(Current Affairs) Economy & Energy | July: 2017

Economy

New oil and gas block licensing policy

  • Petroleum Minister Dharmendra Pradhan introduced a new oil and gas block licensing policy that is expected to open up 2.8 million square kilometres of sedimentary basins to exploration and production activities.
  • The lack of seismic sedimentary basin data had been hampering the oil and gas exploration and production sector, the minister said, adding that 52% of India’s sedimentary basins had not been appraised as yet.
  • The National Data Repository was expected to improve this situation, he said.
  • The OALP, a part of the government’s Hydrocarbon Exploration and Licensing Policy (HELP), gives exploration companies the option to select the exploration blocks on their own, without having to wait for the formal bid round from the Government.
  • The company then submits an application to the government, which puts that block up for bid.
  • The new policy will open up 2.8 million square kilometres of sedimentary basins for exploration and eventual production.
  • Mr Pradhan said that initially the applications and related bids for the blocks would be held twice a year —in January and July — but said this could become more frequent as the industry becomes used to the new model.
  • Mr. Pradhan added that the recently-concluded discovered small field (DSF) bid round, though small, was encouraging as it gave an insight into the investment appetite of the sector.
  • The new policy environment has already started attracting investment into India’s upstream sector, which could help reduce imports and increase the share of gas in the country's energy mix.
  • During his speech, Mr. Pradhan said that his Ministry was working on developing a gas trading hub to support a robust marketing network.
  • About 52% of India’s sedimentary basins are unappraised, with the last appraisal taking place 25 years ago,” Mr. Pradhan said during his speech.
  • The lack of seismic sedimentary basin data was hampering the exploration and production (E&P) sector of the oil and gas industry.

New regulator for coal and gas mooted

  • Niti Aayog has suggested creation of regulators for coal as well as oil and gas.
  • “Coal and upstream petroleum sectors have lacked independent, statutory regulators. Due to several reasons, including strong presence of PSUs and limited number of private operators, it was so far not found useful to place the latter in position,” it said in a draft National Energy Policy.
  • “But, now with increased private activity, the time is appropriate,” it said in the new licensing policy unveiled.
  • “Ideally, there ought to be a single regulator to govern the energy market,” the Aayog said, pointing out that in India, the market has not fully developed.
  • Hence, the regulators need to devote considerable attention to development of supply.
  • The think-tank said that at the level of electricity, all fuels ultimately converge into a common product which is rightly governed by a single regulator.

RBI has asked banks to resolve 55 high value cases of bad loans

  • RBI has asked banks to resolve 55 high value cases of bad loans within six months or face the prospect of being directed to go in for the new insolvency resolution mechanism as part of the strategy to rein in unacceptable level of NPAs.
  • Earlier this month, Reserve Bank of India identified 12 accounts for insolvency proceedings with each of them having over Rs. 5,000 crore of outstanding loans, accounting for 25% of total NPAs of banks.
  • RBI has asked banks to find solution for 55 identified NPA accounts within 6 months otherwise the central bank would examine those cases and refer for resolution under the Insolvency and Bankruptcy Code (IBC), official sources said.
  • RBI is of the view that banks should expedite the NPA resolution process for these cases as soon as possible.
  • In cases where a viable resolution plan is not agreed upon within six months, banks would be asked to file insolvency proceedings against the defaulters under the IBC, sources added.
  • The banking sector is saddled with NPAs of over Rs. 8 lakh crore, of which Rs. 6 lakh crore is with public sector banks (PSBs). The 12 identified cases account for 25% or about Rs. 2 lakh crore of NPAs.
  • IBC has defined time-frame for the resolution and there is 14-day time period for admission or rejection of a case by National Company Law Tribunal.
  • After a case is accepted by NCLT, the creditor would get 30 days to hire insolvency practitioners and then the entire process to be completed in 180 days which will look at various possibilities including revival of projects or liquidation.

Govt taking steps to reduce bad debt

  • RBI said its internal advisory committee (IAC) had identified 12 accounts, which account for 25% of non-performing assets of the Indian banking system for immediate resolution under the Insolvency and Bankruptcy Code (IBC).
  • The gross bad debt in the banking system as on March was Rs. 7.11 lakh crore, which means the 12 accounts contribute to about Rs. 1.78 lakh crore.
  • A company is bankrupt if it is unable to repay debts to its creditors (banks, suppliers etc). The inability to repay debts by some of the Indian firms has resulted in a huge pile of non-performing assets for the banking system.
  • A mechanism to free up the money stuck as bad loans is one of the key for the banking system. IBC is seen as one such.
  • While the names of the 12 accounts which have been referred have not been made public officially, the RBI had earlier hinted that stress was coming from sectors such as power, telecom, steel, textiles and aviation.
  • Union Finance Minister Arun Jaitley later said the number of highly stressed accounts would be about 40-50.
  • The government had recently amended the RBI Act, which gave powers to the central bank to direct banks to take punitive action against individual accounts under IBC.
  • To being with any creditor including banks can start bankruptcy proceedings against defaulters by filing a petition with the National Company Law Tribunal.
  • The committee should come up with a resolution plan (which may include selling off defaulted loans or liquidate the company outright). The resolution would require a nod from 75% of the creditors on the committee.
  • The insolvency professional gets 180 days to come up with a feasible solution on the default issue. The timeline can be extended by another 90 days. If no solution is found within 270 days, a liquidator is appointed.
  • The company can also opt for voluntary liquidation by a special resolution in a general meeting.

IBBI has notified norms for fast-tracking insolvency resolution process

  • The Insolvency and Bankruptcy Board of India (IBBI) has notified norms for fast-tracking insolvency resolution process for specified category of corporate debtors.
  • This will include small companies, start-ups (other than partnership firms), or unlisted companies with total assets — as reported in the financial statement of the immediately preceding financial year — not exceeding Rs. 1 crore.
  • However, it added that the adjudicating authority may, if satisfied, extend the period of 90 days by a further period of up to 45 days for completion of the process.
  • The Ministry of Corporate Affairs has notified the relevant sections of the Insolvency and Bankruptcy Code (IBC), 2016 pertaining to the Fast Track Process, the statement said.
  • These regulations provide the process from initiation of insolvency resolution of eligible corporate debtors till its conclusion with approval of the resolution plan by the Adjudicating Authority.
  • A creditor or a corporate debtor may file an application, along with the proof of existence of default, to the Adjudicating Authority for initiating fast track resolution process.
  • India was ranked 136th out of 190 countries in the indicator ‘resolving insolvency’ in the last edition of the World Bank’s (ease of) Doing Business Report.
  • In a bid to improve this ranking, the government had carried out the reform of bringing in the IBC and the new elements of the Indian corporate insolvency ecosystem.
  • About 67 cases have been filed across 11 NCLT benches and some of them involve large defaults (above Rs. 10 billion).

Retail inflation lowest since 2012

  • Retail inflation in May, at 2.18%, eased to its lowest level since the Centre began measuring it on a nationwide basis in 2012, driven in large part by cooling food prices, according to a latest government release.
  • Separate data showed industrial output expanded by 3.1% in April.
  • Inflation measured by the Consumer Price Index (CPI) was even slower than the 2.99% seen in April, the previous record low.
  • Within the index, food and beverages category witnessed a contraction of 0.2% in May, compared with a growth of 1.3% in April.
  • Growth in the Index of Industrial Production (IIP) was spurred by the manufacturing sector within which the tobacco and the pharmaceuticals sectors grew the fastest.
  • Inflation in the fuel and light segment in May stood at 5.5%, compared with 6.1% in April.
  • Inflation in the clothing and footwear segment eased marginally to 4.4% from 4.6% over the same period. The housing segment saw inflation remaining at the same rate of 4.8%.
  • The RBI is expected to maintain status quo until September 2017 as the inflation for next couple of months is dependent upon turnaround of monsoon, increase in the house rent allowances, implementation of GST and farm loan waivers
  • The manufacturing sector grew 2.6% in April compared with 2.7% in March, while growth in the mining sector slowed drastically to 4.2%. Electricity output grew 5.4% in April, slower than March’s 6.2%.
  • The consumer durables segment saw a drastic contraction of 6% in April, from a growth of 13.8% in the same month of the previous year.
  • The capital goods segment also witnessed a contraction of 1.3%, compared with a growth of 8.1% in April 2016.

Goods and Services Tax Suvidha Providerswants returns filling to be delayed

  • The Goods and Services Tax Suvidha Providers (GSPs) have asked GSTN and the Department of Revenue to postpone the date of filing returns under the new regime by a month to September 10, even if GST itself is rolled out on July 1.
  • The GSTN held a review meeting with all 34 GSPs, where it began releasing the specifications for various tax return forms needed under the GST.
  • Several GSPs have spoken about how the lack of preparation, on the part of the government and the GSPs, could mean that the rollout of the entire system of GSPs could be pushed back by a few months.
  • GSPs were also asked to get cybersecurity audits done for their IT systems before they started feeding taxpayer data into their systems.
  • The statement said that GSPs are to have their systems audited as per ISO standards on security from an auditor empanelled with CERT-IN, before connecting with and pushing data into the GST system.
  • Another GSP manager said though most GSPs have robust systems, audits were needed to ensure security. He added that audits, though, would only add to delays in becoming truly ready.

For the smooth rollout of GST government has setup various sectoral groups

  • The government has set up 18 sectoral groups, comprising senior members from the Centre and the States, to ensure the smooth rollout of the Goods and Services Tax, it announced.
  • These sectoral groups are to ensure a timely response to the problems of their respective sector by interacting with and examining representations received from trade and industry associations.
  • Highlighting specific issues for the smooth transition of the respective sector to the GST regime, and preparing sector-specific draft guidance.
  • The 18 sectors that will be represented by these groups include banking, telecom, exports, IT & ITeS, transport and logistics, textiles, MSMEs, oil and gas, gems and jewellery, government services and food processing.
  • Other groups include those representing e-commerce, big infrastructure, transport and tourism, handicraft, media and entertainment, drugs and pharmaceuticals, and mining.

Representatives from seventeen states were present in the meeting.

  • NITI Aayog vice chairman expects 7.5% growth in the current financial year
  • NITI Aayog vice chairman Arvind Panagariya said he expects 7.5% growth in the current financial year and possibly a return to the 8% growth rate by the end of the present NDA government’s tenure.
  • Stressing that India is ‘pretty much out of the woods’ when it comes to the impact of demonetisation on the economy.
  • Mr. Panagariya said, “Re-monetisation has happened… We should see a good turnaround in the first quarter (of 2017-18).”
  • The contraction in the construction sector in the last quarter of 2016-17 could be due to many reasons including the war on black money that was the stated goal of demonetisation, he said.
  • “Our main objective of demonetisation was to curb black money and prices of real estate have fallen by about 20%-25%, which in turn may have impacted construction activity,” he said.
  • “I have studied the economic history of India… reforms do lead to accelerated growth but with a lag,” he said.
  • “First, we had a major reform wave under PM Narasimha Rao, which was carried forward by PM Atal Bihari Vajpayee… some acceleration happened early on, but it was in 2003-04 that we got launched into this 8% growth trajectory,” he said.
  • The government has begun compiling data from this April for a new annual employment survey to capture rural and urban job levels, with quarterly data on urban jobs, said Mr. Panagariya.
  • Terming all the debate about jobless growth as ‘misplaced’ as there is no credible aggregate data on employment.

The country’s manufacturing sector growth cooled

  • The country’s manufacturing sector growth cooled to a three-month low in May following softer demand causing slower expansions in output and the amount of new work received by firms, according to a monthly survey.
  • The headline Nikkei India Manufacturing PMI — an indicator of manufacturing activity — was down from 52.5 in April to a three-month low of 51.6. An index reading above 50 indicates an overall expansion, below 50 shows contraction.
  • With inflation under control and manufacturing growth below par, we may see the RBI changing neutral monetary policy stance to accommodative in coming months in order to support the economy.
  • The upturn in the Indian manufacturing sector took a step back in May, with softer demand causing slower expansions in output and the amount of new work received by firms.
  • Moreover, there was a renewed decline in new export orders... Additionally, cost inflationary pressures cooled. The rate of inflation had softened to the slowest in eight months.

Internet users in India grew to an estimated 355 million

  • Internet users in India grew to an estimated 355 million users in 2016, up 28% from 277 million in the previous year, according to a report.
  • However, Internet penetration still stands at 27%, according to Mary Meeker Internet Trends 2017 report.
  • It pointed out that while the average selling price of a smartphone and the cost of wireless data were declining, they were still unaffordable for many people.
  • Data prices have fallen more than 48% over the past last year as incumbent players were forced to bring down prices in response to low pricing by new entrant Reliance Jio, according to the report.
  • The dip in data costs, it found, led to a 9x jump in data consumption in the country.
  • Further, Indians spent 150 billion hours between 2014-16 on Android phone at and are the biggest downloaders of applications from Google Play with more than six billion downloads during the two-year period. This, however, does not include China.
  • In India, little less than 80% of Internet usage happens via mobiles as opposed to the global average of 50%.

India's plan to setup SEZ in Bangladesh hit a road block

  • The plan to step up India’s investments in Bangladesh by setting up three mega Special Economic Zones (SEZ) exclusively for Indian companies in the latter’s territory, has hit a major hurdle.
  • Citing “constraints, including inadequate infrastructure and lack of uninterrupted power supply” at Mongla, Bheramara and Mirsarai – the sites in Bangladesh for the proposed Indian SEZs, representatives of India Inc. told the Centre.
  • For better connectivity and business prospects, they sought alternative sites close to the Chittagong Port and the capital city of Dhaka — similar to those been allocated by Bangladesh for Chinese SEZs.
  • To lure investments into its SEZs, Bangladesh had offered incentives, including exemption from income tax, VAT, customs duty and stamp duty, removal of ceiling on FDI, full repatriation of capital and dividend.
  • No curbs on issuance of work permits as well as resident visas and citizenship for investments over a certain limit.
  • India Inc. wanted greater clarity on some of the incentives as well as an assurance that they will be continued even if there was a regime change in Bangladesh.
  • India and Bangladesh had inked a Memorandum of Understanding (MoU) in June 2015 — during Prime Minister Narendra Modi’s visit to Bangladesh — for cooperation on establishing Indian SEZs in Bangladesh.
  • The plan was to develop Indian SEZs at Mirsarai (1,005 acres), Bheramara (about 480 acres) and Mongla (200 acres).
  • The construction of these SEZs and Indian investment in the zones were to be facilitated through concessional Line of Credit extended by India to Bangladesh.
  • The Centre had promised to address the concerns of India Inc. by taking them up with the Bangladesh Government in June-end or early July and asked Indian companies not to reject Bangladesh’s offer of land and other incentives to build Indian SEZs there.

Non-cash payments is on track to contract for the second consecutive month

  • The value of non-cash payments is on track to contract for the second consecutive month in May following the contraction seen in April, according to representative data released by the Reserve Bank of India.
  • The RBI data, collected from a sample of banks and the National Payments Corporation of India, shows that the value of non-cash transactions up to May 28 is only marginally higher than the amount transacted in November.
  • The representative data shows that November saw Rs. 95,249.1 billion worth of non-cash transactions, while the first 28 days of May saw a marginally higher Rs. 95,601.5 billion worth of transactions.
  • This is far lower than the Rs. 1,05,421.2 billion seen in December and still lower than the Rs. 1,51,089 billion in March, the highest it has been since demonetisation.
  • Since March, however, the value of non-cash transactions has contracted across almost every channel. The value of non-cash transactions in April stood at Rs. 1,11,046 billion, down 26.5%, while the May figure so far has contracted 13.9%.

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