it mandatory to repatriate full value of exports within 12 months for units in Special Economic Zones (SEZs). The decision from RBI came up with an aim of arresting the rupees slide by boosting Forex inflows. At present the rupee has touched its life time low of 58.98 against the US dollar and in last two days it has gone down by 3.5 percent against dollar. Since April 2013, it has gone down by 8 percent. At present, banks can offer the facility to repatriate export related remittances via online payment gateway for export of goods and services up to 3000 US dollar per transaction. In case of SEZs also earlier there existed no time limit for realization of exports. The new instructions from RBI came into force with immediate effect.

SEBI made Registration Compulsory for Investment Advisors

Securities and Exchange Board of India (SEBI) on 29 May 2013 in its notification made it compulsory for investment advisors to first obtain a certificate of registration for the same. SEBI ruled that in terms of Investment Adviser Regulations, no person shall act as an investment adviser unless he has obtained a certificate of registration from the Board or he is specifically exempt.
In a move to curb the risks related to advisory services, the regulator said the investment adviser cannot enter into transactions on its own account contrary to the advice given to clients for at least 15 days from the day of such advice. SEBI further instructed that advisors must disclose the fee they get for advice on a particular product, their holdings in products on which they are advising, the risks involved and any conflict of interest arising out of their association with issuers of the financial products.
The market regulator stated that the applicant seeking to act as an investment adviser should make an application to SEBI in a prescribed format along with the necessary supporting documents. A time period of one year has been given for existing investment advisers to comply with necessary capital adequacy requirements.

Duty Drawback Rate on Gold Ornaments hiked

Government of India on 21 June 2013 increased the duty drawback rate of gold ornaments by 73 rupees to 173.7 rupees per gram. The decision to increase the drawback rate was taken with an aim to increase jewellery exports.
Duty drawback is the refund of duties on imported inputs for export items.
Central Board of Excise and Customs released a notification in this respect in New Delhi. The notification claimed that the drawback or tax-refund rate for articles of jewellery and parts thereof made of gold is 173.70 per gram of net gold content (.995 or more purity) in the jewellery. Earlier, the drawback rate on gold jewellery was 100.70 rupees per gram.
The drawback rate has been increased by the government at the time when access in imports of gold has shown an adverse impact on the Current Account Deficit (CAD) of the country.
CAD is likely to be at a high level of around 5 percent of the Gross Domestic Product (GDP). Earlier, to curb the imports and manage CAD, the Government raised the import duty on Gold to 8 percent from previous six percent. Apart from this, restriction on import of gold was sanctioned on banks by Reserve Bank of India (RBI).

Central Board of Excise and Customs

Central Board of Excise and Customs (CBEC) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It deals with the tasks of formulation of policy concerning levy and collection of Customs & Central Excise duties and Service Tax, prevention of smuggling and administration of matters relating to Customs, Central Excise, Service Tax and Narcotics to the extent under CBEC’s purview. The Board is the administrative authority for its subordinate organizations, including Custom Houses, Central Excise and Service Tax Commissionerates and the Central Revenues Control Laboratory.

51 new low-cost Airports to be set-up

The Union Government of India on 28 June 2013 decided to set up 51 new low-cost airports in Tier-II and Tier-III cities of the nation. The decision was taken with an aim to the give a boost to civil aviation sector and increase air connectivity to Tier-II and Tier-III cities.
Airport Authority of India (AAI) will be responsible for setting-up the airports in 51 different cities across different states like Andhra Pradesh, Bihar, Jharkhand, Punjab, Uttar Pradesh, Arunachal Pradesh, Assam, Madhya Pradesh, Rajasthan and Maharashtra.
The Union Government also made a decision to grant international airport status to the airports of Imphal and Bhubaneswar at a cost of 20000 crore rupees.
The decisions were taken at a meeting that was headed by the Prime Minister to finalise infrastructure projects for 2013-14. During the same meet, the Union Government also decided to award construction of eight Greenfield Airports in 2013 under public-private-participation (PPP) mode that includes Navi Mumbai, Juhu in Mumbai, Goa, Kannur, Rajguru Nagar Chakan at Pune, Sriperumbudur, Bellary and Raigarh. To encourage investors, the Union Government declared an investment target of 1.15 lakh crore rupees under the PPP project in different sectors of infrastructure like civil aviation, rail, port and power in the next six months.