Navigating the Covid – 19

Covid 19 came as a total surprise and shock to all parts of the world. This is the first time in modern history all the countries in the world and all sectors are affected in a big way. To overcome this crisis the focus areas of governments will be , Health Policy, Fiscal Policy, Monetary Policy and Financial Policy . They have to adopt policies, both conventional and unconventional and they need to do whatever is required to manage the crisis. Since there are no proven solutions, bold policies have to be implemented without loss of much time.

Considering the severity of the situation, Governments across the world  were very fast in their response and have brought out several measures to support the Industry , especially the corporate sector. US ( $ 2 trn), Germany ( $ 1.3 trn) , Japan ( $ 990 bn) and Europe allocated  large resources of an unprecedented magnitude ,to address this situation and  brought out many measures addressing the need of  various segments of the society,corporates and Individuals. The focus is on lives and livelihoods.  US  has passed an act, called cares Act, focussed on addressing the crisis. IMF has created $ 50 bn aid facility with $ 10 bn for rapid disbursal and it will increase this corpus to $ 100 bn. IMF will use its full resources at $ 1 trn at its disposal to do whatever is required. World Bank also will harness $ 200 bn to address this crisis.

IMF has in its World Economic outlook, mentioned that 170 countries in the world will have a negative per capita GDP growth this year. The global economic growth will be negative 3% in the best case scenario, 6% lower than last year and negative 9 to 10% in the worst case scenario. Estimated decline in GDP in the worst case will be $ 9 trilion.

The projection for  India is a positive 1.9%  India, the highest for a large economy in the world. Considering the present trends, India will certainly have a negative growth in the first quarter and similar trend in the second quarter. If the shut down continues beyond May, this fiscal, India is likely to have a negative growth.  

At present , many industries have seen a fall in demand of more than 90%  and many others have seen demand less than 50% in the normal circumstances. Assuming that the crisis will be overcome within two months in India, Many sectors in India will witness a fall in revenue of more than 20% reduction in demand in the best case scenario and 35% reduction in demand in worst case scenario. Assuming that the government will come out with a big stimulus, we can consider a demand reduction of 10%.

In a normal circumstance, fall in demand in one country could be managed by meeting the demand in other countries through exports. But, in this situation there is a synchronised slow down in demand across the world. This is a very big challenge to increase exports. Further , there is an increased movement to manufacture locally by many countries in the world. The companies to cover their costs, will be forced to increase their price.

Realising the need for immediate response, Indian government also acted  very fast with immediate response to manage this pandemic. In the first round Rs.1.7 trillion was announced  and in the second tranche Rs.1 trillion was announced to improve the liquidity in the economy and alleviate the troubles faced by various segments of the society.

1. India has managed the crisis well and the world is surprised how we were able to navigate this crisis very well. India, Australia and Canada were taken as models for managing the crisis effectively. India’s pharma sector came to the rescure of supplying medicines to the world to alleviate this crisis.
   
   In an unprecedented crisis like this, the  Government has a major role to play in reviving the economy. The crisis management measures / stimulus measures,  can be considered in terms of ,1) where no investment is required ( relaxing regulations, Giving government guarantees ,waiving of tax dues to government and measures which will not require government to spend money), 2) with little investments ( within the budget available for a sector ) 3) with large investments ( like the ones announced so far ) . At present, the capacity of the private sector and Financial sector of India are limited to address this crisis and come out unscatched.
   
   In the new measures to be adopted by the government ,  the following options could be looked at .
   
   1) Apart from making investments in PSUs, they can create a new SPV ,which will raise Corona Bonds, which will be subscribed by RBI, LIC and PSU Banks with high liquidity ( like SBI). This money could be utilised to invest in the additional equity of  large Private sector companies and Banks, which require Capital. When the economy improves, the government can exit at a very good profit. This strategy was followed by US in the last crisis.
   
   2) The SPV also could buy all the instruments which are rated BB and above from the market to create liquidity. Apart from instruments from Banks, NBFCs, instruments from Mutual funds, Insurance, Pension and Corporate could also be looked at. In the second stimulus announcement, few of the above issues were addressed.
   
   3) Government and Government employees are one of the major consuming class in the society. There are more than 3 crore under Central Government, Defence, PSUs, PSBs and Pensioners. Tax/ Interest  concession could be given to them for   buying Vehicles, Consumer Durables and Homes. They could be encouraged to utilise the LTC to support tourism and travel. Already, PSU banks announced reduction in interest for their employees to buy Homes, Consumer durables and Vehicles. Similar concessions could be given for all the government employees.

4) Government, Government Departments and PSUs are large buyers of equipments, machineries’, IT and communication products. Due to budget constraints, government has moved away from outright of purchase of products to leasing and hire purchase of these products. The  Government departments instead of leasing the equipment s, machineries and services,  they could buy them outright in  large numbers.

5)       There is a perception that PSUs in India are not efficient compared to Private sector. In many sectors PSUs have better operating matrix compared to private sector. They also have large cash balances and good balance sheets. The strong PSUs can be requested to draw up large capex programmes to be implemented within India.

6) Due to budget constraints, the governments at both central and state level take lot of time to settle the bills of suppliers. Since the crisis has aggravated the issue of liquidity, the Governments and Government departments could settle the dues to all the pending  private companies within 30 days.

7) Covid crisis brought out two major dimensions. Lives and livelihoods. There is a need to save lives of people but at the same time, the containment measures adopted should not result in loss of jobs, loss in income and loss of lives. The loss of lives due to containment measures could become more compared to loss of lives due to the disease itself. There is a need to protect the  employment and the  sectors which employ large number of employees , like transporation, travel, tourism, Auto, Real Estate and SMEs should be given a special focus and specific measures have to be announced to protect these sectors . For SMEs , an allocation of Rs.10,000 has been made to invest in equity capital of companies which have a scope to grow and get listed on the stock exchanges.

8.       Ease of investments. Sectors across the country faced many issues in keep their competitiveness in tact. There were many new regulations implemented at regular intervals, which has affected the competitiveness of industries. For a period of two years, the  regulation relating to conduct of business could be simplified, which will not cost much. The rules could be simplified to start a new business, take over a business and flexibility in the profile of  equity investors in a company.

9. Economic growth will be very important to overcome the crisis.  By focussing on  Industry and Economy growth, government would be able to kick start the economy and the aggregate demand will rise. The higher industry and economic growth will  lead to higher tax collections .

10. In the present scenario, to achieve positive economic growth this year, the governments at both centre and states have to spend more than what is spent in normal circumstances.  Central and state governments borrow Rs. 14 Lakh crore a year. This year could borrow an additional Rs. 14 L cr. Most of the required funds could be mobilised through money printing. This is called Modern Monetary theory. As above, Government can create a new SPV to raise corona bonds which will carry 4% interest. Government has to create a Sovereign crisis Management fund, where as part of this amount could be mobilised within India Main subscriber will be RBI followed by SBI, LIC and PSU banks. So far banks have parked 6.5 Lakh crores with RBI because no viable projects to invest. Government will invest the money in additional equity of large banks including private sector, large companies which are creating lot of employment opportunities. This will help to achieve a positive economic growth. In the ,Next two years the government can exit these investments with good profit.

All the major governments in the world have come with big  budget to address this issue. Apart from the local resources, they were also mobilising resources from Institutions like IMF, World Bank and ADB. These funds are available for long term at very concessional rates. The scope for availing these funds to address the stimulus could be considered. The major strategy could be to raise funds locally for all the stimulus measures , which will reduce the foreign currency risk. For borrowings from abroad, part of the dollar reserves could be utilised.

Considering the fact that India has a very strong domestic Economy, the above mentioned measures will boost the  Consumer confidence, Business confidence, Investor confidence resulting in higher productive activities in the Economy ,  higher consumption, higher investments , leading to higher GDP growth, Higher Tax collections and better government finances in the medium term.

R. Kannan

Hinduja Group

( Views of his own)

India Union Budget - Initial Observations

The  budget presented was trying to balance several interests. There was no big ticket reform agenda in the budget.   Budget was presented in an Economic Scenario, where, there is a dampening Global Economic growth as well as the deceleration  in India. There were many challenges to be addressed by the FM. Poor  Consumer demand, lower profit for the corporates , low investments in the economy. and lower tax collection by the government were to be tackled.    The  budget addressed the expectations of the various segments of the Economy. There are programmes for Farmers, Women, Children , SMEs. There is a focus on reviving the Economic Growth with three Major themes;  Aspirational India, Economic Development and Caring Society.

The reduction in personal tax was across many of the income categories and most of the tax payers will be benefitted by the reduction in tax. They have also simplified the tax filing process and introduced a tax payer friendly settlement of pending cases across all the courts  . The reduction of taxes will benefit the tax payers and put more money in the hands of the individuals resulting in higher savings and higher consumption. This will boost the consumer demand for many of the product categories, which is the major issue  today.

Abolition of Dividend Distribution tax and increasing the limit of investment by FPI’s in government securities / bonds, will go  a long way in attracting more capital investment from abroad as they could not get set off for the tax paid in the home country. The decision to go for IPO by LIC, will also attract the foreign investors including Sovereign Wealth funds, Pension funds and long term funds from other parts of the world. This will meet the part of the funds required for investment in Infrastructure.

There is a pressure on government to raise resources to spend on Capex. All the net borrowings by the government are proposed to be spent on Capex, which will add to GDP growth .The income  from  tax source is inadequate and filling this gap, government has prepared a plan to raise lot of revenue from Dividends, Asset Monetisation  and Privatisation.

Large proposed investment in infrastructure ( which is part of the Infrastructure pipe line announced by the Government )will create more jobs as well as increase demand for many other industries .

Increasing the Deposit Insurance from Rs.1 Lakh to Rs.5 Lakh will increase the confidence of investors in Bank Deposits and the banks will be able to attract more deposits from the investors. Further, the government is planning to consolidate few more banks , creating mega banks, which will increase the capacity to fund large projects.

The focus on Agriculture, Irrigation and Rural development will increase the income of farmers and those are living in rural areas. This will help boost the demand in the Rural area, which contributes to more than 50% of demand for many of the consumer products in India.

With a view to develop a healthy society and individuals, the programme on Wellness, water and Sanitation was given the required focus. This will improve the parameters like Child mortality, human capital development and healthy / robust work force.

In the Economic Survey,  there is a  scheme of Assemble in India , under the Umbrella of Make in India programme. There is also an intended strategy to be present in  Global Value Chain in many of the industries. The focus on Skills and Education , will go a big way in developing globally competitive industries in India.

The concessional income tax scheme extended to Manufacturing companies, were also being extended to power generation companies. This will help to address the issues in the power sector and reduce the cost of producing power. To give a boost to SMEs , the method of treating NPAs by SMEs were relaxed.

The areas ,where the government could consider modifying the budget provisions include, the new provisions relating to NRIs, their investments,  taxing their income  and removal of Dividend of tax.  Investors were also expecting exemption from Capital gain tax from Stock markets for two years. To Stimulate the consumer demand, the scope for reducing the KYC requirements for purchase of Homes, Automobiles and Insurance policies could be considered.

The government has formulated many schemes and to realise the budgeted goals it  is very important  the implementation mechanism should be made more effective. There should be a continuous monitoring of the implementation of  schemes and a special organisation structure  has to be created for continuous monitoring , effective feed back  and corrective mechanism.   

 

   

Budget to Boost Consumption and Investment

Budget to Boost Consumption and Investment

India has witnessed one of the slowest economic growth in the recent past . This is in the light of Government announcing many schemes including several stimulus measures in the recent past and the programmes  like Make In India, Start Up India , Financial Inclusion and several others with a view to accelerate the Economic growth.  Despite introducing many such schemes, the growth of the Economy started sliding down.  The Prime Minister has announced the Vision of achieving $ 5 trn economy and the government is geared to identify action plans to achieve this goal. To arrest the falling economic growth, government has introduced many stimulus measures at regular intervals. The measures introduced so far are yet to give the desired result.

The issue of Economic growth is due to fall in Consumption by Individuals, investment by Companies and now the reduced investment from Government. The tax collected by government is also much lower than the budgeted estimates. The  interest rates in the economy are also the lowest in the recent past. The consumption by Individuals were weak on account of reduced income growth, reduced income  ,loss of jobs, reduced competitiveness of SMEs and fear of regulatory action ( those who have high income but fearing that spending will bring them under tax net ). Compared to consumption growth in the range of 7% to 8.5% in the previous half years, the consumption growth in this year was only 4.1%. Even those who are having high savings are postponing their purchase decisions and want to wait watch. The consumption value was also reduced by sharp fall in price of many of the products due to increased sales through e commerce  channel and hyper competition in several industries. This has reduced the margin of companies and in several cases resulting in loss. Further , the tax collection potential was reduced and growth in GDP was affected due volume decline and  price deflation in many product categories.

The  government has taken as many fiscal measures as possible in the last few months. To boost the consumption, the budget could consider the following measures. Once the Consumer demand is revived, the factories will work to full capacity and they will start investing.

1. Personal Income Tax rate . They can change the slab rates for income tax. The income slab for  zero tax could be increased from Rs.2.5 Lakh to Rs. 3 Lakh.    For 5% . they could increase the tax rate from Rs.2.5 lakh – Rs. 5 Lakh   to Rs.3 lakh – Rs. 6 Lakh. For 20% tax, the slab could be increased from Rs.5 lakh – Rs. 10 Lakh to Rs.6 lakh – Rs. 12 Lakh. Above Rs. 12 Lakh, 30% tax could be applied.
2. Now investment in Pension funds of Rs.50,000 is exempt. This could be increased to Rs.100,000.
3. The investments under 80C of income tax were at the same level of Rs.150,000 for more than five years now and this could be increased to Rs.250,000. Since most of the investments under this category go to support the long term investments, increasing this limit will make the funds available for long term projects.
4. The elderly and retired make their investments mainly in bank Fixed Deposits. The lowering of interest rates in the economy has reduced the interest on Fixed deposits. This has reduced the income for those who have deposits in the banks. At present, Rs.10,000 in the bank interest from Savings account is exempt from the taxation. This limit could be increased to Rs. 25,000 per annum. In the limit, they could include Fixed deposits also.
5. Education Fee. Now one of the major expenses incurred by tax payers from all categories is education expense for their children. Now these expenses are covered under 80 C. Today , an average expense of child will be anywhere in the range of Rs.7500. For two children, it will be Rs.15,000 a year. A specific section could be added for Education fee and the limit could be Rs.15,000 per annum, Rs.7500 a child. 
6. There is a scheme under which , elderly can deposit in tax free Fixed deposits in banks. The limit for this deposit has been fixed at Rs.100,000. This could be increased to Rs.250,000.

One of the reasons, why personal consumption is low is due to  fear of being tracked  by the tax authorities and  even those who want to buy products, they are not buying. Most of the demand for the Economy was coming from Informal sector and from the parallel economy. Even, those who were not paying taxes were buying expensive products including Automobiles and Houses. This source of demand has dried up.

One of the radical ideas, government could consider include , for the next two years, not to introduce new features for filing of tax returns and announcing the exemption from adhering to KYC norms for buying houses, automobiles, insurance products and others. This will go a big way in stimulating the demand in the Economy , thereby increasing the overall tax income and accelerating the GDP from the Present levels.

The article which was published in the 15th November Edition of Free Press Journal in India

Updated on : Thursday, November 14, 2019, 10:44 PM IST

Emulate TARP of US to revive economy

By R Kannan

Prime Minister Narendra Modi addresses during the Dialogue with BRICS Business Council and New Development Bank in Brasilia.

ANI Photo

Indian Economy had the potential to grow at 10% per annum few years ago, which dropped to 8% per annum before the NBFC crisis, and now after the NBFC crisis is at 7 to 7.5% per annum, due to global trade issues and lack of demand for products in India.

The Prime Minister has set an ambitious goal of $ 5 trn GDP. The government is very serious about achieving the growth very fast and many stimulus measures were introduced by the government to stimulate the economic growth. Further, sector wise revival plans are being taken up by the government and many more stimulus measures are in the offing.

The measures taken so far will certainly help to boost the economic growth. There is a need to boost the confidence level of customers, businesses and investors. The government, RBI and leading institutions in the world and research analysts have downgraded the GDP growth projection, including IMF.

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The main reason for slowdown is competitiveness of industries that was affected in a big way by disruption in the form of changing consumer behaviour, impact of digital technologies (e-commerce), increasing regulation and regulatory agencies and emergence of hyper competition in many industries. There is deflation in many of the product prices and services due to e-commerce and hyper competition. This has reduced the demand, margins and affected the competitiveness of companies, with many industries in India today having become uncompetitive. Companies are not investing in capex because of reduced margins and uncertain demand. This was also leading to incremental NPAs in the banking system.

When demonetisation and GST were introduced, the assumptions made were very bullish and in reality, their introduction did not work out as expected. The government is taking course correction actions and series of new initiatives are being introduced at regular intervals to revive the economic growth. There is a need for tax collection to go.

The NBFC crisis contributed in a big way to bring down the competitiveness of industries. This had a cascading effect on entire Financial services sector which had spill over effects in other sectors. After the 2008 crisis, US with a view to revive the economy, formulated a plan to repair the Financial services sector. They introduced a programme called Troubled Asset Relief Programme (TARP).

The programme’s objective was: Treasury to purchase illiquid, difficult-to-value assets from banks and other financial institutions. The targeted assets can be collateralised debt obligations, which were sold in a booming market until 2007, when they were hit by widespread foreclosures on the underlying loans. TARP was intended to improve the liquidity of these assets by purchasing them using secondary market mechanisms, thus allowing participating institutions to stabilise their balance sheets and avoid further losses.

TARP was a programme to purchase toxic assets and equity from financial institutions to strengthen its financial sector. The Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law in 2010 and set the amount for this programme to $ 475 billion. When the programme was introduced the authorised budget for the programme was $ 700 billion. The total disbursements were estimated to be $ 426.4 billion. On December 19, 2014, the US Treasury sold its investments ending the program. TARP recovered funds totalling $ 441.7 billion from $426.4 billion invested, earning a $ 15.3 billion profit or an annualized rate of return of 0.6%. This was a very good programme, where the government recovered all the funds it committed to this programme.

In India, we have a similar situation in the Financial sector which has a spill over effect on other sectors, affecting the overall competitiveness of the economy and different sectors. The government could consider introducing a similar programme with a budget of Rs 200,000 cr to be inducted into investment in various financial instruments focussed on banks, NBFCs and other financial intermediaries. A strategy similar to TARP could be formulated, which will help to recover the investment of Rs 2,00,000 cr in four to five years and the government’s investment in the programme could be fully recovered when the value of investments rise.

The writer is Head, Corporate Performance Management, Hinduja Group.

Views are personal.

Blue Economy’s Role in Economic Development

The Article written for Littoral Communications , which appeared on their web site in November 2019

Blue Economy’s Role in Economic Development

The blue economy is the, sustainable use of ocean resources for economic growth, improved livelihoods, and jobs while preserving the health of ocean ecosystem. It is a Concept which encourages better management  of our ocean and blue resources. Blue economy also includes  benefits , such as carbon storage, coastal protection, cultural values and biodiversity.

The concept of Blue Economy covers, Port development, Port based Industrial Development, City development, Cluster development, Fisheries, Education and Research, Shipping, Oil and Gas Extraction, Aquaculture, Coastal Development, Tourism, Marine bio tech, Renewable energy, waste disposal, environment protection and maritime security, Ship building , Ship breaking and Ship repairing.

Blue Economy plays a major role in economic development of a country. When we discuss the development of blue Economy , it becomes very relevant in the Indian Context. Prime Minister set a vision of achieving $ 5 trillion  GDP within a short period of time. Blue Economy can contribute to $ 1 trillion of GDP . We can have Blue Economy Vision of $ 1 tillion. Lot of initiatives are being taken to develop the blue Economy . The focus is on using the water resources for Transportation, Port Based Economy Development, Port based industrial development. The initiatives like Sagar Mala is part of the overall development of blue Economy.

The logistics cost in India is more than 14% of the GDP and it is one of the highest in the world. The government has set an objective to bring this down to less than 10%. With this in view, the inland waterways will be developed across the country for the transportation and 20,000 KMs are likely to be developed and already few National waterways were opened for transportation of cargo. The focus of Inland waterways will be transport of bulk items like Steel, Coal, cement, Iron ore, Agricultural commodities.

The Sagarmala Programme covers  investment of ₹8.5 trillion to set up new mega ports, modernizing India's existing ports, developing of 14 Coastal Economic Zones (CEZs) and Coastal Employment Units, enhancing port connectivity via road, rail, multi-modal logistics parks, pipelines & waterways and promoting coastal community development, with the aim of boosting merchandise exports by US$110 billion and generating around 10,000,000 direct and indirect jobs.

Sagarmala aims to modernize India's Ports so that port-led development can be augmented and coastlines can be developed to contribute to India's growth. It also aims at "transforming the existing Ports into modern world-class Ports and integrate the development of the Ports, the Industrial clusters and hinterland and efficient evacuation systems through road, rail, inland and coastal waterways resulting in Ports becoming the drivers of economic activity in coastal areas.

To increase the pace of growth through Blue Economy, plans could be drawn up to create Ports with city and Industrial development similar to Singapore and four ports in India could be identified to replicate the  model and success of Singapore.

One of the challenges for achieving this growth will be arranging finance for such large projects. The options for raising the required financial resources could include,  lease of operating Port assets to generate revenue for new projects, issue of Blue Bonds ( already issued by Seychelles ), attracting FDI from leading players in Blue Economy in the world,  issuing special bonds focussed on port based projects apart from the traditional sources of funding. 

Considering the new found thrust on this concept, we will have opportunities arising in the developing the areas of Automobiles, Engines, Inland water Transportation Vessels, Renewable energy, Security, Infrastructure Development , River based projects, Water based projects, Lubricants and Marine oil, Banking and Financial Services.

We should use the long coast line and rivers in India to achieve the desired target of $ 1 trillion through and the government initiatives in place will go a long way in achieving the target and all the stake holders should be geared to achieve this target. The government can create a programme to propagate the vision of $ 1 trillion to all the stake holders which will help to achieve the target very fast.   

Growth to be the Economic Driver

The Article Published in the Editorial Page of Free Press Journal on 20th July 2019

By FPJ Bureau

Financial systems in a country play the role of an anchor in the overall development and any problems in their stability will have a bearing on the overall performance of an economy.

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Global economic scenario today determines the economic strategies to be adopted by countries. The scenario is so unpredictable and gloomy, countries should focus on economic growth and job creation to maintain balance in the economy and ensure the stability of the economic and financial systems. India has the potential to grow at 8% and all action plans to be adopted by the government could be derived from setting it as the objective.

Financial systems in a country play the role of an anchor in the overall development and any problems in their stability will have a bearing on the overall performance of an economy. The developments in the financial services sector in the last few months was a setback to the Indian economy and the economic growth.

The budget by the Central government is addressing the needs of accelerating the economic growth and bringing back the stability and vibrancy to the financial services industry, which will help to kick-start the process of balanced economic growth. Increasing the liquidity in the economy across the sectors will also help the cause.

The Government has proposed a number of reforms with a strong focus on investment in infrastructure development, digital economy and employment generation in medium and small enterprises by stimulating growth, promoting digitisation, transparency and simplifying tax administration.

The projection for growth of tax collections and the target for growth is one of the highest in the recent times. There is a need to mobilise resources from new non-conventional sources of funding.

The proposal to examine suggestions on opening foreign direct investment (FDI) in several sectors, including aviation, media, animation and insurance sectors will go a long way in bringing long-term funds to the Indian economy from other parts of the world.

There is a Proposal to merge NRI-Portfolio Investment Scheme Route with the Foreign Portfolio Investment (FPI) Route to provide NRIs with seamless access to Indian equities.

This is a great proposal and by bringing in policies for effective implementation of this scheme, we should be able to keep the interest of FPIs and NRIs in the Indian market and action plans have to be identified for tapping the funds from these sources.

In the railways sector, the proposal is to focus on Public-Private Partnership (PPP) for faster development and completion of tracks, rolling stock manufacturing and delivery of passenger freight service. Indian Railways is one of the largest land owners in India.

Large part of the funds required for development of railways can come from capitalisation of the land bank as well as investment from private partners.

The proposal that Securities and Exchange Board of India (SEBI) will consider increasing the minimum public shareholding in the listed companies from 25% to 35% will force existing companies that are doing well to go to the market for dilution and take away funds required by enterprises which need the funds most. This proposal could be reviewed. As and when the financial system and economic system stabilise, this proposal could be introduced.

Few of the proposals in the budget also resulted in investors turning positive towards investment in debt and negative in investing in equity. A survey could be done on investor sentiments and required amendments could be made in the proposals so that their sentiment in stocks and stock markets come back to normal levels. When we are planning to increase the level of financial intermediation, there is a need to make investments in financial instruments attractive.

To continue the policy of disinvestment in non-financial public sector undertakings and consider holding less than 51% stake in such undertakings on a case-to-case basis is a brilliant proposal. Most of the PSUs hold valuable property. Companies like MTNL have assets which are highly valuable compared to the debt they have.

Before such dilution, the scope for capitalising the assets through REIT/InviT Structure could be looked at apart from sale of some of the prime properties in the large cities.

In many cases, capitalising the prime property will make sick companies very healthy. The Government plans to invest INR 100 trillion on infrastructure in the next five years.

An expert committee is to be set up to study the current situation relating to long-term finance and India’s past experience with Development Finance Institutions (DFIs), and recommend the structure and required flow of funds through DFIs.

Another promising proposal is to launch a scheme to invite global companies to set up mega-manufacturing plants in advanced technology and provide them investment linked income tax exemptions under section 35AD of the Income Tax Act, 1961, and other indirect tax benefits.

In the last few years, the capital investment in the economy witnessed a sharp decline and especially in the private sector, there was very less capital investment. In the last few months, the capacity utilisation has come down below 70% after crossing 75% a few months back.

This was also partly due to consumer expenditure declining in sectors like auto and housing, which were mainly relying on external funds. The banking credit flow to many sectors are also affected.

There is a need to boost the consumer sentiment which will help to shore up the demand for many products. This will help to increase the capex in several sectors.

The policies proposed in the budget will go a long way in boosting the sentiment of investors, consumers and corporates. To realise the full potential, effective implementation, continuous monitoring of the impact of implementing the policies and bringing fast course corrective actions during implementation will go a long way achieving the objectives set by the government.

R Kannan is Head, Corporate Performance Management, Hinduja Group. The views are personal.

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Schemes to facilitate MSME growth in India

Considering the importance of MSMEs in the Economic growth and Employment Generation, during Diwali , government announced 12 schemes ,which can facilitate the growth of MSME sector. The salient  one was to approve loans up to Rs.1 cr in 59 minutes. The loan amount will be between Rs. 10 lakh and Rs.1 cr. The rate of interest  starts from 8%. After the approval  of the application, the loan amount will be disbursed within a week. There is no mandatory requirement for collateral as the online portal is directly connected to the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme. While registering, the borrower need not make any payment. Once the applicant’s proposal matches the bank’s minimum criteria for lending, the borrower will have to be submit a fee of Rs, 1,000 plus taxes.

Rebate in interest rate. When the GST was introduced. Many MSMEs started paying GST for the first time. Paying GST creates a credit profile for the MSMEs and it is possible to assess their credit rating based on the financial profile of the firm. On the new loans to be availed,  GST-registered MSMEs will get 2% subvention or rebate on incremental new loans of up to Rs 1 crore. Interest subvention on pre- and post-shipment credit for exports by MSMEs has also been increased from 3% to 5%. Assuming their average cost of funds of 10%, the 2% subvention will reduce their interest cost .

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Cash flow certainty. Companies with a turnover of more than Rs 500 crore to join Trade Receivables e- Discounting System (TReDS) and it has become mandatory. This will help  MSMEs  to discount their bills and improve the  cash flow, to ensure a smooth operation.

Procurement by PSUs. Public Sector units in Several sectors are the market leaders and their purchase budget in a year is a very large. Now, PSUs have to procure, at least a quarter of their requirement (25%) from MSMEs. Earlier, it was at 20%. This will give a big boost to MSMEs and their integration into the industry value chain will increase . This will also help to create more jobs due to higher demand.

Women entrepreneurs. The participation of women in various sectors is rising and the government also has created several special schemes to promote women’s participation in the society. With a view to encourage , more women to pursue entrepreneurship, out of the 25% procurement mandated from MSMEs from PSUs, 3% has been reserved for women entrepreneurs.

Government e-Marketplace (GeM). Government has created a grand programme on Digitiation of the Economy. One of the initiatives under digitisation is creating  E- marketplaces, where MSMEs can participate easily. Now it is mandatory for all Central PSUs to take membership of the Government e-Marketplace (GeM) and they will put their purchase requirements in the market place,  which MSMEs can identify easily and participate in the process.

Technological upgradation. MSMEs have money only to run their business and they are constrained to invest  in upgrading their technology, products and R&D related to their business. With a view to assist MSMEs in upgrading the Technology, Government has created a budget of Rs 6,000 crore and it will be used for 20 hubs and 100 tool rooms for technology upgradation.

Pharma companies. India has gained competitiveness in Pharma business and has emerged as the Generic pharma product hub  in the world. There are more than 10,000 companies producing pharma products in India and with a view to encourage setting up more Pharma units government has created a scheme for  forming  MSME pharma clusters. 70% cost of establishing these clusters will be borne by the government.

One annual return. At present MSMEs are filing several reports in a year relating to Labour laws and Central rules.  This consumes lot of times of the entrepreneurs and taking away their attention from the core business. To make this process simple, now, MSMEs will have to file just one annual return on eight labour laws and 10 central rules.

Inspections. At present, Inspectors visit the factories and many a times, entrepreneurs are harassed and this has become one of the irritants for MSMEs and they are finding it difficult to manage this process. The process of inspection from the discretion of the inspector has been changed to selection of a company  through a computerised random allotment and inspectors will have to upload reports on the portal within 48 hours of their visit. This has brought lot of transparency to the process.

Air and Water Pollution Laws. Now  MSMEs can file returns with self certification and only 10% of the units will be inspected. Further, they need a single air and water clearance and just one consent to establish a factory. The process has been made simple and become a single window clearance.

Minor Violations under Companies Act. An ordinance has been promulgated to simplify the levy of penalties for minor offences under the Companies Act. Now MSMEs no longer have to approach courts which is a time consuming process but they can correct them through simple procedures.

The twelve initiatives, will go a long way in boosting the growth of MSMEs in India to create robust business models  and pave the way for faster integration of MSMEs into the Indian Economy. The awareness has to be created about these schemes to all the MSMEs in India

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By R . Kannan