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Economy And Policy

CCEA may consider govt’s stake cut in some PSUs to below 51% next week

This move is different from privatisation as the Centre will continue to hold a majority stake in these companies and they will still be classified as public sector enterprises.

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Business Standard : The Cabinet Committee on Economic Affairs (CCEA) is next week expected to take up a proposal to reduce the government’s stake in a number of state-owned companies below 51 per cent. This move is different from privatisation as the Centre will continue to hold a majority stake in these companies and they will still be classified as public sector enterprises.

These companies are those in which the Centre already has a stake below 60 per cent, and could include Indian Oil (current government stake of 51.5 per cent), NTPC Ltd (54.50 per cent), Bharat Electronics (58.83 per cent), BEML (54.03 per cent), Engineers India (52 per cent), GAIL India (52.66 per cent), and National Aluminum Co (52 per cent).

The stake in these companies will be pared through offers for sale (OFS) on the exchanges.

Ahead of the proposal being taken to the CCEA, a group of secretaries is expected to meet on Friday to finalise the Cabinet note.

The government is considering, in case where the undertaking is still to be retained in government control, to go below 51 per cent to an appropriate level on case to case basis. The government has also decided to modify the present policy of retaining 51 per cent

government stake to retaining 51 per cent stake inclusive of the stake of government-controlled institutions,” Finance Minister Nirmala Sitharaman had said in her 2019-20 Budget speech on July 5.

For example, ONGC holds a 14 per cent stake, Oil India holds a 5.16 per cent stake, and LIC holds a 6.5 per cent stake in Indian Oil. Even if the Centre reduces its stake in Indian Oil to 30 per cent, the combined stake of the government and these PSUs in Indian Oil will still be above 55 per cent.

The Finance Ministry’s Department of Investment and Public Asset Management (DIPAM) is faced with its steepest yearly divestment target yet, tasked with accruing ~1.05 trillion for 2019-20, and these stake sales are expected to go some way in meeting that target.

However, the bulk of the proceeds will come from the planned privatisation of Bharat Petroleum, Air India, Container Corp, Shipping Corp, NEEPCO and THDC India, monetisation of land and other assets of PSUs, and follow-on offerings of the Centre’s two exchange-traded funds.

 

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CURRENT AFFAIRS, Economy And Policy

How opportunistic behavior can worsen India’s $200 bn-plus bad loan crisis

A capital-constrained economy like India can’t afford a jungle raj in finance.

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Snatch-and-grab is the new hallmark of Indian finance. As a banker friend in Mumbai put it to me only half-jokingly, a unit of “grabbed” cash collateral in hand is worth more than two units of hypothetical receivables.

Yet this is no laughing matter. Not only is opportunistic behavior going to worsen India’s $200 billion-plus bad loan crisis, but now that everyone from the government’s sleuths to the courts are joining the melee, the ensuing chaos will limit the recovery for lenders and threaten depositors.

Rajnish Kumar, chairman of State Bank of India, sat down for a chat with me at the Bloomberg Equality Summit in Mumbai this week. He had highlighted the problem last month by blaming what he called the selfishness of one bank for a default by Altico Capital India Ltd., a nonbank lender to property builders. When asked why his HDFC Bank Ltd. had choked Altico by helping itself to the money the shadow financier had raised elsewhere and parked with him, Aditya Puri, the managing director of India’s most valuable lender, replied: “What is out-of- turn? It is my security and I will exercise it.”

Now the regulator, the Reserve Bank of India, will decide whether Kumar’s unhappiness is a case of sour grapes or if Puri did indeed cross a line. For State Bank of India, Altico is just one of the several instances where the taxpayer-funded bank has been at the receiving end.

SBI didn’t drag tycoon Anil Ambani’s Reliance Communications Ltd. to an in-court bankruptcy process, hoping instead that Ambani would be able to sell assets to his brother Mukesh, India’s richest man, out of court. Ericsson AB, an operational creditor, pursued the opposite strategy and got itself a very decent court-enforced settlement by invoking the younger Ambani’s personal guarantee.

More recently, SBI’s Kumar received a fresh blow when India’s enforcement directorate, tasked to fight economic crime, attached the assets of insolvent Bhushan Power & Steel Ltd. on suspicion of money laundering by its previous management. Both the new owner, who won control of Bhushan during bankruptcy, and Kumar, who’s waiting for his check, are impatient. Yet, thanks to the enforcement directorate, the $2.8 billion sale has now been put on hold by an adjudicating authority.

Business Standard

Economy And Policy

Govt probing Flipkart, Amazon over alleged predatory pricing: Piyush Goyal 

CAIT had in a letter on Monday urged Goyal to order an audit into the business model of all e-commerce firms.

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Business Standard : The government is probing Wal- Mart-owned Flipkart and Amazon over the alleged predatory pricing, commerce minister Piyush Goyal said on Thursday.

Warning of stringent action as per the law for any violation, he said detailed questionnaires have been sent to these companies and their response is awaited. According to media reports, the e-commerce majors have grossed up over $3 billion in gross merchandise value during the festive sales held over the past fortnight, which typically see over half of their annual sales.

E-commerce companies have no right to offer discounts or adopt predatory prices. Selling products cheaper and resulting the retail sector to incur losses is not allowed,” Goyal told reporters.

They are also not permitted to own products and sell them, he said and that they are only platforms helping sellers connect with potential buyers. Without specifying the exact transgressions, Goyal said his ministry has received complaints from the traders body CAIT alleging violations of norms by these players.

“A detailed questionnaire has been sent to them. Today or tomorrow, a supplementary questionnaire will also be sent,” he said and reminded that he had earlier also warned these e- commerce players.

“We will take stringent action against them, if there is violation of any law in letter or in spirit. The law is clear. Action will be taken as per the law,” he said.

The national traders body CAIT had in a letter on Monday urged Goyal to order an audit into the business model of all e-commerce firms and the foreign-owned Amazon and Flipkart in particular. In the letter, CAIT also said since Amazon and Flipkart claim that individual brands are offering discounts, government should convene a meeting with major brands to ascertain the truth.

“The business model of Amazon and Flipkart should be audited by the government to arrive at the real conclusion,” it said in the letter.

Following the complaint from the traders body, senior officials of the department for promotion of industry and internal trade had met with Amazon and Flipkart representatives last week.

Goyal scotched rumours that the Railways might exit its ticketing arm IRCTC which had a stellar stock market debut earlier this week following a hugely successful IPO. There is no plan to fully sell IRCTC. This is speculation based on wrong information, he said.

Comapnies, CURRENT AFFAIRS

Air passenger traffic falls amid slowing economy and lean travel season

Scheduled carriers ferried 11.53 million passengers in September, compared to 11.79 million in August, showed data issued by the Directorate General of Civil Aviation (DGCA) on Thursday.

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Business Standard : Domestic air passenger traffic declined for the fourth consecutive month in September, amid a slowing economy and lean travel season.

Scheduled carriers ferried 11.53 million passengers in September, compared to 11.79 million in August, showed data issued by the Directorate General of Civil Aviation (DGCA) on Thursday. They had carried 11.90 million passengers in July.

The numbers are disappointing. They have pulled down our projection and now we peg (yearly growth for 2019 at 4-6 per cent). The good news is that we have managed to withstand the exit of Jet Airways and maintained positive growth despite three months of negative or flat growth,” said a DGCA official.

IndiGo continued its dominance in Indian skies, carrying nearly one in every two passengers. In doing so, it more than made up for lost ground in August. Its market share rose to

48.2 per cent from 47 per cent in August. It was 47.8 per cent in July. On the back of reasonable growth in the first five months of the calendar year, traffic for domestic airlines from January-September was still higher by 3 per cent, rising to 105.89 million, against 102.79 million in the same period last year, according to DGCA.

The loss in fleet, on account of Jet Airways, has largely been recovered and we expect an all-time high fleet of above 616 aircraft in a month’s time. With more aircraft joining by December 31, we expect a return to double-digit growth early next year,” the official added.

The Delhi-based airline carried 5.56 million passengers in September, while SpiceJet flew close to 1.7 million passengers, notching up 14.7 per cent market share.

The Ajay Singh-owned airline’s market share fell from 15.5 per cent last month. Air India improved its share by 20 basis points to 13 per cent, flying nearly 1.5 million passengers during the period.

However, an executive of a private airline said even though volume picked up, it will be difficult for airlines to make money as fares have remained low even during festive season.

“Even during the peak Durga Puja period, fares have not gone higher than Rs 5,000. Therefore, it will be quite difficult time for airlines,” he said.

Comapnies

Mastercard says it will meet Dec-end target for data localisation in India

However, says the card payments major, restricting data flows in digital transactions will affect the quality of fraud detection and assessment.

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Mastercard is confident of completing its data localisation requirements in India by the end of this year. However, says the card payments major, restricting data flows in digital transactions will affect the quality of fraud detection and assessment.

We are totally committed. In fact, we are in full execution mode…And, we remain completely committed to the end of the year (deadline) that we have given to the Reserve Bank of India. So, I don’t see a challenge on the question of data localisation,” said Ari Sarker, its Asia-Pacific co-president.

However, he adds, this restricting of cross-border data flow and storing data only in India will impact fraud detection and management.

As an example, says Mastercard, it stores only aggregate and anonymised data, such as the amount spent on a transaction, the account number and so on. If an Indian travels abroad the card gets compromised there, and the fraudster uses these credentials to withdraw money from different ATMs in different country locations, it will be difficult for the person to know on a real-time basis that such fraud is happening.

Similarly, if a fraud trend is detected in different countries and Indian transaction data is disconnected from world data, fraud detection engines here will end up getting built only on local trends.

“Our data scientists tell us that for the sake of accuracy of the trend, you need 13 months of data — then, you can really see how behaviour patterns actually shift. That’s the historical perspective you need to create…our view on that (data localisation) is it’s actually not in India’s interest,” Sarker said.

New ID check

Mastercard will go live on Google Pay, the information technology giant’s payments app, launched first in India as Google Tez in 2017. “We’re going to be live with Google in the first quarter (of the next financial year). The essence is tokenised credentials or pass-through credentials working through Google Pay. The reason we’re going first quarter is also because we’re also delivering our ID Check capability together with it. It will be a better product capability once we launch through Google Pay,” Sarker said.

Last month, Google Pay launched a feature called tokenised cards. This will let users add debit and credit cards to the Google Pay application, which has so far worked only on the Unified Payments Platform in India.

Business Standard

 

Economy And Policy

Infra, realty trusts can set up biz in SEZs. Will this increase exports?

The Centre amended the Special Economic Zones Act (SEZs Act) in August 2019 to broaden the definition of “person” who can set up their units in these zones.

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The new expanded definition of a “person” who can set up a unit in a special economic zone (SEZ) can help increase the number of exporting units in India and help utilise the full potential of the land in these zones, experts say, though it may not further the SEZs’ basic purpose of increasing the country’s net exports.

The Centre amended the Special Economic Zones Act (SEZs Act) in August 2019 to broaden the definition of “person” who can set up their units in these zones. After the amendment, “trust” or “any entity as may be notified by the Central Government” can set up their operation in SEZs.

The bill does not review taxes imposed on units inside SEZs, nor does it address fine-tuning of the policy according to state- and sector-specific requirements, rising dependency on imports, or lack of connectivity and infrastructure, experts pointed out.

SEZs are clusters developed to foster industries which can help boost exports. The government has, so far, notified 351 SEZs of which 232 across India were operationalised. However, about 150 SEZs across India remain non-operational, with half of the land notified for SEZs lying vacant.

The establishment of these SEZs has also fueled land conflicts ever since their inception. About 11 such conflicts have been recorded so far by Land Conflict Watch (LCW), an independent network of researchers and journalists across India mapping land conflicts.

This is the fourth story in our series examining the 35 bills that the 17th Lok Sabha (lower house of parliament) passed during its last session, when it worked for 281 hours over 37 days to pass a bill every eight hours on average, referring none to a committee for detailed scrutiny. The SEZ bill was passed on August 5, 2019, when the lower house of parliament abrogated Jammu and Kashmir’s special constitutional provision. Critics say many approved bills had infirmities that further debate and committee appraisal could have ironed out.

Business Standard

CURRENT AFFAIRS

Indian traders selling old season sugar to Iran after subsidy: Report

Exports from the world’s biggest sugar producer could put pressure on global prices but will help India reduce its inventories that have driven down domestic prices.

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Indian mills are aggressively selling old season sugar to Iran after New Delhi announced a subsidy to help cash-strapped mills export a surplus, five traders said, asTehran strives to secure food supplies under US sanctions.

Exports from the world’s biggest sugar producer could put pressure on global prices but will help India reduce its inventories that have driven down domestic prices.

Trading houses have contracted to export to Iran about 350,000 tonnes of sugar for shipments landing in October to December at about Rs 21,600 ($302) a tonne on a free-on-board basis, the trade sources said this week.

They have contracted another 150,000 tonnes for destinations like Sri Lanka, Afghanistan and African countries at around $315 per tonne for shipments in the last quarter of 2019, they said.

On international markets, December white sugar settled at $347.60 a tonne on Wednesday.

“Sugar millers in Uttar Pradesh are quite active this year. They are selling sugar to Iran in rupee terms,” said Rahil Shaikh, managing director of MEIR Commodities India.

Under US sanctions, Iran is blocked from the global financial system, including using US dollars to transact its oil sales. Iran agreed to sell oil to India in exchange for rupees but it can only use those rupees to buy Indian goods, mainly items it cannot produce enough of domestically.

Sugar mills in the landlocked northern state of Uttar Pradesh, the biggest sugar producer in the country, traditionally export less quantity as they need to spend more to bring it to ports on the western coast.

But this year they are actively exporting due to simplified export procedures and because of the huge inventory mills have been carrying from the last year’s record harvest, said a Mumbai-based dealer with a global trading firm.

Business Standard