Economic Affairs: India
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A REFERENCE ANNUAL
RESEARCH, REFERENCE AND TRAINING DIVISION
MINISTRY OF INFORMATION AND BROADCASTING
GOVERNMENT OF INDIA
The main divisions of the Department of Economic Affairs (DEA) are :
(i) Finance Division,
(ii) Budget Division including Fiscal Responsibility and Budget Management (FRBM),
(iii) Capital Market,
(iv) Bilateral Co-operation and Administration,
(v) Multilateral Institutions,
(vi) Multilateral Relations, and Administration,
(vii) Controller of Aid, Accounts and Audit,
(viii) Economic Division, and
(ix) Directorate of Currency.
The Department inter alia monitors current economic trends and advises the Government on all matters having bearing on internal and external aspects of economic management including prices, credit, fiscal and monetary policy and investment regulations. This Department also supervises policies relating to Nationalised Banks, Life and General Insurance and Security Paper Mills. All the external, financial and technical assistance received by India, except through specialized International Organisation like FAO, ILO, UNIDO and except under International bilateral specific agreement in the field of science and technology, culture and education are also monitored by this Department.
The DEA is also responsible for preparation and presentation to the Parliament of Central Budget and the Budgets for the State Governments under President’s Rule and Union Territory Administrations. The Department, Directorate of Currency (DoC) has the administrative control of the Security Printing and Minting Corporation of India Limited (SPMCIL), a wholly owned Government of India Corporation that manages Government of India Mints, Currency Presses, Security Presses and Security Paper Mill. In addition to formulating and executing policies and programmes relating to designs/ security feature of bank notes and coins and issue of commemorative coins, the DoC has also been mandated to conduct Research and Development activities in this area and indigenization of all materials required for production of bank notes and others security products.
The Union Budget of India, also called the General Budget, is presented each year on the last working day of February by the Finance Minister of India in Parliament.
Annual Financial Statement
Under Article 112 of the Constitution, a statement of estimated receipts and expenditure of the Government of India has to be laid before Parliament in respect of every financial year which runs from 1st April to 31st March. This statement titled "Annual Financial Statement" is the main Budget document.
The Annual Financial Statement shows the receipts and payments of Government under the three parts in which Government accounts are kept; (i) Consolidated Fund, (ii) Contingency Fund, and (iii) Public Account.
All revenues received by Government, loans raised by it, and also its receipts from recoveries of loans granted by it from the Consolidated Fund. All expenditure of Government is incurred from the Consolidated Fund and no amount can be withdrawn from the Fund without authorisation from Parliament.
Occasions may arise when Government may have to meet urgent unforeseen expenditure pending authorisation from Parliament. The Contingency Fund is an imprest placed at the disposal of the President to incur such expenditure. Parliamentary approval for such expenditure and for withdrawal of an equivalent amount from the Consolidated Fund is subsequently obtained and the amount spent from Contingency Fund is recouped to the Fund. The corpus of the Fund authorised by the Parliament, at Present is Rs 500 crore.
Besides the normal receipts and expenditure of Government which relate to the Consolidated Fund, certain other transactions enter Government accounts in respect of which Government acts more as a banker, for example, transactions relating to provident funds, small savings collections, other deposits, etc. The moneys thus received are kept in the Public Account and the connected disbursements are also made therefrom. Parliamentary authorisation for such payments from the Public Account is, therefore, not required. In a few cases, a part of the revenue of Government is set apart in separate funds for expenditure on specific objects like road development, primary education including mid-day meal scheme etc. These amounts are withdrawn from the Consolidated Fund with the approval of Parliament and kept in the Public Account for expenditure on the specific objects. The actual expenditure proposed on the specific objects is also submitted for vote of Parliament.
Under the Constitution, Budget has to distinguish expenditure on revenue account from other expenditure. Government Budget, therefore, comprises
(i) Revenue Budget; and
(ii) Capital Budget.
Demands for Grants
The estimates of expenditure from the Consolidated Fund included in the Annual Financial Statement and required to be voted by the Lok Sabha are submitted in the form of Demands for Grants in pursuance of Article 113 of the Constitution. Generally, one Demand for Grant is presented in respect of each Ministry or Department, However, in respect of large Ministries or Departments, more than one Demand is presented. Each Demand normally includes the total provisions required for a service, that is, provisions on account of revenue expenditure, capital expenditure, grants to State and Union Territory Governments and also loans and advances relating to the service. In regard to Union Territories without Legislature, a separate Demand is presented for each of the Union Territories. Where the provision for a service is entirely for expenditure charged on the Consolidated Fund, for example, interest payments, a separate
Appropriation, as distinct from a Demand, is presented for that expenditure and it is not required to be voted by Parliament. Where, however, expenditure on a service includes both 'voted' and charged' items of expenditure, the latter are also included in the Demand presented for that service but the 'voted' and 'charged' provisions are shown separately in that Demand. The Demands for Grants are presented to the Lok Sabha along with the Annual Financial Statement.
At the time of presentation of the Annual Financial Statement before Parliament, a Finance Bill is also presented in fulfilment of the requirement of Article 110 (1) (a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. A Finance Bill is a Money Bill as defined in Article 110 of the Constitution. It is accompanied by a Memorandum explaining the provisions included in it.
After the Demands for Grants are voted by the Lok Sabha, Parliament's approval to the withdrawal from the Consolidated Fund of the amounts so voted and of the amount required to meet the expenditure charged on the Consolidated Fund is sought through the Appropriation Bill. Under Article 114(3) of the Constitution, no amount can be withdrawn from the Consolidated Fund without the enactment of such a law by Parliament.
The whole process beginning with the presentation of the Budget and ending with discussions and voting on the Demands for Grants requires sufficiently long time. The Lok Sabha is, therefore, empowered by the Constitution to make any grant in advance in respect of the estimated expenditure for a part of the financial year pending completion of procedure for the voting of the Demands. The Purpose of the 'Vote on Account' is to keep Government functioning, pending voting of 'final supply'. The Vote on Account is obtained from Parliament through an Appropriation (Vote on Account) Bill.
Sources of Revenue
In accordance with the Constitution (Eightieth Amendment) Act, 2000, which has been given retrospective effect from 1.4.1996, all taxes referred to in the Union List, except the duties and taxes referred to in Articles 268 and 269, respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purpose under any law made by Parliament, shall be levied and collected by the Government of India and shall be distributed between the Union and the States in such manner as may be prescribed by the President on the recommendations of the Finance Commission. For the period 2005-2010, the manner of distribution between the Centre and the States has been prescribed in Presidential Orders issued after considering the recommendations of the Thirteenth Finance Commission.
The main sources of Union tax revenue are Customs duties, Union excise duties, Service tax, Corporate and income taxes. Non-tax revenues largely comprise interest receipts, loan repayments, dividends and profits.
Transfer of Resources
The revised estimates of 2010-11, the devolution of tax receipts from the Union Government to the States as their share of taxes and duties was Rs 219,303 crore. In BE 2011-12, this amount has been increased to Rs 263,458 crore. Besides, total grants and loans to States and Union Territories will increase from Rs 173,246 crore in 2010-11 to Rs 201,733 crore in 2011-12. In addition to above resources are also transferred by Union Government to be state level implementing agencies under various scheme and programmes.
Public Debt and Other Liabilities
Public Debt of India is classified into three categories of Union Government liabilities into internal debt, external debt and other liabilities.
Internal debt for Government of India largely consists of fixed tenure and fixed rate government papers (dated securities and treasury bills) which are issued through auctions. These include market loans (dated securities), treasury bills (91, 182 and 364 days) and 14 day treasury bills (issued to State Governments only), cash management bills, special securities issued to the Reserve Bank of India (RBI), Compensation and other bonds, non negotiable and non interest bearing rupee securities issued to international financial institutions and securities issued under market stabilization scheme.
External debt represents loans received from foreign governments and multilateral institutions. The Union Government does not borrow directly for international capital markets. Its foreign currency borrowing takes place from multilateral agencies and bilateral sources, and is a part of official development assistance (ODA). At present, the Government of India does not borrow in the international capital markets.
‘‘Other’’ liabilities category, not a part of public debt, includes other interest bearing obligations of the government, such as post office saving deposits, under small savings schemes, loans raised through post office cash certificates, provident funds and certain other deposits.
The total net liabilities of the Government of India in the BE 2011-12, is estimated at Rs. 43,52,389 crore as against Revised Estimates (RE) Rs. 39,30,805 crore at the end of 2010-11. The estimated public debt in BE 2011-12 includes Internal Debt of Rs. 31,10,618 crore, External Debt of Rs. 1,70,847 crore at Book Value and Other Liabilities of Rs. 10,71,224 crore.
The Reserve Bank manages the public debt of the Central and the State Governments and also acts as a banker to them under the provisions of the Reserve Bank of India Act 1934 (Section 20 and 21). The Reserve Bank also undertakes similar functions for the State Governments by agreement with the Government of the respective State (under section 21 A).
The Times of India, Dec 23, 2016
A debt of Rs 54,000 hangs over every Indian's head: as on 31 March, 2016
Apart from all the EMI payments and other personal loans that each Indian may have availed, he or she also has another big, if notional, debt burden. This is the onus of paying back the loans and commercial borrowings of the Union government, money taken from external agencies primarily for developmental expenditure
2017, 18: India and the world
A decade after the Lehman Brothers collapse triggered a global liquidity crisis, IMF has noted that sovereign debt ratios in advanced and emerging economies continue to rise. In 2018, the debt level of the US was a whopping 106.1 per cent of the GDP. Here's a look at the debt levels of some governments after global financial crisis.
New Initiatives in Fiscal Management
Persistent fiscal and concomitant growth in the public debt burden have been identified as the most difficult challenges affecting the country's economic growth prospects. To check the potentially damaging impact the lack of fiscal discipline on macro-economic parameters, the Parliament had passed the Fiscal Responsibility and Budget Management (FRBM) Act 2003 which came into force in July 2004, The FRBM Act, inter alia, mandates the Government to eliminate the revenue deficit by 2007-08. Through an amendment in 2004, the target year has been shifted to 2008-09. The FRBM Rules prescribe a minimum annual reduction in the revenue deficit by 0.5 per cent of GDP.
After considerable progress in fiscal consolidation till 2007-08, there was a conscious policy shift in 2008-09 to obviate the impact of global commodity price rise and financial crisis. As a consequence, fiscal deficit went up to a level of 6.0. per cent of GDP in 2008-09. The Budget for 2011-12 estimates the fiscal deficit for 2011-12 at 4.6 per cent of GDP. These levels of expansion were short-term basis. To address such concerns, the Medium Term Fiscal Policy Statement 2010-11 has provided the roadmap with fiscal deficit declining to 4.1 per cent of GDP in 2012-13 and further to 3.5 per cent of GDP in 2013-14.
Fiscal Policy for 2011-12
The Fiscal policy of 2011-12 is guided by the principles of gradual adjustment from the fiscal expansion undertaken during the crises period in 2008-09 and 2009-10. The adjustment path has been slightly front loaded when compared to the recommendations of the 13th FC. The fiscal deficit was estimated at 5.1 per cent and 4.6 percent of GDP as against 5.7 per cent and 4.8 percent for 2010-11 and 2011- 12 respectively projected by the 13th Finance Commission. The fiscal deficit in 2010- 11 is 4.7 per cent as per provisional accounts. This accelerated adjustment will help the government in reducing the debt to GDP ratio at faster pace which in turn will help in unlocking more resources from government revenue in future to be used for developmental programmes instead of debt servicing. In order to achieve the accelerated fiscal consolidation path, the government has focused on expenditure correction in 2011-12.
Budgetary Development 2011-12
Highlights of Budget 2010-11 include
l Hike in gross budgetary support (GBS) for the plan from Rs 373092 crore in 2010-11 (BE) to Rs 441547 crore in 2011-12 (BE), an increase of about 18 per cent.
l The Budget seeks to address the three challenges facing the economy-to lead the economy back to the high GDP growth rate of 9 per cent per annum, to harness economic growth to consolidate, deepen and broaden the agenda for inclusive development and to energise government and improve delivery mechanism.
l The education and health sectors were allocated substantial funds. In 2011- 12 the budget allocation for education was enhanced by 27 per cent to Rs 63363.00 crore while for the Health and Family Welfare it was enhanced by 21 per cent to Rs 30456.00 crore.
Social Sector Programmes
The eight flagship programmes continued to receive high priority, viz. Sarva Sikha Abhiyan; Mid-Day meal Scheme, Rajiv Gandhi Drinking Water Mission; Rural Sanitation; National Rural Health Mission; Integrated Child Development Programme, National Rural Employment Guarantee Scheme and Jawaharlal Nehru National Mission Urban Renewal Mission. Total allocation under these eight flagship schemes was enhanced from Rs 11,0589 crore in 2010-11 to Rs 12,3017 crore in 2011-12 marking an increase in allocation by 11.23 per cent.
Scheme for the Development of Scheduled Castes and Scheduled Tribes
From 2005-06, a separate statement on the schemes for the welfare of Scheduled Castes (SCs) and Scheduled Tribes (STs) is placed in the budget document. From the financial year 2011-12, this Statement is splitted into two parts (i) development schemes for Scheduled Castes and (ii) Developmental Scheme for Scheduled Tribes which shows year-wise Budget Estimates & Revised Estimates of current year and Budget Estimates of next financial year for the developmental schemes for Scheduled Castes and Scheduled Tribes. Keeping in view the commitment of the Government to the welfare of SCs, the allocations under schemes benefiting only SCs have been enhanced by 27.95% in 2011-12 (BE) in comparison with corresponding financial year 2010-11. Similarly, for the schemes for STs, the allocation have been enhanced by 84.29% during 2011-12 (BE) in comparison to corresponding financial year 2010-11.
Benefit to Women (Gender Budgeting)
In BE 2011-12, a total budget provision of Rs 20548.35 crore has been provided for 100 % women specific programmes and Rs 57702.67 crore for schemes where at least 30 per cent allocation is for women specific programmes.
Walfare of Children (Child Budgeting)
A statement 'Provision for Schemes for the Welfare of Children' has been included from the financial year 2009-10. It indicates provision for educational outlays, provisions for child protection etc. The allocation for BE 2011-12 under Welfare of Children is Rs 56749 crore.
Details relating to Union Budget are available on the website of Ministry of Finance viz www.finmin.nic.in
Policy Initiatives and Development in the Indian Capital Market
A. Securities Market
Primary Securities Market
Role of an efficient primary market is critical for resource mobilisation by corporates to finance their growth and expansion. Indian primary market witnessed renewed activity in terms of resource mobilisation and number of issues during 2010-11, continuing its momentum from 2009-10. In view of the recovery witnessed in equity markets post global financial crisis, companies, largely public sector with a divestment mandate, entered the primary market during 2010-11. Investors’ response to public issues was encouraging in 2010-11. Capital (equity and debt) was raised to the tune of 67,609 crore through 91 issues during 2010-11, higher than 57,555 crore mobilised through 76 issues during 2009-10.
During 2010-11, 91 issues (81 equity issues and 10 debt issues) accessed the primary market and collectively raised 67,609 crore through public (68) and rights issues (23) as against 57,555 crore raised in 2009-10 through public (47) and rights issues (29). There were 53 IPOs during 2010-11 as against 39 during 2009-10. The amount raised through IPOs during 2010- 11 was at 35,559 crore as compared to 24,696 crore during 2009-10. The share of public issues in the total resource mobilisation stood at 85.9 percent during 2010-11 as compared to 85.5 percent in 2009-10 showing a marginal increase over the previous year.
The share of Rights issues was at 14.1 percent in 2010-11 as compared to 14.5 percent in 2009-10. There were 10 public issues of Non-Convertible Debentures (NCDs) amounting to 9,503 crore in 2010-11 as compared to three issues of 2,500 crore in 2009-10. Continued reforms in the primary market further strengthened investors’ confidence.
Following were the major policy initiatives taken by SEBI relating to the primary market during 2010-11:
i. Encouragement of Retail Investor Participation
In order to increase retail investor participation and to keep pace with inflation, monetary limit on retail individual investor application was increased from 1 lakh to 2 lakh. The limit was enhanced with the objective that retail individual investors who have capacity and appetite to apply for securities worth above 1 lakh should not be constrained.
ii. Reforms in Issue Process
In order to make our markets competitive, SEBI has been constantly reviewing various rules and procedures to make issue process simpler and at the same time safer. Some of the major initiatives in this area include :
a) Reduction in process time lines : In order to lessen the market risk time between issue closure and listing was reduced from 22 days to 12 working days.
b) Enhancement in Application Supported by Blocked Amounts (ASBA) Process : To smoothen the payment/refund process in issues, SEBI has introduced Applications Supported by Blocked Amount (ASBA) Process in issues, wherein application money is blocked in a bank account and debited only to the extent of allotment entitlement while continuing to earn interest.
iii. Introduction of Pre-Announced Fixed Pay Date for Payment of Dividends and for Credit of Bonus Shares
In order to enable investors to manage their cash/securities flows efficiently and to enhance process transparency, it has been decided to mandate companies to have a pre-announced fixed pay date for payment of dividends and for credit of bonus shares.
iv. Amendment to Clause 40A of the Listing Agreement - Requirements in Respect of Minimum Public Share holding in Listed Entities
In order to align the requirements in Clause 40A of the Listing Agreement with the amended Securities Contracts (Regulation) Rules, 1957 on the captioned subject and to specify the manner in which public shareholding may be raised to the prescribed minimum, it was provided that :
a) Listed entities shall agree to comply with the requirements specified in Rule 19(2) and Rule 19A of the Rules.
b) Where the company is required to achieve the level of public shareholding as specified in Rule 19(2) and/or 19A of the Rules, it shall adopt any of the following methods to raise the public shareholding to the required level :-
• issuance of shares to public through prospectus; or
• offer for sale of shares held by promoters to public through prospectus; or
• sale of shares held by promoters through the secondary market.
v. Amendments to Clause 41 of the Listing Agreement
a) Voluntary Adoption of International Financial Reporting Standards
(IFRS), listed entities having subsidiaries were provided an option to submit their consolidated financial results either in accordance with the accounting standards specified in section 211(C) of the Companies Act, 1956, on in accordance with IFRS.
b) Requirement of a Valid Peer Review Certificate for Statutory Auditors
It has been decided that in respect of all listed entities, limited review/ statutory audit reports submitted to the concerned stock exchanges shall be given only by those auditors who have subjected themselves to the peer review process of ICAI and who hold a valid certificate issued by the ‘Peer Review Board’ of the said Institute.
vi Maintenance of a Website by Listed Entities
In order to ensure/enhance public dissemination of all basic information about listed entities, all such entities were mandated to maintain a functional website that contains certain basic, information about them, duly updated for all statutory filings, including agreements entered into with media companies, if any. vii. Disclosures Regarding Agreements with the Media Companies
In order to ensure public dissemination of details of agreements entered into by corporates with media companies, listed entities were mandated to disclose details of such agreements on their websites and also notify the stock exchange of the same for public dissemination.
Mutual funds witnessed redemption pressures during 2010-11 due to volatile market conditions. Mutual funds play an important role in mobilising the household savings for deployment in capital markets. The gross mobilisation of resources by all mutual funds during 2010-11 was at Rs 88,59,515 crore compared to Rs 1,00,19,022 crore during the previous year indicating a decrease of 11.6 percent over the previous year.
Redemption also decreased by 10.3 percent to Rs 89,08,921 crore in 2010-11 from Rs 99,35,942 crore in 2009-10. All mutual funds, put together, recorded a net outflow of Rs 49,406 crore in 2010-11 as compared to an inflow of Rs 83,080 crore in 2009-10.
The assets under management by all mutual funds decreased by 6.3 per cent to Rs 5,92,250 crore at the end of March 2011 from Rs 6,31,978 crore at the end of March, 2010. SEBI had taken the following initiatives to improve the functioning of mutual funds :
i. Disclosure of Investor Complaints with Respect to Mutual Funds
To improve transparency in ‘grievance redressal mechanism’, it was decided that mutual funds shall henceforth disclose detailed status of invest or complaints received by them in a prescribed format, on their websites, on the AMFI website as well as in their Annual Reports. These details should have been signed off by the trustees of the concerned mutual fund.
ii. Certification Programme for Sale and/or Distribution of Mutual Fund Products
Earlier, agents/distributors of mutual fund units were required to obtain certification from Association of Mutual Funds in India (AMFI), Under Regulation 3(1) of (Certification of Associated Persons in the Securities Markets) Regulations, 2007, it was decided that from June 01, 2010, the certification examination for distributors, agents or other persons employed or engaged or to be employed or engaged in the sale and/or distribution of mutual fund products, would be conducted by the National Institute of Securities Markets (NISM).
Submission of Report by the Takeover Regulations Advisory Committee : SEBI, vide its order dated September 4, 2009, had constituted the Takeover Regulations Advisory Committee with the mandate to examine and review the Takeover Regulations of 1997 and to suggest suitable amendments to the same, as deemed fit. The Committee was headed by Shri C. Achuthan, Former Presiding Officer of the Securities Appellate Tribunal and comprised of eminent members with expertise in diverse fields, viz., lawyers, industry representatives, investor association representative, merchant bankers, academics and SEBI representatives.
The Committee submitted its report to SEBI on July 19, 2010. Upon review of the existing law governing substantial acquisition of shares and takeovers vis-a-vis international practices, judicial pronouncements and experience gained so far, the Committee proposed substantive changes to the Regulations and consequently thought it fit to comprehensively re-write the Takeover Regulations. The proposed draft Takeover Regulations were also made part of the Committee Report.
The Committee Report was uploaded on the SEBI website for public comments. The public comments so received together with recommendations of the Committee are presently under consideration of the SEBI.
INVESTOR ASSISTANCE AND EDUCATION
SEBI Complaints Redressal System (SCORES)
SEBI is in the process of upgrading the investor grievance redressal mechanism.
The upgraded mechanism SCORES (SEBI Complaints Redressal System) would be a web-based, centralized grievance redress system for SEBI. All grievances will be in electronic mode with facility for online updation of Action Taken Reports by the users. SCORES will reduce grievance process time at SEBI since physical movements of grievances are not required. Similarly the grievance redressal time will be reduced since the entire process is in electronic mode, including action taken report submitted by the company/intermediary. Similarly, the problem of physical storage, maintenance and redressal has also been addressed due to the proposed conversion of physical grievances into electronic mode. As investors can track their grievance redressal status online, multiple correspondences from investors to know the status of their grievances are avoided. SCORES has been developed and the system will be fully functional in the financial year 2011-12.
B. Secondary Market
Equity Finance for Small and Medium Enterprises (SMEs)
A dedicated platform for SMEs is being set up to make available equity capital for small and medium scale industries. Based on finalized regulations, operational guidelines have been finalized by SEBI and BSE and NSE have been given in principle approval by SEBI for launching the same.
SEBI in May 2010 specified the framework for any company desirous of being recognized as a SME exchange. They have to apply to SEBI fulfilling the following conditions, that it should be a corporatised and demutualised entity; it has a networth of at least Rs. 100 crores; it shall have nationwide trading terminals and an online screen-based trading system; the minimum lot size for trading on the stock exchange shall be one lakh rupees etc.
Further, certain relaxations are provided to the issuers whose securities are listed on SME exchange in comparison to the listing requirements in Main Board, which inter-alia include companies listed on the SME exchange may send to their shareholders, a statement containing the salient features of all the documents, instead of sending full annual Report; secondly, periodical financial results may be submitted on ‘‘half yearly basis’’, instead of ‘‘quarterly basis’’ and SMEs need not publish their financial results, as required in the Main Board and can make it available on their website.
As per the framework for setting up of new exchange or separate platform of existing stock exchange, market making has been made mandatory in respect of all scrips listed and traded on SME exchange. The merchant banker to the issue will undertake market making through a stock broker who is registered as market maker with the SME exchange. The merchant banker shall be responsible for market making for a minimum period of three years from the date of listing of the specified securities.
Review of Ownership and Corporate Governance Norms
SEBI had constituted a Committee under the Chairmanship of Dr Bimal Jalan on February 8, 2010 to examine the issue arising from the ownership and governance of market infrastructure, institutions like depositories, clearing corporations and stock exchanges. The Committee submitted its report on 23rd November, 2010 to SEBI. There port of the Committee has been posted on the website of SEBI and public comments have been received by SEBI. The recommendations of the Committee are being examined by the Government and the SEBI.
This Convention is aimed at providing internationally applicable common legal regime which will promote legal certainty and economic efficiency with respect to cross border holding and disposition of securities held with an intermediary. Further, the risks associated with intermediated securities has also necessitated the creation of agreed international rules for intermediated securities in the form of an International Convention so as to appropriately handle issues related to cross-border trading, exchange linkages and clearing and settlement of such transactions through financial sector intermediaries. In view of this, the International Institute for the Unification of Law (UNIDROIT) held Diplomatic Conferences to harmonise the laws in this regard in various jurisdictions. The Conference adopted the agreed text of the UNIDROIT Convention on Substantive Rules for Intermediated Securities and its Final Act on 9th October 2009. The Final Act of the Conference was signed by 37 States including India and the European Community in October 2009.
Securities Trading Using Wireless Technology
SEBI registered brokers who provide Internet Based Trading, as specified by SEBI circular dated January 31, 2000, shall be eligible to provide securities trading using wireless technology. All relevant requirements applicable to internet based trading shall also be applicable to securities trading using wireless technology.
Smart Order Routing (SOR)
On the recommendation of Technical Advisory Committee (TAC) of SEBI and proposals from stock exchanges and market participants, SEBI has introduced the facility of Smart Order Routing (SOR) which allows the brokers trading engines to systematically chose the execution destination based on factors viz. price, cost, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order. This facility would help brokers execute client order efficiently by providing the best price available across multiple stock exchanges. ===Securities Lending And Borrowing Mechanism (SLB===) SEBI vide its circular dated October 7, 2010 extended the contract tenure for securities lending and borrowing, from a period of 30 days to a maximum period of 12 months and providing the facility of early recall and repayment of securities. The dividend amount would be worked out and recovered from the borrower on the book closure/ record dated and passed on to the lender.
Development of Derivatives Markets
• Currency Futures : Since 2008, Currency futures were traded only in USDINR currency pairs. Subsequently, based on the market feedback, trade in three other currency pairs namely Euro-INR, GBP-INR and JPY-INR were introduced at NSE and MCX-SX in February 2010. USE started trading in all four currency pairs in September 2010. Currency futures and options allow exporters to hedge against foreign currency fluctuations in respect of their underlying foreign exchange liabilities.
• Derivative Contracts on Volatility Index : SEBI had in January, 2008 introduced Volatility index and in April 2010 decided to permit Stock Exchanges to introduce derivative contracts on Volatility index, subject to the condition that the underlying Volatility Index has a track record of at least one year and the Exchange has in place the appropriate risk management framework for such derivative contracts.
• Interest Rate Futures (IRF) : On 7th March, 2011, SEBI has permitted stock exchanges to introduce Futures on 91-day Government of India Treasury Bills (T-Bills) in their currency derivative segement.
• Currency Options : Trade in currency options on USD-INR were launched in NSE and USE in October 2010.
• European Style Stock Options : Stock exchanges were provided with the flexibility to offer either European style or American style stock options. After opting for a particular style of exercise, a stock exchange has to offer options contracts of the same style on all eligible stocks. At NSE, European style stock options were introduced for all options contracts expiring on or after January 27, 2011. On BSE, it was introduced for contracts expiring on or after March 17,2011.
• Derivative Contracts on Foreign Stock indices : In January, 2011, SEBI has allowed stock exchanges to introduce derivative contracts (futures and Options) on foreign stock indices in their equity derivative segment.
C. External Market
External Commercial Borrowings (ECB) policy
i. External Commercial Borrowings (ECB) refer to commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares) availed of from non-resident lenders with a minimum average maturity of 3 years. The External Commercial Borrowing (ECB) policy is regularly reviewed by the Government in consultation with the Reserve Bank of India (RBI) to reflect the evolving macroeconomic situation, domestic market conditions, sectoral requirements, the external conditions and India’s experience in dealing with them in the country.
ii. The ECB policy is applicable to Foreign Currency Convertible Bonds (FCCBs) and foreign Currency Exchangeable Bond (FCEBs). FCCBs. means a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which is payable in foreign currency. Further, the bonds are required to be issued in accordance with the scheme viz., ‘‘Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993", and subscribed by a nonresident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments.
iii. Foreign Currency Exchangeable Bond (FCEB) means a bond expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency, issued by an Issuing Company and subscribed to by a person who is a resident outside India, in foreign currency and exchangeable into equity share of another company, to be called the Offered Company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments. The FCEB must comply with the ‘‘Issue of Foreign Currency Exchangeable Bonds (FCEB) Scheme, 2008’’, notified by the Government of India, Ministry of Finance, Department of Economic Affairs vide Notification G.S.R.89(E) dated February 15, 2008. The guidelines, rules, etc. governing ECBs are also applicable to FCEBs.
iv. Preference shares (i.e. non-convertible, optionally convertible convertible) for issue of which funds have been received on or after May 1, 2007, would be considered as debt and should conform to ECB policy.
v. Foreign institutional Investors (Flls) investment in Government Securities and Corporate Bonds in India in Rupees are reckoned under the overall ECB limits.
vi. ECBs are being permitted by the Government as an additional source of finance to augment the resources available domestically to Indian corporate for financing import of capital goods, new projects, modernization/expansion of existing production units in real sector - industrial sector including small and medium enterprises (SME) and infrastructure sector - and in the services sector viz. hotels, hospitals and software companies for import of capital goods, for foreign currency and/or rupee capital expenditure. ECBs are approved within an overall annual ceiling, consistent with prudent debt management. Enduses of FCB for working capital, general corporate purpose and repayment of existing rupee loans are not permitted.
vii. A prospective borrower can access ECB under two routes, namely the automatic route and the approval route. A corporate, other than a financial intermediary, registered under the Companies Act, 1956, can access ECB under the automatic route up to US$ 500 million in a financial year both for rupee expenditure and/or foreign currency expenditure for permissible end uses. The borrowers in the services sector viz. hotels, hospitals and software companies can access ECB under the automatic route up to US$ 100 million in a financial year for import of capital goods, for rupee and/or foreign currency capital expenditure and NGOs engaged in micro finance activities up to US$ 5 million in a financial year.
viii. The ECB which is not covered by the automatic route is considered under the approval route on a case-by-case basis by RBI.
ix. ECB policy is operationalised through notifications issued by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act, 1999. These can be accessed on RBI’s website.
x. The norms applicable to ECB are also applicable to Foreign Currency Convertible Bonds (FCCBs) in all respects, except in the case of housing finance companies for which criteria will be notified by RBI.
ECB Policy Developments in 2011
i. ECB policies have been substantially liberalized to facilitate more external funds to the infrastructure sector to augment the growth potential of the economy.
ii. A separate category of Non-Banking Financial Companies (NBFCs), viz. Infrastructure Finance Companies (IFCs) has been introduced for availing of ECB for on-lending to the infrastructure sector. Thew IFCs are allowed to avail of ECBs, including the outstanding ECBs, up to 50 per cent of their owned funds under the automatic route, subject to compliance with the prudential guidelines already in place and ECBs by IFCs above 50 per cent of the owned funds would be considered under the approval route.
iii. The facility of credit enhancement of raising debt through capital market instruments by entities in the infrastructure sector as also IFCs has been put in place.
iv. The definition of the infrastructure sector has been expanded by including farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.
v. A scheme of take-out financing has been permitted through ECB under approval route to enhance availability of credit to the infrastructure sectors, such as sea port and airport, roads including bridges and power sectors for the development of new projects subject to conditions stipulated by RBI in its A.P. (DIR Series) circular no. 04 dated July 22, 2010.
vi. Borrowers in the services sectors, viz., Hotels, Hospitals and Software were hitherto allowed to avail of ECB only up to USD 100 million per financial year under the automatic route, for foreign currency and/or rupee capital expenditure for permissible end-uses. As a measure of further liberalization, ECB beyond USD 100 million has been allowed to the borrowers in these specific services sectors under the approval route.
vii. Corporates engaged in the development of integrated township were permitted to avail of ECB, under the approval route, up to December 31, 2010. viii. Budget speech for 2011-12 announced Government’s intention to create special vehicles in the form of notified infrastructure debt fund (IDF) to attract foreign funds for financing of infrastructure. The primary purpose of setting up of IDFs is to pool resources from long term sources of funds, especially off-shore pension funds, insurance companies, sovereign wealth funds etc. to provide long term debt to infrastructure projects. The High Level Committee on ECB discussed the number of issues related to IDFs in its meeting held on 27th May, 2011 and decided to :
a. include IDFs as eligible borrowers under the ECB guidelines;
b. relax the condition about recognized lenders to IDFs under ECB guidelines to include pension funds, insurance companies, endowment funds, sovereign wealth funds and multilateral development banks (ADB/WB);
c. permit IDFs to utilize fresh ECB for on-lending in INR for infrastructure as defined in ECB policy;
d. allow refinance of existing loans for domestic infrastructure projects. The buy-back of bonds will be possible only after minimum lock-in period of five years for non-resident investors;
e. permit lending by IDFs to domestic infrastructure projects in Rupees only and not in foreign currency;
f. enhance the overall limits for raising ECB by each IDF to US$ 2 billion per year under the approval route.
ix. The global financial crisis brought a dampening effect on global stock prices. As a result, FCCBs issued by Indian companies were trading at deep discounts. Recognizing the potential benefits, RBI, in consultation with GoI had enabled a buy back window, both under automatic and the approval route. Similarly, a six month window was enabled to allow the companies to revise the conversion price of bonds in alignment with market price. Notwithstanding the improvements in FCCB market, in case of a few corporates, the conversion price of FCCBs is still higher and these FCCBs would be coming up for redemption soon.
But many issuers of the FCCBs have not provided adequate liquidity in their balance sheets nor do they have sufficient cash flows to honor the redemption obligations. These companies also have no backstop facility to fall back upon the event of a financial hardship. Hence in order to ease the redemption pressure, RBI has allowed Indian Corporate to raise fresh ECBs under approval route to refinance (not involving change in conversion price)/ restructure their FCCBs. This scheme is valid upto March 2012.
x. The High Level Committee on ECB decided to enhance the over all ECB ceiling for the financial year 2011-12 from US$ 40 billion to US$ 80 billion with the following sub limits :-
a. Pure ECB - US$ 30 billion,
b. Fll investment in Government sec urities - US$ 10 billion, and
c. Fll investment in corporate bond - US$ 40 billion.
xi. During the last financial year (April-March 2011), ECBs registered with the
Reserve Bank amounted to USD 25.776 billion, recording an increase of 18.90 percent over USD 21.678 billion during the same period in 2009-10, thereby acting as an important driver of capital flows. Of this, 63 per cent of the ECBs registered were under the automatic route and the remaining 37 per cent under the approval route.
Fll Investments in Government Securities and Corporate Bonds
Flls registered with SEBI were permitted to invest in Government Securities and corporate bonds up to USD 5 billion and USD 15 billion, respectively. On a review in the context of India’s evolving macro economic situation, its increasing attractiveness as an investment destination and need for additional financial resources for India’s infrastructure sector while balancing its monetary policy, it was decided to increase the limit of Fll investment both in Government securities and corporate bonds by US $ 5 billion would, however, be invested in securities with residual maturity of over five years and corporate bonds with residual maturity of over five years issues by companies in infrastructure sector. Press Release to this effect was issued on 23rd September, 2010.
Further, as per the Budget speech 2011-12, Hon’ble Finance Minister made an announcement to enhance the Fll limit for investment in Corporate Bonds with residual maturity of over five years issued by companies in infrastructure sector, by an additional limit of US $ 20 billion taking the limit to US $ 25 billion. This raised the total limit available to the Flls for investment in corporate bonds to US $ 40 billion. Since most of the infrastructure companies are organised in the form of SPVs, Flls would also be permitted to invest in unlisted bonds with a minimum lock-in-period of three years. However, the Flls will be allowed to trade amongst themselves during the lock-in-period. This budget announcement has been implemented on 31st March 2011.
Foreign Investment in India in equity
A scheme was initiated during 1993 named Issue of Foreign Currency Convertible Bond sand Ordinary Shares (Though Depositary Receipt Mechanism) Scheme, 1993 to allow the Indian Corporate Sector to have access to the Global capital markets through issue of Foreign Currency Convertible Bonds (FCCBs/Equity Shares under the Global Depository Mechanism (GDR) and American Depository Mechanism (ADR).
An expert Committee under the Chairmanship of Sh. Saumitra Chauduri, Member, Economic Advisory Council to the Prime Minister was set up by this Department to review/streamline the ADR/GDR policy. The recommendations of the committee were considered and are under implementation.
Foreign institutional Investors (Fll) Scheme
A scheme for attracting portfolio from foreign Institutional Investors (Flls) has been operational since September, 1992. Under this scheme, Flls including institutions such as Pension Funds, Mutual Funds, Investment Trusts, Asset Management Companies, Nominee Companies and Incorporated/Institutional Portfolio Managers or their power of attorney holders are allowed to invest in all the securities traded on the primary and secondary markets.
Such securities would include shares, debentures and warrants issued by companies which are listed/to be listed on the Stock Exchanges in India and the schemes floated by domestic mutual funds. Flls are permitted to invest in Government securities including Treasury Bills. Flls who register themselves as debt Funds with SEBI are permitted to make 100% of their investments in Debt securities of Indian companies. Flls are now permitted to trade in all exchange traded derivative products as approved by SEBI subject to trading limits of trading members and their clients as prescribed by SEBI. Such portfolio investments by Flls are subject to investment ceilings as indicated below:
i) Individual FII/Sub-account 10% of the issued and paid up capital in a company
ii) Aggregate by all FIIs 24% of the issued and paid-up capital in a company which could be increased up to the sectoral cap/statutory ceiling, as applicable, by the Indian company concerned by passing a resolution by its Board of Directors followed by passing of a special resolution to that effect by its General Body
Foreign Venture Capital Investors (FVCIs) scheme
As per SEBI guidelines, any company or trust or a body corporate can apply to carry on any activity as a venture capital fund, except a small negative list which includes NBFC (except those which are engaged in gold financing for jewellery) and activities not permitted under industrial policy of Government of India. A venture capital fund may raise monies from any investor whether Indian, foreign or non-resident Indians by way of issue of units. A VCF has to invest at least 66.67% of the investible funds in unlisted equity shares. However, 33.33% could be invested in, among others, IPOs of an undertaking whose shares are proposed to be listed, Preferential allotment of equity shares of a listed company subject to lock in period of one year, the equity shares or equity linked instruments of financially weak company or a sick.
India’s Sovereign Credit Rating
Presently, India’s sovereign debt is rated by six international credit rating agencies namely, Standard and Poor’s (S&P), Moody’s Investor Services, FITCH, Dominion Bond Rating Service (DBRS), Japanese Credit Rating Agency (JCRA) and Rating and Investment Information Inc., Tokyo (R&I). Information flow to these credit rating agencies has been streamlined and the Interact on process has been made more structured.
During 2011 (as on 28.7.2011), S&P, Fitch Ratings and R&I have maintained their previous ratings. On 23.6.2011, DBRS have upgraded its outlook for foreign currency as well as local currency from negative to stable.
Financial Stability and Development Council (FSDC)
Many financial products are also hybrid and cut across regulatory domains. At present there are multiple regulators in India, each regulating specific products. This leads to silo structures, which do not encourage coordination across the broad spectrum of the financial sector and lead to sub-optimal outcome. Accordingly, with a view to strengthening and instituionalising financial stability architecture in the country and take up the development issues of the sector with out prejudice to the autonomy of the regulators, the government in its budget 2010-11, announced the creation of an apex-level Financial Stability and Development Council (FSDC).
The Chairman of the Council is the Fiance Minister of India and its members include the heads of the financial sector regulatory authorities; Finance Secretary and/ or Secretary, Department of Economic Affairs (DEA); Secretary, Department of Financial Services; and the Chief Economic Advisor. A Sub-Committee of FSDC has also been set up under the chairmanship of Governor, RBI.
The Council has already met thrice to discuss issues important for our economic growth. During its third meeting held on 27th July 2011, FSDC discussed issues relating to state of the Indian Economy Short term Prospects and Challenges, Sovereign Credit Rating of India: Issues and Way Forward and Monitoring Financial Stability. The sub committee of FSDC has also met twice, last meeting having been held on 24th May 2011.
Financial Sector Legislative Reforms Commission (FSLRC)
Finance Minister, in 2010-11 Budget, inter alia, announced the proposal to set up a Financial Sector Legislative Reforms Commission. The resolution notifying the constitution of the Commission was issued on March 24th, 2011. The setting up of this Commission is the result of a felt need to simplify and with a view to rewrite financial sector legislations, including subordinate legislations, in tune with the requirements of the future to bring in greater clarity and synergy.
There are a large number of Acts (about 60 have been identified) and multiple Rules and Regulations that govern the financial sector in India today. Large number of amendments to these Acts done at different times has increased the ambiguity and complexity of the system. This architecture is sub-optimal in addressing issues of an increasingly dynamic, complex and inter-connected financial world. The Commission will review, with a view to rewrite, financial sector legislations making them more consistent with each other. This will result in removing ambiguity, regulatory gaps and overlaps among the various legislations. This will also make legislations more coherent and dynamic as well as bring them in tune with changing financial landscape. The long run outcome of this process would be efficient financial intermediation that would enhance growth.
The Commission is chaired by justice B.N. Srikrishna, former Judge of the Supreme Court of India and has members having expertise in the fields of finance, economics, law and other relevant fields. The Commission has its headquarters at Delhi and will submit its Report to the Finance Minister within 24 months of the date of notification.
Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) is an inter-governmental policy making body, that has a ministerial mandate to establish international standards for combating money laundering and terrorist financing. India joined the Financial Action Taks Force (FATF) as its 34th member in June, 2010. At present, FATF has 36 members comprising of 34 countries and two organizations namely, the European Union and the Gulf Cooperation Council. At the time of joining FATF, India gave an Action Plan to over come certain deficiencies in a time bound manner. The items of the Action Plan were divided into immediate short term and Medium term items, which were to be completed by June, 2010 March, 2011 and March, 2012 respectively. India has completed the Immediate and Short term Action Plan items within the stipulated time and the same have been ack nowledged by the FATF technical onsite team which visited India in April, 2011.
India participated in the Financial Action Task Force (FATF) plenary and working group meetings held in Mexico City, Mexico from 20-24 June 2011. The plenary meeting discussed India’s Follow up Report of the FATF technical onsite team which visited India in April 2011 to assess India’s fulfillment of its Short term Action Plan and if it is on track to fulfil its Medium term commitments. The FATF secretariat commended India’s commitment to a strong anti-money laundering (AML) combating financing of terrorism (CFT) regime and acknowledged that India has made significant progress on all action points as per the time schedule. This view was shared by the FATF Plenary.
-in December 2010, India became 9th member of the Eurasian Group, which is a Financial Action Task Force (FATF) styled regional body, responsible for enforcing global standards on AML and CFT. The other members are Russia, China, Turkmenistan, Serbia, Tajikistan, Uzbekistan, Belarus and Kazakstan. The group also has 16 nations and 15 organisations as observer. India is leading the project, ‘Money laundering through Securities Market’ in the EAG. India also participated in the joint FATF-EAG high level mission to Tajikistan with regard to its asset repatriation program. India is committed at the highest of the Government to adopt, enforce and contribute to international best practices in AML and CFT.
Financial Stability Board (FSB)
The Financial Stability Forum (FSF) was established by the G7 Finance Ministers and Central Bank Governors in 1999 to promote international financial stability through enhanced information exchange and international cooperation in financial market supervision and surveillance. It decided as its plenary meeting in London on 11-12 March, 2009 to broaden its membership and to invite as new members the G20 countries that were not initially in the FSF. These included Argentina, Brazil, China, India, Indonesia, Korea, Mexico, Russia, Saudi Arabia, South Africa and Turkey. In order to mark a change and convey that the FSF will play a more prominent role in this direction in the future, the FSF was re-launched as the Financial Stability Board (FSB) on April 2, 2009, with an expanded membership and a broadened mandate to promote financial stability.
FSB comprises of national financial authorities (central banks, supervisory authorities and finance ministries) from the G20 countries, as well as international financial institutions, international regulatory and supervisory groupings, committees of central bank experts and the European Central Bank. Regular interaction with the Financial Stability Board takes place through periodic conference calls and meetings. Information is exchanged with FSB member jurisdictions frequently as per international requirements. Capital Markets Division of the Ministry of Finance coordinates with the domestic financial sector regulators and other agencies to consolidate and share India’s views with the FSB who in turn share it with the G-20 that continuously monitors the working of the FSB.
Financial Stability Assessment Programme
India’s Financial Sector Assessment Programme (FSAP) was initially done by IMF/ World Bank in 2000-2001 but it was not made public as it was part of the Pilot FSAP assessment of 12 countries. The Committee on Financial Sector Assessment (CFSA) - co-chaired by Deputy Governor RBI and Finance Secretary-completed a selfassessment in 2009. There port is in public domain and is hosted on the RBI website http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1966). FSB members have committed to, inter-alia, undertaking periodic peer reviews. As a member of FSB, India requested IMF/World Bank to conduct such a review by way of full-fledged Financial Sector Assessment Programme (FSAP). First Mission of the FSAP visited India during June 15 to July 1, 2011 for India’s FSAP evaluation.
Bilateral Co-operation with Countries/Organizations
1. India-UK Development Cooperation
The Government of UK has been providing bilateral assistance to India since 1958. UK is the largest provider of grant assistance to India. Development assistance from UK is largely administered by its Department for International Development (DFID). DFID has been providing bilateral development assistance for implementing Central and State Sector projects. DFID also provides assistance to Multilateral Institutions, namely, World Bank, Asian Development Bank (ADB), United Nations Children’s Fund (UNICEF), World Health Organisation (WHO) for implementing programmes in India. Besides, DFID through its civil society programmes, viz. Poorest Areas Civil Society Programme (PACS) and International Non-Government Organisation Partnership Agreements Programme (IPAP) supports Indian NGOs.
DFID focuses its development assistance in the area of education, health & HIV/ AIDS, urban-slum improvement and rural livelihoods with the aim to achieve the target of Millennium Development Goals (MDGs). Apart from supporting national programmes like Sarva Shiksha Abhiyan (SSA), Reproductive & Child Health (RCH), National AIDS Control Programme (NACP), DFID supports three focal States, i.e., Bihar, Orissa and Madhya Pradesh in the identified priority areas.
2. Indo-Italy Bilateral Cooperation
Italy has been providing concessional assistance to India since 1981. Prior to 1981, Italy was providing suppliers’ credit to importers directly. Bilateral agreement on Technical Cooperation concluded in February, 1981 whereby Italy agreed to provide experts’ services and related equipment on grant basis for specific projects. Government of Italy is providing an interest free loan amounting to Euro 2,58,22,84,495 for Water Supply and Solid Waste Management Projects in 16 selected towns of West Bengal, with repayment period of 39 years, including a grace period of 19 years. The project was signed on 10th January, 2006. A loan amount of Rs 1857 crore has been disbursed till date.
3. Indo-Norway Bilateral Cooperation
The Norwegian Bilateral Development Assistance Programme in India began in 1952 with traditional fisheries project in Kerala by way of technical assistance and financial support. Since 1970, Norwegian assistance has been received as grants for technical cooperation and local cost projects, mainly in social and environment sectors.
Norway, being a non G-8 and non-EU country, ODA from Norway is not acceptable in accordance with the existing policy on Bilateral Development Cooperation.
The First Annual Bilateral Meeting between Senior Officers of the ministries of Finance of India and Norway was held on 22-23 May, 2009 to explore bilateral cooperation between the two nations. The meeting was centered around the international economic outlook, including the financial crisis; Macro-economic and monetary policies in India; Policies and prospects in Norway; Renewal of the Bilateral tax treaty; The Norwegian pension Fund-Global and investments in Asia and India; Climate Policies, including Norwegian Purchases of CDM Projects in India.
The 2nd annual bilateral meeting between Senior Officers of the ministries of Finance of India and Norway was held on 1st October, 2010 in North Block, New Delhi. The meeting was centered around the General update on economic developments, including the handling of issues emerging from the financial crisis; Norwegian Government Pension Fund-Global; Tax Havens and illegal financial flows; G20 and IMF; Climate change, green economic growth and CDM and bilateral double taxation agreement. The 3rd Annual Bilateral Meeting between Senior Officers of the Ministries of Finance of India and Norway was held on 9-10th June, 2011.
4. Indo-Austria Bilateral Cooperation
India and Austria enjoy a close and friendly economic relationship. Presently, there is no activity under bilateral development cooperation programme between India and Austria. As per the existing guidelines, Austria being EU & non-G8 country, need to commit a minimum annual development assistance of US$ 25 million to India Austria has not responded to the existing policy on the Bilateral Development Cooperation.
Subsequent to the meeting between Mr. Josef Proll, Federal Minister of Finance, Austria and Hon’ble FM on 18th February, 2010. Austria desired to enter into negotiations for a possible future financial cooperation with India through Austrian Soft Loan Scheme for financing of commercially non-viable projects/sectors, e.g., infrastructure, automotive industries, hydropower, clean energy and energy efficiency/transportation. This is under consideration.
5. European Union (EU) Development Cooperation
The European Union (EU) provides assistance through Development Cooperation in form of grants. The priority areas include environment, public health and education. EU implements development cooperation programmes through Country Strategy Paper (CSP). The CSP is based on EU objectives, on the policy agenda of the partner country and on an analysis of the country/region situation. The current CSP for the 2007-2013 covers Multiannual Indicative Programme-I (MIP-I) for the period 2007-2010 and Multiannual Indicative Programme-II (MIP-II) for the period 2011-2013.
An Memorandum of Understanding (MoU) for MIP-I was signed between India and EU on November 30, 2007 during the 8th India-EU Summit held in New Delhi for an amount of Euro 260 million, while MoU for MIP-II was signed on February 22, 2011 at New Delhi for an amount of Euro 210 million. Thus for CSP 2007-13, the total amount of EC grants of Euro 470 million.
Department of Commerce is the nodal ministry for implementation of Joint Action Plan (JAP). JAP provides the necessary framework for deeper cooperation and engagement through adoption of specific measures in various sectors, viz., Industrial Policy, Science & Technology, Finance & Monetary Affairs, Environment, Energy, Information & Communication Technologies, Transport, Shipping, Space Technology, Pharmaceuticals & Biotechnology, Agriculture, Customs, Employment and Social Policy, Business Cooperation and Development Cooperation.
The major programmes of Government of India which receive EU aid along with other development partners are Sarv Shiksha Abhiyan (SSA) and National Rural Health Mission (NRHM)/Reproductive Child Health (RCH). India-EU Sub Commission on Development Cooperation is a forum at which bilateral issues relating to development cooperation with EU are discussed. The last meeting of India-EU Sub Commission on Development Cooperation was held at New Delhi on May 4, 2011. The annual meeting is held alternatively between Delhi and Brussels. The Sub Commission on Development Cooperation reports to India-EU Joint Commission.
6. Indo-German Development Cooperation
The Federal Republic of Germany (FRG) and been providing both financial and technical assistance to India since 1958. The German Federal Ministry for Economic Cooperation & Development (BMZ) provides funds for financial and technical Cooperation, while the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) provides funds for Technical Cooperation. Financial Assistance is provided in the form of soft loan, reduced interest loan as well as grants routed through KfW, the German Government’s Development Bank. The technical assistance is provided in the form of grant in the form of experts, equipments, consultancy etc. through the GIZ (earlier GTZ) - a fully-owned corporation of German Government.
The Strategic Framework for Indo German Bilateral Development Cooperation acts as a guiding framework for bilateral development partnership. The objective is to focus on making greatest possible impact on national development processes and poverty reduction and supplementing efforts to solve global structural problems like environmental degradation and climate change. In alignment with our Plan priorities and development agenda, priority areas to be focused under Indo German bilateral development cooperation are :
i) Energy, including energy efficiency, renewable energy, sector reforms.
ii) environment, including urban and industrial environmental protection, natural resources
iii) Sustainable Economic Development, including rural financing, social security systems, SME development and financing.
Main projects being funded under German assistance include programmes for promotion of energy efficiency, support to SME sector, promotion of new and renewable energy sources, financial assistance to NABARD/SIDBI/REC/IREDA, natural resource management, climate change adoption etc. For the year 2010, the total commitment from Germany, under bilateral development cooperation, amounted to nearly Euro 500 million.
7. India-France Development Cooperation
The Government of France has provided development assistance to India through French Embassy in New Delhi since 1968. Earlier, the French assistance was provided as Treasury Loan, which was ‘tied’ to supply of goods and services from France. In view of our policy on development co-operation of 2004 and also in terms of Paris Declaration on Aid Effectiveness (signed by both countries), ‘tied’ assistance form was discontinued.
In 2006, Government of France proposed to provide untied development assistance to India through the French agency for Development (AfD). In this regard, an Inter-governmental Agreement was signed between the two Governments on January 25, 2008 during the State visit of French President Nicholas Sarkozy to India. In pursuance of the inter-governmental Agreement, an Memorandum of Understanding (MoU) was signed between the Department of Economic Affairs and AfD on September 29, 2008. The MoU covers the mutual understanding on priority areas, portfolio procedures, financial instruments, concessionality, etc. The AfD portfolio is focussed at projects contributing to the sustainable management of global public goods, inter alia (i) energy efficiency, renewable energy and public transport (ii) the preservation of biodiversity, and (iii) limitation of the spread of emerging and contagious diseases.
Main projects being funded under AfD assistance include programmes for promotion of biodiversity, urban development projects to improve water supply, transportation, credit lines for environment programmes, financial assistance to organisations like IREDA, SIDBI etc. For the year 2010, the total commitment from AfD, under bilateral development cooperation, amounted to nearly Euro 125 million.
8. Indo-Japan Bilateral Relations
India has received a commitment from Government of Japan for Official Development Assistance (ODA) for loan of Yen 203.566 billion (Rs. 11197.81 crores approx) for FY 2010-11. With this, the cumulative ODA loan from Government of Japan has reached Yen 3320.369 billion on commitment basis, till 31st March, 2011. Notes were exchanged between Government of India and Government of Japan on February 17, 2011 for the FY 2010 JICA ODA loan package. The details of the projects are as under :
The Exchange of Notes for this package was to be signed by end March, 2011. Post earthquake, Government of Japan has postponed the signing of exchange of notes for these projects. The notes are expected to be exchanged in next financial year, i.e., FY 2011.
Government of Japan provides assistance under Grant Aid and Technical Cooperation Programme. There are seven ongoing projects under Grant Aid, Technical Cooperation and Development Study Programmes, in the field of health, education, environment, etc. There are four ongoing Model Projects in the field of energy conservation/alternative energy source under Green Aid Plan of Government of Japan. Apart from this, Government of Japan also provides assistance to NGOs for implementation of Project.
9. Government of India supported Exim Bank Lines of Credit extended to foreign countries
In the year 2010-11 (i.e. April, 2010 to March 2011), following proposals for extension of GOI supported lines of credit to be routed through the Exim Bank of India have been approved :
i. US$ 25 million credit line to the Government of Mozambique
ii. US$ 42 million credit line to the Government of DR Congo
iii. US$ 382.37 million credit line to the Government of Sri Lanka
iv. US$ 61.60 million credit line to the Government of Kenya
v. US$ 41.60 million credit line to the Government of Comoros
vi. US$ 15 million credit line to the Government of Cambodia
vii. US$ 48.50 million credit line to the Government of Mauritius
viii. US$ 213.31 million credit line to the Government of Ethiopia
ix. US$ 72.55 million credit line to the Government of Lao PDR
x. US$ 20 million credit line to the Government of Mozambique
xi. US$ 168 million credit line to the Government of DR Congo
xii. US$ 150 million credit line to the ECOWAS Bank Investment & Development (EBID)
xiii. US$ 50 million credit line to the Government of Malawi
xiv. US$ 40 million credit line to the Government of Maldives
xv. US$ 10 million credit line to the Government of Swaziland
xvi. US$ 27.50 million credit line to the Government of Senegal
xvii. US$ 91 million credit line to the Government of Ethiopia
xviii. US$ 80 million credit line to the Government of Burundi
India and the International Monetary Fund (IMF)
International Monetary Fund (IMF) was established along with the International Bank for Reconstruction and Development at the Conference of 44 nations held at Bretton Woods, New Hampshire, USA in July 1944. The IMF came into formal existence in December 1945, when its first 29 member countries signed its Article of Agreement. It began operations on March 1, 1947. At present, 187 nations are members of IMF.
India is a founder member of the IMF. Finance Minister is the ex-officio Governor on the Board of Governors of the IMF, which is the highest decisionmaking body of the IMF. RBI Governor is the Alternate Governor at the IMF. India is represented at the IMF by an Executive Director, currently Dr. Arvind Virmani, who also represents three other countries as well, viz. Bangladesh, Sri Lanka and Bhutan.
IMF was created to promote international monetary cooperation; facilitate the expansion and balanced growth of international trade; promote exchange stability; assist in the establishment of a multiateral system of payments; make its general resources temporarily available to its members experiencing balance of payments difficulties under adequate safeguards, and to shorten the duration and lessen the degree of disequilibria in the international balances of payments of members.
Since the IMF was established, its purposes have remained unchanged but its operations - which involve surveillance, financial assistance and technical assistance - have developed to meet the changing needs of its member countries in an evolving world economy.
Board of Governors
The Board of Governors is the highest decision-making body of the IMF. It consists of one Governor and one Alternate Governor from each member country. For India, Finance Minister is the ex-officio Governor on the Board of Governors of the IMF. Governor, RBI is India’s Alternate Governor. The Board of Governors usually meets once a year to discuss the work of the respective institutions at the Annual meetings, which are generally held in September/October. These Annual Meetings have customarily been held in Washington D.C. USA, for two consecutive years and in another member country in the third year.
International Monetary and Financial Committee
The International Monetary and Financial Committee (IMFC) of the Board of Governors is an advisory body made up of 24 IMF Governors, Ministers, or other officials of comparable rank, representing the same constituencies as in the IMF’s Executive Board.
The day-to-day management of the IMF is carried out by the IMF’s 24-member Board of Executive Directors, who are appointed/elected by member countries/ group of countries.
Upon joining the IMF, each country is allocated a quota based approximately on the relative size of its economy. The quota determines the country’s financial contribution to the IMF, its voting power and ability to access IMF financing. Quota subscriptions generate most of the IMF’s financial resources.
India’s current quota in the IMF is SDR (Special Drawing Rights) 5,821.5 million in the total quota of SDR 237 billion, giving it a share holding of 2.44%. However, based on voting share, India (together with its constituency countries, viz., Bangladesh, Bhutan and Sri Lanka) is ranked 22nd in the list of 24 constituencies.
2 Share of a India’s quota paid in reserve assets, i.e. SDRs or usable currencies The IMF’s Board of Governors conducts general quota reviews at regular intervals (usually every five years). Any changes in quotas must be approved by an 85 percent majority of the total voting power, and a member’s quota cannot be changed without its consent. There are two main issues addressed in a general quota review: the size of an overall increase and the distribution of the increase among the members.
The Board of Governors at the IMF has adopted the resolution on ‘‘Fourteenth General Review of Quotas and Reform of the Executive Board of the IMF’’ on 16th December 2010. When the resolution becomes effective, the total size of Fund quotas would increase by 100 per cent from the 2008 quota and voice reform to approximately SDR 476.8 billion.
Significantly, the reforms will lead to a realignment of quota shares of member countries, with the shifts to dynamic Emerging Market and Developing Countries (EMDCs) and from over - to under-represented countries while protecting the voting share of the poorest members.
There will be four EMDCs (Brazil, China, India, and Russia) among the 10 largest shareholders in the IMF, with, India’s quota share expected to increase from the current 2.44% to 2.75%, once the reforms become effective. This would make India the 8th largest quota holding country at the IMF. As can be seen from the table below, India’s quota has been increasing overtime :
The quota largely determines a member’s voting power in IMF decisions. Each IMF member’s votes are comprised of basic votes plus one additional vote for each SDR 100,000 of quota. The 2008 reform fixed the number of basic votes at 5.502 percent of total votes. India currently has 58,954 votes (2.35% of the total). Based on voting share, India (together with its constituency countries, viz., Bangladesh, Bhutan and Sri Lanka) is ranked 22nd in the list of 24 constituencies.
General and Special SDR Allocations by IMF
SDR is on international reserve asset, created by the IMF in 1969 to supplement its member countries', official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. Under its Articles of Agreement, the IMF may allocate SDRs to members in proportion to their IMF quotas. These members must be participants in the SDR department of the IMF (all Fund members need not necessarily be participants in the SDR department of IMF, although at present all are).
Such an allocation provides each member with an asset (SDR holdings) and an equivalent liability (SDR allocation). If a member’s SDR holdings rise above its allocation, it earns interest on the excess; conversely, if it holds fewer SDRs than allocated, it pays interest on the shortfall. In India’s case, the holdings are less than the allocation as a result of which India is paying interest.
Borrowings by India
Lending Arrangements, which are similar to a line of credit, are approved by the IMF Executive Board to support a country’s adjustment program. The arrangement requires the member to observe specific terms in order to eligible to receive a disbursement. The IMF lends under Stand-by and Extended arrangements, and at reduced rates, under Poverty Reduction and Growth Trust arrangements. India has taken assistance from IMF three times. However, repayment of all the loans taken from the IMF has been completed on May 31, 2000. India is now a contributor to the IMF.
India’s contribution to lending resources of IMF
(i) Financial Transactions Plan (FTP)
India agreed to participate in the FTP from the quarter Sept-Nov 2002 in view of its strong Balance of Payment (BoP) position and comfortable reserve position. Fifty three countries, including India, now participate in FTP. Effective participation in the FTP made India a creditor member with the IMF. Under this, India may be asked to make a purchase (issuance of credit) or a repurchase (debt servicing by our debtor) under the FTP.
From 2002 to 31st March 2011, India has made nineteen purchase transactions of SDRs 1422.16 million and twenty-two repurchase transactions of SDRs 795.98 million.
In the London Summit of the Group of Twenty (G-20), a decision was taken to triple the IMF’s lending capacity. This resource increase was made in two steps: first, through bilateral financing from IMF member countries; and second, by incorporating this financing into an expanded and more flexible NAB. In pursuance of this decision, India has decided to invest its reserves, initially up to US$ 10 billion through the Notes Purchase Agreement (NPA), and subsequently up to US$ 14 billion through the New Arrangements to Borrow (NAB), in notes issued by the IMF.
It may be noted that NPA would eventually be folded into NAB, and India’s total commitment is capped at US$ 14 billion. As of 31st March 2011, India has invested SDR 750 million through nine note purchase agreements with the IMF. The New Arrangements to Borrow (NAB) is a credit arrangement between the IMF and group of members and institutions to provide supplementary resources to the IMF when these are needed to forestall or cope with an impairment of the international monetary system. The NAB is supplementary to quota resources. Under the expanded NAB, 13 new participants (including India) have decided to join the 26 existing members. Under this, India agreed to provide resources up to a maximum of SDR 8,740.82 million (US$ 14 billion).
Apart from the above, India has contributed its lending resources through other mechanisms as well. India has contributed US $ 0.35 million for the Multi-donor Technical Sub Account for Iraq initiated by the IMF. The total contribution has been made over the period 2004-07.
India has also contributed to the Subsidy Account of the Enhanced Structural Adjustment Facility (later renamed as Poverty Reduction Growth Fund) by contributing to the extent of US $ 1 million per year over 15 year for a total of US $ 15 million. The last annual payment was completed in 2008.
Further, India has contributed SDR 1.5 million over the period 2008-09 to support the Fund’s efforts regarding Emergency Natural Disaster Assistance (ENDA) for the PRGF eligible member countries.
India has also participated in the Heavily Indebted Poor Countries (HIPC) initiative of the IMF World Bank. Under the HIPC initiative, India has given debt relief to the tune of Rs 120.08 crores to seven HIPCs (viz. Guyana, Mozambique, Nicaragua, Tanzania, Uganda, Zambia and Ghana).
Article IV Consultations
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year, to review the economic status of the member countries. Article IV consultations are generally held in two phases - mid year and annual. During this exercise the IMF mission holds discussions with the RBI and various line Ministries/Departments of Central Government. The Article IV consultations are concluded with a meeting of IMF Executive Board at Washington DC which discussed the Article IV Report.
The last round of annual Article IV consultations with the IME staff were held during 3-16 November 2010. The Article IV report on India, prepared by IMF Mission, was subsequently discussed at the IMF Executive Board on 22nd December 2010. The report was finally published on February 14, 2011.
Regional Training Centre
In July 2004, the Government of India approved IMF’s proposal for setting up a joint training program at the National Institute of Bank Management, Pune. The Training Program will provide policy oriented training in economics and related operational fields to Indian officials and officials of countries in South Asia and East Africa. The first training program was held during July 2006.
RBI is the nodal body to co-ordinate the training program with the IMF. The Institute caters to participants from regional countries, especially in the SAARC region. Australia is providing financial assistance for the Institute.
World Bank lending to India
India has been borrowing from the World Bank through International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) for various development projects in the areas of poverty reduction, infrastructure, rural development, etc. IDA funds are one of the most concessional external loans for Government of India and are used largely in social sector projects that contribute to the achievement of Millennium Development Goals. IBRD funds are relatively costlier but cheaper than commercial external borrowings. The Government of India utilized IBRD loans primarily for infrastructure projects.
However, sometimes a blend of IDA credits and IBRD loans is also used. Since the first Bank loan to India in 1948, India has borrowed around US $85.95 billion from the World Bank (upto March 2011). During the year 2010-11, commitments of value US $ 2.4 billion were approved for IBRD Loans and US $ 3.1 billion for IDA credits.
During the 2010 Spring Meetings of the IMF and the World Bank, the Development Committee endorsed Voice reform to increase the voting power of developing and transition countries (DTC) in IBRD by 3.13%, bringing it to 47.19%.
This 2010 realignment includes a selective capital increase of $ 27.8 billion with paid-in capital of $ 1.6 billion. After these reforms take effect, India will be at 7th position in IBRD shareholding (3.05%) with a Voting Power (2.91%). These reforms have been approved by the World Bank Board of Governors on March 16, 2011. India has an Executive Director at the World Bank who is elected from the Constituency Consisting of Bangladesh, Bhutan, India and Sri Lanka. The Board of Governors is the highest decision making body in the World Bank Group. For India, the Finance Minister is the Governor on the Board of Governors. The Secretary-incharge of Department of Economic Affairs is India’s Alternate Governor on the Board of Governors.
TERMS AND CONDITIONS FOR WORLD BANK LENDING
IBRD Loans (Flexible Loan) - with Variable Spread option
IBRD IFL allows borrowers to customize the repayment terms (i.e. grace period, repayment period and amortization profile).
• Repayment period : Maximum final Maturity—30 years including initial grace period of 5 years (maximum). Maximum average maturity - 18 years
• Interest : LIBOR (6 month) + variable spread (Variable Spread over LIBOR is recalculated every January 1 and July 1 and also depends on the average maturity of the loan).
• Commitment charges on undisbursed amount : 0% p. a. (July 2010-June 2011)
• Front End fee : 0.25%.
• Repayment period : 35 years including an initial grace period of 10 years
• Interest : Nil
• Commitment charges on undisbursed amount : 0% p. a. for FY 10 (July 2010-June 2011)
• Service Charges : 0.75% p. a.
International Fund for Agricultural Development (IFAD)
was set up in 1977 as the 13th specialized agency of the United nations. 165 countries are members of the IFAD and these are grouped into three lists : List - A : Developed Countries, List - B : Oil Producing Countries and List - C : Developing Countries. India is in List - C. IFAD is headed by an elected President and has Governing Council and an Executive Board.
India is one of the original members of the IFAD. Since inception, India has contributed US $ 96.0 million towards the resources of IFAD. India had pledged to contribute an amount of US$ 25.0 million to the 8th Replenishment of the IFAD’s resources and has paid US$ 9 million in December 2009 as the first installment and US$ 8 million in October 2010 as the second installment of the 8th Replenishment.
The third and final installment of US$ 8 million will be paid in FY 2011-12. Upto 30.04.2011, IFAD has assisted in 24 projects in the agriculture, rural development, tribal development, women’s empowerment, and rural finance sector with the commitment of US$ 656.4 million (approx). Out of these, 15 projects have already been closed. Presently, nine projects with a total assistance of US$ 274.35 million are under implementation.
The forthcoming Country Strategic Opportunities Programme (COSOP) will cover two Performance-Based Allocation System (PBAS) cycles, namely, 2010-12 and 2013-15. IFAD funding available for the period 2010-12 will be of US$ 141 million, which is a significant increase from the US$ 122 million of the previous cycle.
Assuming that IFAD’s resources for the second PBAS’s cycle will remain constant, IFAD will process, during the COSOP period, four project proposals for an average lending size of USD 70 million or more.
IFAD loans are repayable over a period of 40 years including a grace period of ten years and carry no interest charges. However, a service charge at the rate of three-fourths of one per cent (0.75%) per annum is levied on loan amounts outstanding.
Asian Development Bank
The Asian Development Bank (ADB), an international partnership of 67 member countries, was established in 1966 with its headquarters at Manila, Philippines. India is a founder member. The Bank is engaged in promoting economic and social progress of its developing member countries in the Asia and the Pacific region. Its principal functions are as follows :
(i) to make loans and equity investments for the economic and social advancement of its developing member countries; (ii) to provide Technical Assistance (TA) for the preparation and execution of development projects and programs and advisory services, (iii) to respond to the requests for assistance in coordinating development policies and plans in developing member countries, and (iv) respond to the requests for assistance coordinating development policies and plans of developing member countries. India’s subscription to the Bank’s capital stock was 7.190% with a voting power of 6.050% (ADB Annual Report, 2010).
India started borrowing from ADB’s Ordinary Capital Resources (OCR) in 1986. During Calendar Year 2010, the loans amounting to US $ 2,119.6 million were approved :
The Bank’s lending has been mainly in the Energy, Transport and Communications, Finance, Industry, Social/Urban Infrastructure, Multi-Sector, Agriculture & Irrigation Sector. ADB assistance to India commenced in 1986. Between 1986 and year and 2010, ADB approved 143 loans amounting to $ 23.0 billion and 305 technical assistance (TA) projects amounting to $ 226 million on a cumulative basis.
As of 31 December 2010, there were 67 ongoing loans amounting to $10.1 billion and 80 TA projects amounting to $81.1 million. India has been among the top three borrowers of ADB’s Ordinary Capital Resources (OCR) loans since 2007. India holds the position of Executive Director on the Board of Directors of the Bank - its Constituency comprises Afghanistan, Bangladesh, Bhutan, India, Lao PDR, Tajikistan and Turkmenistan. The Finance Minister is India’s Governor on the Board of Governors of Asian Development Bank and Finance Secretary is the Alternative Governor.
Overview of G20 Processes
The G20 was formed in the aftermath of the 1997 East Asian crisis as a forum of Finance Ministers. Since November 2008, in the wake of the biggest global financial and economical crisis after the Great Depression of the 1930s, the G20 has been raised to the level of Leaders and now is the premier forum for international economic cooperation. Through five Summits since November, 2008, the G20 has led the global initiative to save the global economy going into a recession and guide the recovery. The sixth summit was held at Cannes, France, on November 3-4, 2011. France holds the current chair of G20. The G20 does not have a permanent secretariat. This role is performed by the G20 Chair, assisted by a troika comprising the previous chair (presently South Korea), the current chair (France) and the future chair (Mexico who will chair the G20 in 2012).
The G20, of which India is prominent member, meets annually at the Summit level where India is represented by Prime Minister. The G20 has two major streams, viz. financial (comprising Finance Ministers and Central Bank Governors and their Deputies) and Sherpa. Sherpas are tasked by Leaders to negotiate the Summit Documents on their behalf. In practice, the G20 agenda items are handled in either of the two streams, with the Sherpas finalizing the Summit declaration. The Prime Minister has appointed Shri Montek Singh Ahluwalia, Deputy Chairman, Planning Commission as his G20 Sherpa.
The G20 work in Government of India is coordinated by the G20 Secretariat set up in Department of Economic Affairs.
The G20 Finance Process currently deals with reforms of the International Monetary System, Capital Flows and Global Liquidity Management; the Framework for Strong Sustainable and Balanced Growth, Financial Sector Regulations and Reform of International Financial Institutions and a Study group on Commodities and also issues relating to Climate Change Finance.
Channels of discussion under G20 Sherpa Process : The Development agenda, comprising of nine pillars viz. Infrastructure, Human Resource Development, Trade Private Investment and Job Creation, Financial Inclusion, Growth with Resilience, Food Security, Domestic Resource Mobilization and Knowledge Sharing; Energy issues, such as Fossil Fuel Subsidy, Oil Price Volatility, Global Marine Environment Protection and Clean Energy and Energy Efficiency; Anti-Corruption; there are also separate G20 Ministerial meetings called directly by the G20 chair of Agriculture, Labour, Development, Energy Ministers etc.
The work on a broad and expanding agenda of critical global issues is conducted through Working Groups, Expert groups and Study Groups in which all G20 countries are represented. Discussion in the working groups are conducted through email exchanges, conference calls and face-to-face meetings. International institutions provide technical assistance to the various groups. The G20 has been successful in bringing a coordinated policy response to combat the financial crisis and driving the reforms of International Financial Institutions.
The G20 ‘‘Framework for strong, sustainable and balanced growth’’ is regarded as central to the global rebalancing exercise. India and Canada are the co-chairs of this Working Groups.
The French Priorities for the G20 Summit 2011 are as follows :
(a) Reforming the International Monetary System (which subsumes issues arising out of the Framework exercise);
(b) Strengthening financial regulation;
(c) Combating commodity price volatility;
(d) Supporting employment and strengthening the social dimension of globalization;
(e) Fighting corruption; and
(f) Development agenda (in particular, Food Security and infrastructure).
The future of the G120 rests on the ability to deliver on its over ambitious and rapidly expanding agenda, in the face of differences that exist between members states. Just as the differences were harmonised in the wake of the financial crisis, the G20 is capable of emerging as the institutional structure capable of coordinating global macro-economic policies, bringing about structural reforms and assuming responsibility for global outcome.
United Nations Development Programme in India
The United Nations Development programme (UNDP) is the largest channel for development cooperation in the UN System. It has been India’s partner in development since 1951. The overall mission of the UNDP is to assist the programme countries through capacity development in Sustainable Human Development (SHD) with priority on poverty alleviation, gender equity, women empowerment and environmental protection. The UNDP sees SHD as an integrated, multi-disciplinary, holistic process for development, which is people-centred, participatory, and environmentally sound. SHD stresses economic growth with equitable distribution, enhancement of people’s capabilities and enlargement of their choices.
The UNDP has field offices worldwide. The India Office, located in New Delhi, is headed by a Resident Representative who also acts as the Resident Coordinator for the UN System in India.
The UNDP derives its funds from voluntary contributions from various donor countries. These contributions are made separately to the UNDP ‘Core’ and to ‘Noncare’ funds. Core resources are ‘non-earmarked’ allocations from the UNDP headquarters that are available for a country programme and form the bed rock of the UNDP’s neutrality, impartiality, and truly multiateral character. Non-core funds are mobilized by the UNDP country Office for specific programmes/activities from donors. Non-core resources are ‘earmarked’ funds given by the donors for specific themes and regions. All assistance provided by the UNDP is grant assistance.
India’s annual contribution to the UNDP has been to the extent of US$ 4.5 million, which is one of the largest from developing countries. Over and above its annual contribution, the GOI also pays for the expenditure of the Local Office. Given that total external aid contributes only modestly to India’s annual plan outlay, the primary benefits that accrue from the UNDP’s activities are not in the quantum of monetary contribution but through intangibles such as :
• Capacity enhancement of development agencies in India through the introduction of international best practices;
• Rigour and discipline of programme implementation; and
• Pilot programmes in greenfield activities that can be later replicated through other assistance.
Country Cooperation Framework (CCF)
The country-specific allocation of UNDP resources is made every five years under the Country Cooperation Framework (CCF) which usually synchronizes with India’s five-year plans. The resource allocation criteria takes into account factors such as population and per capita Gross National Product (GNP).
Country Programme : 2008-12
The Country Programme Document (CPD), 2008-12, adopted in the UNDP Executive Board Meeting held in New York in September, 2007, is based on the United Nations Development Assistance Framework (UNDAF) goal on ‘promoting social, economic and political inclusion for the most disadvantaged, especially women and girls’.
The document has been formulated by the GOI in partnership with the UNDP country Office and is in harmony with the 11th Plan’s thrust on inclusive growth. The document is effective from 1 January 2008 and will remain in force till 31 December 2012.
The programme will primarily concentrate on the UNDAF goals, namely, democratic governance, poverty reduction, HIV and development, disaster risk management and energy and environment. Further, it will focus on seven states that are economically laggard : Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh.
The total resource requirement for the programme is estimated at US$ 200-250 million, out of which one-third would be core, one-third non-core, and one-third mobilized from UN Trust Funds, etc.
The Country Programme Action Plan (CPAP), which basically specifies the management arrangements for the implementation of the programme, is a legal agreement between the host government and UNDP to execute the Country Programme; and AWPs, which are also part of the CPAP, are legal agreements between UNDP and the Implementing Partners (Line Ministries/State Governments, NGOs/CSOs) to implement a specific project within a calendar year as identified in the CPAP.
CPAP (2008-12), which was signed with UNDP on 27.2.2008, will remain in force till 31st December, 2012. Projects worth US$ 205 million approx. have been approved so far under CPAP : 2012.
Employment data is available on a quinquennial basis. The last quinquennial round of survey was in 2004-05. The next round is underway with fieldwork undertaken during 2009-10. However, as per the information provided by the planning Commission, the details of the actual as well as projected employment opportunities along with its growth rate on the basis of Current Daily Status (CDS) approach is as under :
Thus, during 1999-2000 to 2004-05, about 47 million work opportunities were created, while it is estimated that during 2004-045 to 2011-12 around 75 million work opportunities will be created.
Quarterly quick employment surveys have been conducted by the Labour Bureau since July 2009 for selected sectors, i.e., textile including apparel, leather, metals, automobiles, gems and jewellery, transport, information technology (IT)/ business process outsourcing (BPO) and handloom/powerloom and show the following :
(i) Comparing the results of the last four quarterly surveys, overall employment has increased in Dec. 10 over Dec. 09 by 8.7 lakh, for the selected sectors with the highest increase of 5.07 lakh in IT/BPO followed by 1.27 lakh in automobiles, 1.03 lakh in textiles, 0.76 lakh in metals, 0.41 lakh in leather, and 0.22 lakh in gems and jewellery.
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
As per latest available information 5.48 crore house have been provided employment under MGNREGA during the year 2010-11 (upto march 2011. A total of 256.43 crore person-days have been generated, with SCs and STs share of 31 per cent and 21 per cent respectively. The share of women in person-days generated under this scheme is 48 per cent against the stipulation of 1/3 as per the Act.
During 2011-12 (as available on MGNREGA MIS on 07/06/11), a total of 69.10 lakh households have been provide employment of 9.34 crore person days with SCs, STs and women share of 22 per cent, 19 per cent and 51 per cent respectively.
Rashtriya Swasthya Bima Yojana (RSBY)
The objective of this scheme is to provide hospitalisation coverage to BPL households with the provision of smart cards to enable cashless transaction for health care. The total sum insured under RSBY is Rs 30,000 per family per annum. The coverage extends to five members of the family including the head of household, spouse and up to three dependents. Over 2.35 crore smart cards have been issued till 3.6.2011 under this scheme. Total hospitalisation has been reported at 18.64 lakh by 3.06.2011.
Sarva Shiksha Abhiyan (SSA)
The programme is being implemented in partnership with the states to universalise elementary education for children in the age group of 6-14 years. The existing operational norms of Sarva Shiksha Abhiyan have been revised to implement the right to free and compulsory education.
Against the budget provision of Rs 19838.23 crore for 2010-11, funds to the tune of Rs 19636.13 crore were released to the States/UTs.
The allocation for 2011-12 has been approved at Rs 21,000 crore which is 40 per cent higher than the amount allocated for the year 2010-11 at the BE stage. Sarva Shiksha Abhiyan (SSA) covers all the States and UTs.
In its meetings held during the months of February, March and April 2011, the Project Approval Board (PAB) for SSA considered and approved the Annual Work Plan and budget proposals of 22 States/UTs for 2011-12.
INDIA’S TRADE PERFORMANCE
Trade performance 2010-11
During 2010-11 (April-March), exports (on customs basis) were valued at US $ 245.9 billion, which was 37.5 per cent higher than the level of US $ 178.8 billion in 2009-10 (April-March). Export growth in March 2011 has increased to 43.8 percent compared to 56.8 percent in March 2010.
Imports (on customs basis) during 2010-11 (April-March), were valued at US $ 350.7 billion, which was 21.6 per cent higher than the level of US $ 288.4 billion in 2009-10 (April-March). Import growth in March 2011 was increased to 17.3 percent compared to 78.5 percent registered in March 2010. POL imports during 2010-11 (April-March) were valued at US $ 101.7 billion, which was 16.7 per cent higher than the level of US $ 87.1 billion in 2009-10 (April-march). POL imports growth in March 2011 increased by 8.2 percent. Non-POL Imports during 2010-11 (April- March), were valued at US $ 249.0 billion, which was 23.8 percent higher than the level of US $ 201.2 billion in 2009-10 (April-march).
Trade Deficit for 2010-11 (April-March) was valued at US $ 104.8 billion which was 4.4 percent lower than the level of US $ 109.6 billion in 2009-10 (April-March).
Trade performance 2011-12
During 2011-12 (April-May), exports were valued at US $ 50 billion, which was 45.3 per cent higher than the level of US $ 34.3 billion in 2010-11 (April-May). Export valued in May 2011 25.9 US $ billion which was increased to 56.9 percent higher than the level of 16.5 billion in May 2010.
Imports during 2011-12 (April-May) were valued at US $ 73.7 billion, which was 33.30 per cent higher than the level of US $ 55.3 billion in 2010-11 (April-May). Import valued in May 2011 41 US $ billion which was increased to 54.08 per cent higher than the level of 26.5 US $ billion in May 2010.
Imports during 2011-12 (April-May) were valued at US $ 20.3 billion, which was 12.89 per cent higher than the level of US $ 18 billion in 2010-11 (April-May). POL imports growth in May 2011 increased by 18.57 percent. Non-POL Imports during 2011-12 (April-May), were valued at US $ 54 billion, which was 43.1 per cent higher than the level of US $ 37.3 billion in 2010-11 (April-May).
Trade Deficit for 2011-12 (April-May) was valued at US $ 24 billion which was 13.8 percent higher than the level of US $ 21 billion in 2010-11 (April-May).
PUBLIC PRIVATE PARTNERSHIPS
• Provision of quality infrastructure is a pre-requisite for the economy to achieve a higher growth trajectory on a sustained basis. Planning Commission has estimated that the total investment in infrastructure has to increase from 4.5% to around 8% of the GDP in the 11th Five Year Plan
1Approach Paper to the Eleventh Five Year Plan.
1. The investment requirements are enormous and are not likely to be met from the public sector alone. Attracting private capital to this critical sector is acknowledged as a key to meet the resource deficit. Consequently, Public Private Partnership (PPPs) are being encouraged as the preferred mode for execution and operation of infrastructure projects.
• In addition to freeing Government resources to expand investments in other sectors, PPPs bring in private sector expertise and efficiencies in operation and maintenance leading to increase in quality of public services delivered.
GOVERNMENT OF INDIA’s INITIATIVES
• The Government is actively pursuing PPPs to bridge the infrastructure deficit in the country and to address the identified constraints. Several initiatives like viability gap funding Public Private Partnership Appraisal Committee (PPPAC) and India Infrastructure Finance Company Ltd (IIFCL) have been taken during the last few years to promote the PPPs in sectors like power, ports, highways, airports, tourism and urban infrastructure.
• The appraisal mechanism for the PPP projects has been streamlined to ensure speedy appraisal of projects, eliminate delays, adopt international best practices and have uniformity in appraisal mechanism and guidelines.
The appraisal mechanism notified includes setting up of the Public Private Partnership Appraisal Committee (PPPAC) responsible for the appraisal of PPP projects in the Central Sector. Since its constitution in January 2006, PPPAC has granted in principle/final approval to two hundred and nineteen projects, with a total project cost of Rs 213790.58 crore.
• There are some areas in infrastructure where the externalities caused by projects cannot be captured by project revenues alone. Such projects, which are marginally viable or unviable, can be made financially attractive through a grant. The Government has created a Viability Gap Funding arrangement for such projects in the infrastructure sector. So far, under the Viability Gap Funding scheme, seventy-seven proposals have been granted in-principle approval with a total project cost of Rs 46486.86 crore and an estimated viability gap funding of Rs 9104.15 crore.
• India Infrastructure Finance Company Limited (IIFCL) has been set-up with the specific mandate to play a catalytic role in the Infrastructure sector by providing long-term debt for financing infrastructure projects. IIFCL funds viable infrastructure projects through Long Term Debt, Refinance to Banks and Financial Institutions for loans granted by them, with tenor exceeding 10 years or any other mode approved by the Government. So far, term loan, amounting to Rs 27190.36 crore, for 155 infrastructure projects (with a total project cost of Rs 229135.22 crore) have been sanctioned, of which 102 (total project cost of Rs 160219.02 crore; loan amounting to Rs 20014.50 crore) are PPP projects.
• A panel of eleven Transaction advisers had been short-listed. Panel members have skills and experience to provide both commercial/financial and legal services in support of PPP transactions. However, the sponsoring authorities have been advised to procure financial, legal and technical expertise separately in the case of large complex projects. A ‘Manual on the panel to guide the users’ has also been prepared and circulated. The validity of panel of Transaction Advisers is upto December, 2010. The process of short-listing new panel of Transaction Advisers is in progress.
• The PPP Cell is also administering capacity building programmes for PPPs in State Government and Central line Ministries. State Governments and central infrastructure Ministries have been advised to set up PPP Cells to enable each sector/line Ministry using PPP methodology for delivery of Public service to prepare action plans and policies for individual sectors, to adopt best practices and follow standard procedures for contracting PPPs. PPP Cells have been established in twenty-four State Governments/UTs and thirteen Central Infrastructure Ministries to enable each sector/line Ministry using PPP methodology for delivery of public service to prepare action plans and policies for individual sectors, to adopt best practices and follow standard procedures for contracting PPPs.
With Technical Assistance from Asian Development Bank, PPP cells at the States and Central Ministries are being provided with in-house PPP experts, MIS experts and access to a panel of legal firms. Training programmes on public private partnerships and workshops on developing sector specific PPP frameworks were organised. Over time, as the PPP cells mature, it is envisaged that the PPP cells would become the central core to catalyse PPPs in an efficient and effective manner in their respective sectors/states.
• To intensify and deepen the capacity building of public functionaries at the State and municipal level and integrate the capacity building programme on PPPs in the ongoing programmes at the State level, a comprehensive National Capacity Building Programme has been developed by DEA, in collaboration with the World Bank and KfW Development Bank, which would be delivered through Lal Bahadur Shastri National Academy of Administration (LBSNAA), Mussoorie, and fourteen State Administrative Training institutes and Central Training Institutes. The programme components include Training Needs Assessment; Development of Course Content; Training of Trainers (ToT); and Roll-out the programme through few demonstration modules for the initial handholding of Trainers.
Two levels of training would be imparted through the Training Institutes, viz., sensitisation courses on PPPs and specialised modules on Managing PPPs. It is expected that the programme strategy would enable the State Training Institutes to develop the skills to manage/conduct multi-level and crosssectoral training courses.
• Online Toolkits for PPP projects, risk and contingent liability frameworks and communication strategy for PPPs have been developed. They are available through DEA’s website on PPPs, i.e. www.pppinindia.com. The PPP Toolkit is a web-based resource that has been designed to help improve decision-making for infrastructure PPPs in India and to improve the quality of the infrastructure PPPs that are implemented in India. The Toolkit covers five infrastructure sectors, namely, Highways, Water and sanitation (W&S), Ports, Municipal Solid waste management (SWM) and Urban transport (Bus Rapid Transport Systems - BRTS).
The objective of developing the web-based on-line PPP Toolkit is to facilitate identification, assessment, development, procurement and monitoring of PPP projects. A ‘Users Guide for the Online Toolkit’ has been published to facilitate ease of utilization of the online toolkits.
• Department of Economic Affairs, in collaboration with the Asian Development Bank initiated the PPP Pilot Projects Initiatives where the process of structuring the PPP Project is hand held by the central Government to develop demonstrable PPP Projects in challenging sectors. Sixty PPP projects in various states, municipalities and central ministries level have been identified and are being thus developed, encompassing sectors such as rural secondary education, elementary education, Greenfield hospitals and diagnostic centres, water supply and sanitation, affordable housing, training centres, rural infrastructure, etc. The objective of the exercise is to develop sustainable demonstration projects that may eventually have a catalyst effect on PPPs in these sectors.
• Two websites, www.pppinindia.com and www.pppindiadatabase.com have been developed on PPPs which provide one-stop on information of PPPs in India including policy guidelines and status of the proposals received by the PPP cells under the VGF and IIPDF scheme and PPP Appraisal Committee. The purpose of the online database is to provide comprehensive and current information on the status and extent of PPP initiatives in India at the central, state and sectoral levels. Information on 703 PPP projects in the country are currently available on www.pppindiadatabase.com
• Furthermore, many State Governments have insitituionalized various measures to encourage private sector engagement in creation of infrastructure and delivery of services. Infrastructure Development and Enabling Acts for development of infrastructure projects have been developed by states of Andhra Pradesh, Bihar, Gujarat and Punjab. PPP policies and guidelines to facilitate PPP projects (and avail of the GoI interventions such as Viability Gap Funding and Indian Infrastructure Projects Development Fund) have been notified by Karnataka, Orissa, Assam, Goa, and Madhya Pradesh. Other measures include development of sectoral policies for promoting PPPs in roads, ports, energy, IT, tourism, etc., establishing nodal Departments/PPP Cells to facilitate and scale up PPPs, establishing Viability Gap Funds to provide state share of grants to PPP projects (to supplement VGF provided by GOI), establishing Project Development Fund (to supplement GOI grant under IIPDF) and establishing panels of Transaction Advisers and developing standardized bid documents, sectoral templates, handbooks on PPPs and guidelines for appointment of Transaction Advisers. Awareness of schemes, guidelines, initiatives and resource materials prepared are being created through the website for PPPs.1
• The details of these initiatives are available at the national website on PPPs www.pppinindia.com which gives necessary information on that it is a one stop site for all information relating to PPP initiatives in India. These measures have resulted in a robust pipeline of over 703 projects in diverse sectors (Annexed). 2 Orissa-www.ppporissa.gov.in, : Rajasthan-http://rajasthan.gov.in; Uttarakhand-http://cell.upppc.org Andhra Pradesh-http://www.ppp.ap.gov.in/: Assam-www.assampp.gov.in; Bihar-www.biada.in: Gujarat-http://www.gidab.org/; Karnataka-http://www.idd.kar.nic.in; Maharashtrawww. muidcl.com; www.pppinmaharashtra.com
• For providing financial support for quality project development activities to the States and the Central Ministries a corpus fund titled ‘India Infrastructure Project Development Fund’ (IIPDF), with initial budgetary outlay of Rs 100 crore is being set up. It would be a revolving fund that would get replenished through the refund of ‘Investment’ through success fee earned from successful bid projects. In case of need, it can be topped up in subsequent years through budget support. The IIPDF would contribute up to 75% of the project development expenses. The IIPDF contribution would be in the form of interest free loan. On successful completion of the bidding process, the project development expenditure would be recovered from the successful bidder. However, in the case of failure of the bid, the loan would be converted into grant. So far, 40 proposals have been granted approval with IIPDF assistance of Rs 3154.40 lakhs and Rs 1586.38 lakhs have so far been disbursed.
• Standardised contractual documents such as the Model Concession Agreement, which will lay down the standard terms relating to allocation of risks, contingent liabilities and guarantees as well as service quality and performance standards, and model bidding documents such as Request For Qualifications and Request For Proposals are being prepared and notified.
• A document titled ‘‘Public Private Partnerships—Creating an Enabling Environment for State projects’’ has been developed for dissemination of information on the various schemes and programmes of the Government to facilitate development of infrastructure through public private partnerships.
• A document titled ‘Public Private Partnerships: A compendium of Case Studies’ has been published. This compendium presents case studies of fifteen select Public-Private-Partnership (PPP) projects in India. The case studies have been prepared to highlight the experience and lessons learnt so far and thereby influence the design of future PPP processes and structures to improve the quality of PPP projects. The choice of case studies provides a representation across different sectors, covers different PPP project structures, includes projects at different stages of the PPP life-cycle and has projects with different levels of complexity.
• PPPs represent a fundamental shift in the way infrastructure assets are created and/or services are delivered PPPs are often implemented in sectoral environments requiring significant reform and mind set change. PPPs also involve dealing with multiple stakeholders and resolving different and sometimes conflicting objectives among these stakeholders. Therefore, there is a need for clear and continuous communication with stakeholders over a PPP project’s life cycle to ensure that all stakeholders’ views are heard and adequately addressed as the project is developed and implemented.
An effective communication strategy can substantively contribute to the success of a PPP project if it is used to engage with stakeholders to convey the benefits of the project to them, understand their concerns and aspirations, and provide for mechanisms to meet their requirements. The Guide for effective communication in PPP projects has been prepared from the perspective of a PPP Practitioner. It seeks to provide guidance and basic tools for identifying important and influential stakeholders at every major phase of a PPP project’s life cycle, understanding their behavioural disposition towards the project and for sensitising, informing and engaging them in a constructive manner. It will serve as a handy reference for practitioners to effectively address the communication related challenges and opportunities that they may face in their endeavours to structure better and robust PPPs.
• In order to obtain a better understanding of the role of communication in a PPP context, Department of Economic Affairs (DEA) undertook a documentation-cum-analytical exercise covering Indian and international experiences, in the form of case studies. ‘PPP projects in India - Case studies on communication—through the study, a few projects and programmes across different sectors and geographical locations have been analysed, essentially to get a better appreciation of how effective communication - or lack of it - has impacted them and draw lessons that could be useful for future PPP projects in the Indian context.
• PPPs in the health sector being a new and unfamiliar area for the urban local bodies in the State of Maharashtra that manage the urban health sector, the Government of Maharashtra had requested the PPP cell of the department of Economic Affairs, Ministry of Finance, Government of India to provide Technical Assistance through the Asian Development Bank in the area of facilitating PPPs in the urban health sector. ‘Toolkit for PPPs Health Sector in Maharashtra is an outcome of this study.
The toolkit provides a step by step to develop health infrastructure through PPP in Maharashtra. The toolkit is expected to assist in identification of gaps in health infrastructure and services; choosing between PPP and development by government; selecting the PPP structure; and procurement. It provides a guideline for selection of a private partner for the proposed services and essential terms that should be included in the concession agreement or contract.
• Similarly, ‘Toolkits for PPPs School Education in Maharashtra’ has been developed as a reference/guidance document for undertaking PPP process in the important School Education sector in the State. It evaluates and identifies suitable PPP structures that can be practically implemented in Maharashtra to improve the educational scenario in the State.
Other Publication by the PPP Cell include :
• Promoting Infrastructure Development Through PPPs: A Compendium of State Initiatives
• Criticality of Legal Issues and Contracts for Public Private Partnerships
• Toolkit for PPPs in Urban Bus Transport in Maharashtra.
• Toolkit for PPPs in Urban Water Supply in Maharahstra.
VIABILITY GAP FUNDING SCHEME
• Infrastructure projects are often not commercially viable on account of having substantial sunk investment and low returns. However, they continue to be economically essential. Accordingly, the Viability Gap Funding Scheme has been formulated which provides financial support in the form of grants, one time or deferred, to infrastructure projects undertaken through public private partnership with a view to make them commercially viable.
• The Scheme provides total Viability Gap Funding up to twenty percent of the total project cost.
• The Government or statutory entity that owns the project may, if it so decides, provide additional grants out of its budget up to further twenty percent of the total project cost. Viability Gap Funding under the Scheme is normally in the form of a capital grant at the stage of project construction.
• The Scheme requires the project authorities to seek in-principle approval of the Empowered Institution/Empowered Committee prior to seeking bids and obtain the final approval after the selection of the bidder.
• The PPP projects may be posed by the Central Ministries, State Governments or Statutory Authorities (like Municipal Authorities and Councils), which own the underlying assets.
• To be eligible for financing under the scheme, the PPP project should be implemented i.e. developed, financed, constructed, maintained and operated for the project term by a Private Sector Company to be selected by the Government or a statutory entity through a transparent and open competitive bidding process.
• The criterion for bidding should be the amount of viability gap funding required by the Private Sector company for implementing the project where all other parameters are comparable.
• The project should provide a service against payment of a pre-determined tariff or user charge.
• This scheme will apply only if the contract/concession is awarded in favour of a private sector company in which 51% or more of the subscribed and paid up equity is owned and controlled by a private entity.
• The approval to projects is given prior to invitation of bids and actual disbursement takes place once the private entity has expended his portion of the equity.
• The final VGF is determined through the bidding.
• The sectors eligible under the scheme are: roads and bridges, railways, seaports, airports, inland waterways, power, urban transport, water supply, sewerage, solid waste management and other physical infrastructure in urban areas, infrastructure projects in Special Economic Zones, International convention centers and other tourism infrastructure projects. Health, education and skill development (without annuity) has been added as eligible sector.
• The Empowered Committee may, with approval of the Finance Minister, add or delete sectors/sub-sectors from the aforesaid list.
• So far, under the Viability Gap Funding Scheme, 77 proposals have been granted in-principle/final approval with a total project cost of Rs 46486.86 crore and an estimated viability gap funding of Rs 9104.15 crore.
• The bidding process has been completed for ten of the projects (road projects in Madhya Pradesh); one project of Maharashtra; one project of Ministry of Road Transport and highways, one project of Andhra Pradesh and the concession agreements signed. The commencement of disbursal of the Viability Gap Funding started from 2007-08.
• The approvals to projects are given prior to invitation of bids and actual disbursement takes place once the private entity has expended his portion of the equity. Thus, there is necessarily a time lag involved between grant of in-principle approval and disbursement of grant. The intervening stage involves finalisation of document, prequalification of bidders, financial bids being called, selection of bidder, financial closure and commencement of construction. In a PPP project, this process involves a minimum of 12 to 18 months.
INDIA INFRASTRUCTURE PROJECT DEVELOPMENT FUND (IIPDF)
• Project development has been identified as a key area of attention to enable creation of a shelf of bankable infrastructure projects that can be bid out in the Public Private Partnership (PPP) mode.
• The Finance Minister in the Budget Speech for 2007-08 announced the setting up of ". . .a Revolving Fund with a corpus of Rs 100 crore to quicken project preparation. The Fund will contribute up to 75% of the preparatory expenditure in the form of interest free loan that will be eventually recovered from the successful bidder."
• The fund titled ‘India Infrastructure Project Development Fund’ (IIPDF) is, therefore, being set up in Department of Economic Affairs with an initial budgetary outlay of Rs 100 crore for supporting quality project development activities to enable Sponsoring Authority to source funding to cover a portion of the PPP transaction costs, thereby reducing the impact of costs related to procurement on their budgets.
• The IIPDF will be available to the Sponsoring Authorities for PPP projects for the purpose of meeting the project development costs which may include the expenses incurred by the Sponsoring Authority in respect of feasibility studies, environment impact studies, financial structuring, legal reviews and development of project documentation, including concession agreement, commercial assessment studies (including traffic studies, demand assessment, capacity to pay assessment) etc. required for achieving Technical Close of such projects, on individual or turnkey basis, but would not include expenses incurred by the Sponsoring Authority on its own staff.
• The Sponsoring Authority will be able to source funding to cover a portion of the PPP transaction costs, thereby reducing the impact of costs related to procurement on their budgets.
• The proposals for assistance under the Scheme would be sponsored by Central Government Ministries/Departments, State Governments, Municipal or Local Bodies or any other statutory authority.
• To seek financial assistance from the IIPDF, it would be necessary for the Sponsoring Authority to create and empower a PPP Cell to not only undertake PPP project development activities but also address larger policy and regulatory issues to enlarge the number of PPP projects in Sponsoring Authorities’ shelf.
• The IIPDF will finance an appropriate portion of the transaction advisor costs on a PPP project where such transaction advisors are appointed by the Sponsoring Authority through a transparent system of procurement under a contract for services.
• The IIPDF will contribute upto 75% of the project development expenses to the Sponsoring Authority as an interest free loan. The balance 25% will be co-funded by the Sponsoring Authority.
• On successful completion of the bidding process, the project development expenditure would be recovered from the successful bidder. However, in the case of failure of the bid, the loan would be converted into grant.
• In case the Sponsoring Authority does not conclude the bidding process for some reason, the entire amount contributed would be refunded to the IIPDF.
• So far, 40 proposals have been granted approval with IIPDF assistance of k 3154.40 lakhs and k 1586.38 lakhs has been disbursed so far.
Bilateral Investment Promotion and Protection Agreement (BIPA)
1. During the year 2011 (from 1st January 2011 to May 2011), one Bilateral Investment Promotion and Protection Agreement (BIPA) with Lithuania was signed on 31st march 2011 in Vilnius, Lithuania.
2. During the period (from 1st January 2012 to May 2011), Protocol for amending the existing BIPA with Czech Republic (signed on 10th June 2010) has entered into force on 24th March 2011.
3. One BIPA negotiation with Cuba is scheduled to be held on 1-3 June 2011 at Havana, Cuba.
4 During the year, Cabinet Note relating to BIPA with Slovenia has been prepared. Cabinet approval is yet to be obtained.
5. Till May 2011, BIPAs have been signed with 80 countries, of which 70 BIPAs have been enforced and others are in various stages of enforcement.
Foreign Investment Promotion Board
The Foreign Investment Promotion Board is a single window clearance for FDI proposals and comprises the core Group of Secretaries of Department of Economic Affairs. Department of Industrial Policy & Promotion, M/o Small Scale Industries, D/o Revenue, D/o Commerce, M/o External Affairs and M/o Overseas Indian Affairs, FIPB is chaired by the Secretary of the Department of Economic Affairs and its meeting are held regularly, with 3-4 weeks interval.
FDI proposal seeking FIPB approval are handled in this Department and proposal of NRI Investment, Foreign Technology transfer trade marks agreement and FDI in 100% EOUs are handled in the Department of Industrial Policy & Promotion (DIPP). The FDI policy and FDI data are also handled in the DIPP. During the Financial year 2011-12 (up to May 31, 2011), 2 meetings were held, in which 90 proposals were considered. 38 proposals, with FDI inflow of approximately Rs 3375.75 crore were approved.
Directorate of Currency
The Directorate of Currency (DoC) was created in the Department of Economic Affairs, Ministry of Finance on the recommendation of the Banerjee Committee Report, to review the whole gamut of processes, practices and procedures for procurement and finalization of security sensitive items. Director General (DoC) had taken charge in July, 2010 and the draft Recruitment Rules for the other posts of the Directorate are being finalized in consultation with DoPT and UPSC. Hiring and furnishing of the office of DoC is underway.
A significant emphasis of the Banerjee Committee was on indigenization. The indigenization of various inputs for printing of currency notes and coins has been taken up vigorously by the Directorate. A new bank note paper mill is being set up at Mysore in Joint Venture with the RBI. This is in addition to modernization and upgradation of the existing security paper mill at Hoshangabad. The indigenous production capacity of the banknote paper will reach 17000 MT per annum by 2014 after the operationalization of these measures.
Directorate of Currency has also taken up the review of the security features of Indian banknotes. The incorporation of new security features will be milestone towards curbing of counterfeiting of banknotes.
It was decided to have a symbol for the Indian Rupee in consultation with the Reserve Bank of India (RBI). The selection process was entrusted to a Jury of seven persons under the Chairmanship of one of the Deputy Governors of RBI. The Jury consisted of representatives of art institutes of repute, RBI and the Government of India. After due consideration, the Jury evaluated five entries for final consideration. Based on the Jury’s recommendations, the cabinet had approved selection of the symbol for Indian Rupee (Rs) on 15th July 2010. The symbol has also been published in the Gazette of India (July 31-August, 2010). Department of Information Technology has informed that the symbol has been encoded in Unicode Standard and National Standard ISCII. The same has also been placed on the keyboard and by pressing "Alt Gr" + "4" keys together, it can be typed.
Coinage Bill, 2011
The Coinage Bill was passed by the Lok Sabha on 25.03.2011. The Bill seeks to amalgamate the following four Acts and one Ordinance :
1. The Indian Coinage Act, 1906;
2. The Small Coins (Offences) Act, 1971;
3. The Metal Token Act, 1889;
4. The Bronze Coin (Legal Tender) Act, 1918
5. The Currency Ordinance, 1940.
New Series of Coins
The Government of India has also issued a new series of coins of the denomination of 50 paise, Rs. 1, Rs. 2, Rs. 5 and Rs. 10 with following features :
• New series of coins of 50 paise, Rs. 1, Rs. 2 and Rs. 5 contain a flowery design;
• Rs. 10 coins will now contain 10 petals in place of existing 15 petals;
• Parallel lines on the existing Rs. 10 coin will be removed and the size of the Ashoka Pillar will be increased;
• New series of coins will be introduced with new rupee symbol 'Rs.';
• For easy recognition and distinction, the new series of coins will contain features at the edge;
• The size of the coins of the denominations of 50 paise,Rs. 1, Rs. 2 will be reduced slightly.
The following commemorative coins were issued during the period :
• 150th Birth Anniversary of Rabindranath Tagore.
• Birth Centenary of Mother Teresa.
• Birth Centenary of C Subramaniam.
• 1000 year of Birhadeshwar Temple, Thanjavur.
• XIX Commonwealth Games 2010, Delhi.
• Income tax - 150 years of building India.
Chief Economic Advisors
Krishnamurthy Subramanian, 2018-
The government appointed Krishnamurthy Subramanian, an associate professor at the Hyderabad-based Indian School of Business (ISB), as the new chief economic adviser.
His appointment, for three years, comes nearly six months after Arvind Subramanian stepped down as CEA in June citing “pressing family commitments” and returned to academia in the US. At 47 years, Krishnamurthy Subramanian is among the youngest to be appointed to the post.
Subramanian comes with sterling credentials. He holds a PhD from Chicago University’s Booth School of Business and one of his guides was none other than Raghuram Rajan, who was the CEA before Arvind Subramanian and a for mer gover nor of the Reserve Bank of India (RBI).
Subramanian will have to hit the ground running as he will have to keep the economic survey — the economy’s report card — ready when a new government takes office in 2019. Arvind Subramanian had described the CEA’s job as the most exciting he had ever done. The new Subramanian on the block will have to bring all his skills into play in the tough real world of policymaking.
An expert in banking, corp governance & eco policy
Krishnamurthy Subramanian’s appointment marks a break in the recent practice to have economists working in global institutions as CEAs. Besides Rajan and Arvind Subramanian, another US-based academic Kaushik Basu was the CEA during the UPA tenure. After Rajan’s and Arvind Subramanian’s departure there has been a debate on the issue of “swadeshi versus videshi economists”.
Krishnamurthy Subramanian, who is a prolific writer, backed had demonetisation, terming it as revolutionary.
“Many of us grew up despising politicians for feathering their own nests, compromising on issues of national importance and dragging their feet on bold decisions. Against this backdrop, the demonetisation effort is a refreshing change … the action may be revolutionary in the annals of the country’s fight against corruption,” he had written in one of his columns.
Subramanian is an electrical engineer from IIT Kanpur and an alumnus of IIM Kolkata where he was a top ranker in his batch. Before stepping into academics, Subramanian worked as a consultant with JPMorgan Chase in New York and also served in a management role at ICICI.
For students at ISB-Hyderabad, he’s just good old “Prof Subbu” – a charismatic yet strict teacher who does not believe in dishing out gyan but is always to the point and drives his students to work hard.
Akash Sheth, a PGP student, feels Prof Subbu is somewhat similar to Rajan in some aspects.
“What we have heard on campus is that he is very influenced by Rajan’s work and Rajan was also one of his gurus… So like Rajan, we hope that Prof Subbu too will not be diplomatic,” said Sheth.
“A strict disciplinarian, Prof Subbu will be fondly remembered on campus for his unique parenting and teaching style of ‘tough love’ as he himself likes to term it. He would use this analogy several times during the course of his lectures to promote punctuality and perfection,” said Mridul Shah, another PGP student.
And Subramanian is not just an exceptional teacher and researcher but also a trained Carnatic singer who also loves to hum Bollywood numbers, as one ISB staffer told TOI.
Subramanian, who is considered an expert in banking, corporate governance and economic policy has also been part of market regulator Sebi’s panels as well as those of the RBI.
He is also a member of Sebi’s standing committees on alternative investment policy, primary markets, secondary markets and research. Subramanian is also on the boards of Bandhan Bank, the National Institute of Bank Management, and the RBI academy.
“Hearty congratulations to Mr Krishnamurthy Subramanian for being appointed as the Chief Economic Adviser to the Finance Minister. Wishing him all the best in this stint and many more laurels,” his alma mater IIM Calcutta tweeted.