(Current Affairs) Economy & Energy | NOVEMBER : 2017

::ECONOMY::

SEBI revised block deal

  • Markets regulator SEBI revised the framework for ‘block deals’ by providing two separate trading windows of 15 minutes each and increasing the minimum order size to Rs. 10 crore.
  • The move is aimed at ensuring confidentiality of the large trades and stable prices for such transactions.
  • The block deal window is provided for buyers and sellers to execute trades for a large number of shares. Such deals are usually negotiated before their execution.
  • Under the new rules, SEBI would provide two block deal windows — morning and afternoon — of 15 minutes duration each.
  • Besides, the regulator has increased the minimum order size for execution of trades in the block deal window to Rs. 10 crore. Presently, block deal for shares worth Rs. 5 crore through a single transaction is allowed.
  • The decision has been taken as SEBI received suggestions from market participants to review the block deal framework.
  • The final norms have been put in place after taking into consideration views of market participants and Secondary Market Advisory Committee (SMAC).
  • The morning window would operate from 8:45 a.m. to 9 a.m. and the reference price for execution of block deals in this window would be the previous day’s closing price of the stock.
  • With regard to afternoon window, the regulator said it would operate from 2:05 pm to 2:20 pm.
  • The pricing would be based on the volume weighted average market price (VWAP) of the trades executed in the stock in the cash segment between 1:45 p.m. to 2 p.m.

India attracting investors in oil and gas sector

  • India is likely to attract investments worth more than $40 billion in the next five years in the oil and gas sector alone as several global oil companies such as Saudi Aramco, BP Plc., Vedanta Resources and Total of France have evinced interest in investing in world’s fastest growing market, oil minister DharmendraPradhan told.
  • “Cumulative estimated investments of $40 billion is expected in India’s E&P [exploration and production] sector in the next 4-5 years. The total investment required is $25 billion in production-sharing contract [PSC] regime, of this FDP worth of $13.6 billion have been approved and investment of $11.6 billion is under declaration of commerciality,” said Mr. Pradhan,
  • “During Pre-NELP and NELP, total investments of $40 billion has been done. In the last three years, pending projects worth $25 billion have been started. Our liberal policies and transformation reforms undertaken recently had led to investments of $25.2 billion under the PSC regime.”
  • The government has come out with the HELP (Hydrocarbon Exploration and Licensing Policy) framework with a vision to reduce India’s import dependency in oil and gas by 10% by 2022.
  • “The ministry has enacted a series of reforms to incentivise domestic exploration and production of oil and gas.
  • “Discovered small field (DSF) bid round 2016 introduced under a liberalised framework has been extremely successful and we hope to get good investments under the upcoming round of bids in December,” K.D. Tripathi, Petroleum Secretary, said.
  • The government is banking on investments from three key reforms in the petroleum sector- Open Acreage Licensing (OAL), Discovered Small Fields (DSF) and Production Enhancement Contracts (PEC).

NHAI issuing bonds to finance highway projects

  • The National Highways Authority of India (NHAI) will soon issue bonds to finance highway projects, Road Transport and Highways Minister, Nitin Gadkari, said.
  • “Foreign and domestic investments for building roads and highways infrastructure would follow naturally because of the pro-active infrastructural policies of the government.
  • “The NHAI is preparing to issue bonds worth lakhs of rupees by way of tapping the capital market... efforts are [also] on to generate funds from other such portfolios. This is being done to make sure that funds are raised to support and finance roads and highways without any delay,” he said at the 112th Annual Session of PHD Chamber.
  • Mr. Gadkari had said that NHAI has a AAA rating that would help it tap into the capital markets. He had said that funds to the tune of Rs. 4-5 lakh crore can be raised from the markets for highway projects.
  • The Cabinet approved the BharatMalaPariyojana to build 34,800 km roads worth Rs. 5.35 lakh crore.
  • It would include building economic corridors, inter-corridor and feeder routes, national corridors efficiency improvement, border roads and international connectivity, coastal roads and port connectivity and greenfield expressways.
  • For Bharatmala, Rs. 2.09 lakh crore will be raised as debt from the market and Rs. 1.06 lakh crore will be mobilised through public-private partnership (PPP). The remaining Rs. 2.19 lakh crore will flow from accruals of the Central Road Funds and toll projects.

Recapitalisation is the need of the hour

  • Bankers have hailed the Union government’s decision to infuse Rs. 2.11 lakh crore in public sector banks, saying the move is the need of the hour.
    “This milestone announcement on recapitalising banks in one go is a bold and courageous move and is indeed the need of the hour,” Rajnish Kumar, Chairman, State Bank of India, said.
  • “It will generate balance in overall demand and supply by bringing more investments in sectors like infrastructure. These funds will also help in efficiently managing risk and credit capital related requirements of the banks,” he said.
  • Sharp rise in stressed assets in the past three years have eroded capital of state-run lenders, which share a disproportionate burden of the bad loans.
  • The move also comes as a relief for banks facing a corrective action of the RBI following deterioration of assets quality and other financial parameters.
  • Karthik Srinivasan, group head, Financial Sector Ratings, ICRA, said the infusion of funds would provide the capital required to absorb losses due to non-performing assets.
  • “Most likely, the recapitalisation bonds are likely to be subscribed by the banks ...,” he said.

India, U.S. talks to boost bilateral trade

  • India and the U.S. are slated to hold high-level talks to boost bilateral trade and investment. On the agenda of the India-U.S. Trade Policy Forum (TPF), scheduled to be held in Washington DC on October 26, are ways to iron out irritants including ‘visa curbs’ of the U.S. and India’s ‘high tariffs’ on manufactured products and ‘restrictions’ on e-commerce, as well as steps to expedite the conclusion of negotiations on a bilateral social security pact (or totalisation agreement).
  • The TPF, which is the main forum to resolve bilateral trade and investment issues, is also likely to take up the ‘challenges’ that American innovative industries face due to India’s ‘weak’ Intellectual Property Rights regime. It would also discuss the ‘non-tariff barriers’ of the U.S. that are adversely impacting India’s agriculture, pharmaceuticals and other industrial exports.
  • Both countries aim to increase bilateral goods and services trade to $500 billion soon, from about $115 billion in 2016.
  • Industry bodies including USIBC and US-India Strategic Partnership Forum (USISPF) are working with the governments of both the countries on mechanisms to ensure greater engagement at the State-level, instead of focusing entirely on the Central/Federal-level discussions.

Infusing capital to boost economy

  • The Centre unveiled an ambitious plan to infuse Rs. 2.11 lakh crore capital over the next two years into public sector banks (PSBs)saddled with high, non-performing assets and facing the prospect of having to take haircuts on loans stuck in insolvency proceedings.
  • The move is vital for the slowing economy, as private investments remain elusive in the face of the “twin-balance sheet problem” afflicting corporate India and public sector banks reflected in slow bank credit growth.
  • Several economists opine that the recapitalisation of banks — so that they can lend more freely and help revive private investment — is critical for revitalising India’s growth momentum at a time when the global economy is recovering.
  • Financial Services Secretary Rajiv Kumar said that the Union Cabinet had approved the capital infusion plan for PSBs, adding that the funding pattern would be front-loaded.
  • The Financial Services Secretary added that this would be funded through budgetary provisions of Rs. 18,139 crore and the sale of recapitalisation bonds worth Rs. 1.35 lakh crore. The balance would be raised by the banks themselves by diluting the government’s equity share.
  • “Indiscriminate lending earlier by banks led to a high level of NPAs (non performing assets),” Finance Minister Arun Jaitley said. “And these NPAs were kept under the carpet. Now they have come to light because of the Asset Quality Review conducted by the Reserve Bank of India.”
  • The capital infusion would also be accompanied by a series of banking sector reforms, Mr. Jaitley said, without providing any specifics, adding that the measures would be revealed in the coming months.
  • The government’s capitalisation package for public sector banks will provide a strong booster dose of relief for the capital starved public sector banks.
  • CRISIL’s assessment of capital requirement for public sector banks to meet Basel III requirements is in the range of Rs. 1.4-1.7 lakh crore which will be met by the government’s relief package.
  • Mr. Jaitley said the nature of the recapitalisation bonds would be decided in the coming months, adding that the impact from the capital infusion on the fiscal deficit would be determined by the type of bonds and as to who the issuing authority would be.

Tourism Ministry proposes reduction in GST for 5-star hotels

  • The tourism ministry has proposed a reduction in the Goods and Services Tax (GST) rates for five-star hotels and the grant of ‘infrastructure status’ as part of measures to boost the vital jobs- and foreign exchange generating sector.
  • Providing land on lower lease rentals for hotel construction, cutting the number of permits needed to open hotels, as well as establishing a National Tourism Regulator and the related regulatory framework are some of the other proposals made by the ministry on Monday.
  • The aim is to ensure that within five years the sector generates 100 million jobs (from the current 43 million), attracts 40 million tourists (from 14.4 million now), and generates $100 billion worth of foreign exchange earnings (from about $24 billion at present).
  • The ministry has also set up four Joint Working Groups (JWGs) — one each on hospitality sector, start-ups, ‘MICE’ or ‘Meetings, Incentives, Conferences, and Events’-tourism, and niche tourism — to work on recommendations from the industry, and bring out an ‘Action Plan’ with specific targets and time lines to achieve them.
  • The JWGs would each have a representative from the tourism ministry, the Department of Industrial Policy and Promotion, industry, and the government’s investment facilitation and promotion wing ‘Invest India’.
  • The JWGs would submit their suggestions within a month, with the Centre placing the recommendations in the public domain and also sharing regular Action Taken Reports.
  • According to the tourism industry, the 28% GST rate renders India uncompetitive, with foreign tourists opting to travel instead to neighbouring countries such as Thailand, Malaysia and Singapore where the tax rate on hotels was only 7% or lower.
  • ‘Infrastructure status’ to the hotel sector would also help spur an increase in the construction of budget hotels, the minister said. He said currently, the infrastructure status was only available for projects above Rs. 200 crore, adding that it should be extended to projects above Rs. 50 crore.
  • Pointing out that currently, the industry needs to obtain more than 70 permits to open a hotel, the minister said the number of permits should be reduced drastically from such “outrageous” levels. The minister said the approach being used by the Madhya Pradesh government, especially on making it easier for the industry to get land and infrastructure, would be passed on to other state governments as a model that they could consider adopting.
  • Additionally, the Centre would also work with the industry to soon bring out a massive skill development programme aimed at the tourism industry, in a manner that would help those being trained to secure jobs, Mr. Kannanthanam said.

Melbourne Mercer Global Pension Index 2017

  • India has been ranked 28 out of the 30 countries under review in the Melbourne Mercer Global Pension Index 2017, which was topped by Denmark for the sixth straight year.
  • India’s overall index value increased from 43.4 in 2016 to 44.9 in 2017 and its pension system is found more sustainable than Poland, Germany, France, Japan, Italy, Austria, Brazil, China and Argentina.
  • “The increase in value under the integrity sub—index from 53.4 to 55.1 is a reflection of Government of India’s continued efforts to improve the transparency and member experience in various schemes,” Preeti Chandrashekhar, India Business Leader — Retirement, Health and Benefits, Mercer said.

Railways to ask Finance Ministry to share in rail safety fund

  • The Ministry of Railways may ask the Finance Ministry to fund its share of the railway safety fund this year as the public utility is staring at an earnings shortfall of at least Rs. 10,000 crore in 2017-18, sources said.
  • With earnings deficit, the Ministry of Railways may find it difficult to contribute its share towards the newly- constituted Rashtriya Rail Sanraksha Rosh (RRSK) – a dedicated fund for critical safety-related works, a Ministry official said on the condition of anonymity.
  • The Indian Railways’ income stood at Rs. 80,519 crore till September compared with Rs. 76,405 crore till September last year. However, the actual income was 8.45% lower than the targeted earnings till September this year. The Railways had set a target of earning Rs. 1.88 lakh crore in 2017-18 against Rs. 1.65 lakh crore in 2016-17.
  • Finance Minister Arun Jaitley had announced the setting up a special safety fund with a corpus of more than Rs. 1 lakh crore over a period of five years in Budget 2017-18. According to the plan, while the Finance Ministry would contribute Rs. 15,000 crore annually towards the fund, the Ministry of Railways would fund the balance Rs. 5,000 crore every year.
  • In the first six months of the current financial year, the Indian Railways had utilised a quarter of the safety fund as it had spent Rs. 5,031 crore from the RRSK. Although the Railways’ passenger and goods earnings had increased 4.5% and 8.4% respectively till September this year compared with the last year, its sundry earnings had declined sharply by 35.7% during this period.
  • Income from non-fare revenues, including land lease, advertising, PSU dividends and catering department, form part of the sundry earnings.
  • Minister of Railways Piyush Goyal had said in an interview to The Hindu last month that the utility was willing to spend unlimited funds on safety which would be a top priority for him. “In my working, there is no budget for safety. Whatever (fund) is required we will spend,” Mr. Goyal had said.
  • Meanwhile, the Finance Ministry advised the Ministry of Railways to prioritise deploying RRSK funds on areas that reduce chances of human error and ensure training of safety staff.

WEF’s India Economic summit

  • World Economic Forum’s 33rd India Economic Summit will kick off, in partnership with industry body CII. The theme of the conference, which will be attended by key ministers of the government, including Finance Minister Arun Jaitley and industrialists such as Sunil Bharti Mittal, is ‘Creating Indian Narratives on Global Challenges’.
  • “More than 650 leaders from 35 countries are taking part, allowing Indian business, society and government leaders to interact and collaborate with peers from across the globe,” WEF said in a statement.
  • The summit would discuss issues such as climate change, infrastructure and gender parity, besides demonetisation and the GST.

Many more problems before Electric vehicles

  • India’s transition to EVs could have far-reaching implications for the global oil economy. “India, the world’s third-largest consumer and fastest-growing major market, could see a cut of 8%-20% of current annual oil demand,” the report said.
  • Affordability challenge could be addressed with an India-specific EV, it felt.
  • The government has set an ambitious EV sales ratio target of 40% in 2032 with almost 100% in commercial applications (compares with China’s EV target of 20% by 2025).
  • “We believe this target will be difficult to achieve; our base case (moderate adoption) forecasts an EV sales ratio of 13% for cars in 2032, 25% for 2-wheelers and 55% for buses,” the report said.
  • Nevertheless, according to Goldman Sachs, the late mover advantage may help India in its endeavour. “This should enable it to benefit from lessons learnt in other countries,” it added.
  • According to Ashok Jhunjhunwala, Principal Advisor, Ministry of Power & New and Renewable Energy, Government of India, the key challenge for development of electric vehicles would yet be the issue of subsidy.
  • There was an urgent need for a strong policy framework to promote Indian manufacturing and support from the Government to nudge Indian stakeholders move towards EV gradually, it said.
  • The fact of the matter, however, is that green has become a hot subject of debate and ‘EV’ has become the new buzz word — a fancy one, at that, in the world of Indian automobiles.

The first ever shipment of U.S. crude oil Reached India

  • The first ever shipment of U.S. crude oil of 1.6 million barrels, purchased by state-run Indian Oil Corporation (IOC), was received at Paradip Port.
  • The shipment is a part of recent commitments to purchase U.S. oil by IOC, Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL).
  • IOC has placed a cumulative order for 3.9 million barrels from the U.S. while BPCL and Hindustan Petroleum have placed orders for about 2.95 million barrels and one million barrels, respectively.
  • “The inclusion of the U.S. as a source for crude oil imports by India’s largest refiner will go a long way in mitigating the risks arising out of geo-political disruptions.
  • U.S. crude oil shipments to India have the potential to boost bilateral trade by up to $2 billion, according to a. U.S. Embassy release.
  • The crude oil shipment was delivered by MT New Prosperity, a Very Large Crude Carrier (VLCC) of capacity 2 million barrels of crude, which left the U.S. Gulf Coast on August 19.
  • The United States and India are elevating our cooperation in the field of energy, including plans for cleaner fossil fuels, renewables, nuclear and cutting edge storage and energy efficiency technologies.

Morgan Stanley predicts India to be world’s fastest growing large Economy

  • India is likely to be the world’s fastest-growing large economy in the next 10 years, driven by digitisation, favourable demographics, globalisation and reforms, predicts a Morgan Stanley report.
  • According to the global financial services major, the trend line in India’s annual GDP growth has been accelerating to 6.9% in 2000s, from 5.8% in the 1990s, and this momentum is likely to continue in the next decade as well.
  • Morgan Stanley expects digitisation will provide a boost of 50-75 bps to GDP growth and forecast that India will grow to a $6-trillion economy by 2026-27.

Cost is a major problem in Electric vehicle

  • Add BHP Billiton and vacuum-cleaner maker Dyson to the list of converts to the electric-vehicle revolution. Arnoud Balhuizen, chief commercial officer at the world’s largest miner, told Reuters that battery-powered cars will reach a tipping point this year.
  • With Tesla, Volvo, General Motors, Volkswagen and others all launching or announcing new electric vehicles, it may sound like the internal combustion engine is heading straight for the scrap yard.
  • There’s certainly willingness to switch to electric vehicles. Deutsche Post, Unilever and IKEA were among 10 large enterprises that committed recently to ditch gas guzzlers for battery- powered ones — but only by 2030.
  • Even BHP’s Mr. Balhuizen reckons it’ll take until 2035 to have 140 million electric autos on the roads compared to at most 2 million today. And they’d account for less than a tenth of the global fleet.
  • Cost is a major problem. Cars powered solely by batteries are up to $20,000 more expensive than gas-propelled ones, according to Evercore ISI. A driver of the GM Bolt could save $300 a year on fuel.
  • That means it’d take at least 30 years to cover the extra outlay, estimate the bank’s analysts — almost three times longer than the average American car stays in service.
  • Over time, those costs will come down, though increased demand is already pushing up the price of key raw materials like lithium and copper. The rise of autonomous driving may change the economics.
  • Trouble is, that remains years off. And there are other challenges. Access to some metals is far from secure: around half of the current supply and estimated reserves of cobalt are in the DRC, a country plagued by conflict, drought and child labour.
  • Add up the various prognostications and electric-only-powered cars, with most driving themselves, will almost certainly become the norm by mid-century. That’s still plenty of time for the internal combustion engine to ride off into the sunset.

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