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Year-End-Review of Ministry of Finance for the Year 2013
The Ministry of Finance, Government of India took
several measures to revive the economy and maintain the tempo of growth.
Though several external and domestic factors contributed to the slowdown of
the economy, wide ranging initiatives were introduced in all major sectors at
the policy level to meet the challenge during the year. At the same time,
steps were also taken to stabilise markets and provide investor friendly
environment.
Real
Gross Domestic Product (GDP) grew by about 4.7 per cent, year-on-year, in the
first half of the current financial year 2013-2014. This is much slower than
the average growth rate of around 8 per cent achieved in the last decade. The
deficient rainfall in the current year has resulted in the slowdown of the
agriculture sector while a combination of global factors such as inflation,
elevated levels of global prices, particularly crude petroleum and domestic
factors resulted in a slowdown in the industrial growth.
Following
are the highlights/achievements of the Department of Economic Affairs and
Department of Expenditure:
DEPARTMENT OF ECONOMIC AFFAIRS
From the macro angle
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During
the four year period, 2004-05 to 2007-08, Indian economy clocked an average
growth close to 9 per cent, a commendable achievement by global standards.
The economy grew at 9.5 per cent during the three-year period, 2005-06 to
2007-08, treading the path of moderate inflation, fiscal prudence and
increase in savings and capital formation. These growth rates may be compared
with growth rates of around 3.5 per cent achieved during the first
three decades of its independence, 5.6 per cent during the 1980s, 5.8 per
cent during the 1990s and 5.3 per cent during the four-year period 2000-01 to
2003-04, preceding the high-growth period.
As per the World Economic Outlook database, the share of
India in the global GDP, at (Purchasing Power Parity) PPP terms, increased
from 3.2 per cent in 1990 to 5.7 per cent in 2012. As per the IMF data,
India’s share in the World exports increased from 0.7 per cent in 2000 to 1.7
per cent in 2011.
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India’s
growth story attracted attention from around the world when our economy grew
at rate of 8 per cent per annum during the five year period, 2007 to 2012,
despite the strong negative spill-over effects of the global financial crisis
in the intervening period. India took the world by surprise by rebounding
quickly from the slower growth of 6.7 per cent in the crisis-hit 2008-09 to
record rates of growth of 8.6 per cent in 2009-10 and then 9.3 per cent in
2010-11. This was made possible by an appropriate policy framework set in by
the Government which allowed space for fiscal expansion for incentivizing
pick-up in growth.
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The
level of saving and investment in the Indian economy in relation to its GDP,
even at their reduced levels, is among the highest in the world.
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The
Union Budget 2013-14 outlined several initiatives to boost investment,
especially in rural and urban infrastructure. This included: encouragement to
Infrastructure Debt Funds and enhancement of credit to infrastructure
companies, raising the corpus of Rural Infrastructure Development Fund, and
introduction of investment allowance for new high value investments.
Progressive liberalization of FDI norms and the new gas pricing guidelines
will help boost market confidence and encourage new investment. The setting up of the Cabinet Committee on
Investment (CCI), with the Prime Minister as Chairman, has met several times
to fast track clearances, approvals, monitoring and review of large
investment projects, that has already made significant difference to the
speed of approval and execution of investment projects. Projects worth over US$ 61 billion has been
cleared by the CCI (up to August 27, 2013). This, combined with the enabling provisions of the new
legislation for Land Acquisition, Rehabilitation and Resettlement will
catalyze infrastructure investment.
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The
announcement of the National Manufacturing Policy in 2011 aims at enhancing
the share of manufacturing in GDP to 25% (from around 15% at present) within
a decade and creating 100 million jobs. In a recent review of FDI policy, the
Government has amended the sectoral caps and entry
routes for foreign direct investment in a number of sectors including
petroleum & natural gas, commodity exchanges, power exchanges, stock
exchanges, depositories and clearing corporations, asset reconstruction
companies, credit information companies, single brand product retail trading,
telecom and courier services and defence. It is
attracting higher levels of FDI already.
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Inclusive growth: An important agenda of
the Government has been to ensure wider participation and greater inclusion
in the growth process. The focus on inclusive growth, with a large number of programmes and projects, including the highly-hailed
programme for employment assurance and asset creation in the rural areas,
will be reinforced by the implementation of the Food Security Act. Official
estimates indicate that the proportion of people living below the poverty
line has declined from 37.2 % in 2004-05 to 21.9 % in 2011-12. This decline,
which has been at a much faster rate than the previous decades, is an
enormous achievement.
Foreign
Investment
The Department of Economic Affairs houses the Foreign
Investment Promotion Board (FIPB), which approves specific proposals for
Foreign Direct Investment, FDI in select sensitive sectors. In the last 5
years till date, sixty seven (67) meetings of the FIPB have been held and a
total of 1065 proposals aggregating an FDI Inflow of approximately Rs 1.74 lac crores have been
sanctioned. Of course with successive liberalization efforts, the number of
proposals which require prior approval of the Government is itself declining
and in most sectors except for a few like Telecom, Defence
and Media sectors, Foreign Direct Investment (FDI) can flow in through the
automatic route much more foreign investment flows in through the automatic
route. The continuous feedback received from the market participants and
players enables the FIPB to play a very active role in formulation of the FDI
policy which is otherwise the allocated business of the Department of
Industrial Policy & Promotion.
Infrastructure
Financial
Restructuring of State Owned Discoms:
Scheme
for Financial Restructuring of State Owned Discoms
to promote financial turnaround and long term viability of the State Discoms has been launched. This Scheme seeks to
restructure the debt of State Discoms through a
Transitional Finance Mechanism (TFM) supported by the Government of India.
Industrial Corridors
a.
Delhi
Mumbai Industrial Corridor (DMIC):
Aims at developing an industrial Corridor on either side of the 1483
Km long Western Dedicated Rail Freight Corridor between Dadri
(UP) and JNPT (Navi Mumbai). It covers six states –
UP, Haryana, MP, Rajasthan, Gujarat and Maharashtra. Four projects have been
included in the Rolling Plan of DMIC Projects in 2013.
b.
c.
Chennai-Bengaluru Industrial Corridor: Terms of Reference for
preparation of the comprehensive regional perspective plan under preparation.
The feasibility study for the Dedicated Freight Corridor (DFC) between
Chennai-Bengaluru has been awarded to RITES.
d.
Amritsar
Delhi Kolkata (ADK) Industrial Corridor: structured around the Eastern
Dedicated Freight Corridor (EDFC) as the backbone and also the Highway system
that exists on this route. The ADKIC
will cover Punjab, Haryana, Uttar Pradesh, Uttarakhand,
Bihar, Jharkhand and West Bengal.
e.
Bengaluru-Mumbai
Economic Corridor (BMEC): Being
planned in cooperation with United Kingdom.
Both the countries have agreed to co-finance the feasibility
study for the Project. The
comments/views of the UK authorities on the draft have been received and are
being processed in DIPP. Joint Secretary, DIPP will be the focal point on
Indian side for the project. The Delhi
Mumbai Industrial Corridor Development Corporation (DMICDC) would be the
nodal agency from the Indian side. The UK side has also confirmed the Nodal
agency and officer. The draft modalities as well as cost sharing arrangements
for conducting the feasibility study are under discussions.
(i)
Regulatory Institutions are being instituted in the
following sectors:
a)
Civil Aviation Authority
b)
Rail Tariff Authority
c)
Coal Regulatory Authority
d)
Road Sector
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Others:
Numerous representations from various Organizations/ Ministries/ Departments
were received for inclusion of new sub-sectors in the Harmonised
Master List of Infrastructure Sub-sectors.
All these representations were processed, 3 meetings of Institutional
Mechanism were held and three new sub-sectors namely Ports, Slurry Pipelines
and Telecommunication & Telecom Services have been included in the Harmonised Master List. A Harmonised
Master List of Infrastructure Sub-sectors was notified in March, 2012.
Ø
Public
Private Partnership
a.
261 PPPAC projects approved with the
total Project Cost of Rs 270540.45 crore.
b.
149 projects approved by EI, with a Total
Project Cost of Rs 79564.95 crore. Total
VGF approved = Rs 15745.28 crore
c.
30 projects approved by EC with Total
Project Cost of Rs 54733.00 crore. Total
VGF approved= Rs 10922.60 crore
d.
52 projects approved for IIPDF with Total
Project Development Expenses (PDE) Rs 5432.00 lakh.
e.
Approx. 62 SFC Projects with Total Project
Cost Rs 11857.83 crore.
Infrastructure financing
(i) Cabinet Committee on Investment: Based upon the concept proposed by the
DEA, the Government has set up the Cabinet Committee on Investments (CCI) on
2nd January 2013 with the Prime Minister as the Chairman to
expedite decisions on approvals/clearances for implementation of projects.
This is likely to improve the investment environment by bringing
transparency, efficiency and accountability in accordance of various
approvals and sanctions.
The CCI will monitor and review the implementation
of major projects to ensure accelerated and time-bound grant of various
licenses, permissions and approvals. CCI has initiated action for ddebottlenecking
of stalled projects in the sectors such as Power,
Petroleum & Natural Gas, Mines, Coal, Commerce & Industry- Commerce,
Shipping and Commerce & Industry- DIPP. It is estimated to have
bottlenecked about 200 projects. It has been informed that PMG has resolved
93 projects with total estimated cost of Rs. 353725.95 crore.
(ii) Infrastructure
Debt Funds: One major problem faced by banks while disbursing loans to
infrastructure projects is the asset liability mismatch inherent with these
projects. Therefore many such projects are denied financing by banks. IDFs
through innovative means of credit enhancement is expected to provide
long-term low-cost debt for infrastructure projects The cost and tariff of
Infrastructure services are likely to go down as a result of low cost long
term debt provided by IDFs. Further, buy-out guarantee from Project Authority
will enable IDF-NBFC to maintain zero NPAs. The taking over of existing bank
debts by IDFs will release an equivalent volume for fresh lending by banks to
infrastructure projects.
IDFs are an innovative attempt for addressing the
issue of sourcing long term debt from foreign investors for infrastructure
projects. The Government has taken various steps to promote these IDFs with a
view to make available the financing needs of the infrastructure in the
economy.
The Cabinet Committee on Infrastructure (CCI) has
approved the Model Tripartite Agreement (MTA) for Infrastructure Debt Funds
(IDFs) in November 2012. Similar MTA for the Port Sector is under
consideration and is likely to be approved soon. The Model Tripartite
Agreements will facilitate early Operationalisation
of the IDFs. In addition, the Cabinet Committee on Economic
Affairs, on 24.9.2013, has also approved Cabinet Note on “Operationalisation
of Infrastructure Debt Funds (IDFs)-Removal of Certain Impediments. The said
Cabinet decision seeks to remove certain impediments being faced by IDFs
operational currently. This is likely to boost investment climate and IDFs
are likely to announce investment in a very short period.
(iii)
Tax Free Bonds: The Government has allowed the issue
of ‘Tax Free Bonds’ to mobilize much needed long-term funds for the
infrastructure development. These funds will go a long way to address the
needs of infrastructure deficit, especially in sectors such as roads, ports,
airports and power, which are essential for economic growth in any country.
Pursuant to the Budget Speech for 2013-14, thirteen PSUs have been authorised
to issue Tax Free Bonds amounting to Rs. 48,000 crore,
in Aug, 2013, for Financial Year 2013-14.
(iv) Investor’s Conclaves / Road Shows: To propagate initiatives of Government
of India to promote infrastructure financing amongst the off-shore investor
community, several events were organized in major centres i.e. London, Japan,
Canada, USA, UAE etc. which were attended by Finance Minster and senior
officials of DEA. These events besides raising awareness amongst the
off-shore investor community also gave an opportunity to flag issues which
hamper flow of foreign investment.
National
Skill Development
Government of India has setup
National Skill Development Council (NSDC) as part of a national skill
development mission to fulfill the growing need in India for skilled manpower
across sectors and narrow the existing gap between the demand and supply
skills. The target for NSDC is to provide employable skills to 150 million
young Indians by 2022. Its mandate is to enable support systems such as
quality assurance, information systems and train the trainer academies either
directly or through partnerships and setting up Sector Skill Councils. NSDC
Board has approved setting up of 27 Sector Skill Councils (SSC), of which 17
have started operations. These are in the fields of healthcare, gems & jewellery, automotive, rubber, telecom etc. NSDC
has trained 9.1 lakh individuals till date. A
training capacity of 16.39 million has been created by the NSDC.
Reforms in Capital Market
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The
Government is committed to take all necessary steps to revive growth, boost
investment, create conducive business environment, improving efficiency and
depth of the markets, wider participation of investors and strengthening of
the regulatory and institutional framework to channelize greater investments
and to achieve potential growth of the Indian economy. Keeping
in view the evolving macro economic situation including high CAD and its
financing, volatile market conditions, excessive volatility in USD-INR exchange
rate, withdrawal of portfolio investments due to indications of US Fed QE
tapering etc., over the last few months, the Government in consultation with
RBI & SEBI has made concerted efforts & instituted several measures
to attract Off-shore Portfolio Investment & Improving Investors’
appetite.
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Enhancement of FII Debt
Limits :
The Government in consultation with RBI has progressively enhanced the limits
for FII investments in domestic debt (G-Sec as well as Corporate debt) market
keeping in view India’s evolving
macroeconomic scenario, its increasing attractiveness as an investment
destination and need for additional financial resources for India’s growing
private corporate sector while balancing its monetary policy. In addition,
the limits for FIIs investments have also been enhanced in order to have
wider participation of FIIs, ensure enough liquidity and to add adequate
depth in the domestic debt market. The FII debt limits have now been enhanced
to 81 billion (Corp. Bond USD 51 bn & G-Secs USD 30 bn) from the
earlier 66 billion (Corp. Bond USD 46 bn & G-Secs USD 20 bn).
Ø
Integration and
simplification of FII Debt Limit Framework: In order to encourage greater foreign investment in
INR denominated debt instrument and to help develop rupee debt markets,
framework of FII debt limits has been simplified/rationalized by inter-alia
unifying various sub-limits into two broad categories namely G-Secs and Corporate Bonds; opening the entire limit for
all class of foreign portfolio investors and adopting On-Tap System for
allocation of limits. The salient features of integrated debt framework are
as under:
The
debt limits has been merged into following two broad categories:
a.
Government
securities of US$ 30 billion (by merging Government Securities old and
Government Securities long term) and,
b.
b.
Corporate
bonds of US $ 51 billion dollars (by merging US $ one billion for QFIs,
US 25 billion dollars for FIIs and US $ 25 billion for FIIs in long term
infra bonds).
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Simplification of KYC for
foreign Investors & adoption of Risk based KYC: SEBI vide its circular
dated September 12, 2013 has detailed KYC requirements of Eligible Foreign
Investors investing through PIS route. The requirements are based on the
recommendations of “Committee on Rationalization of Investment Routes and
Monitoring of Foreign Portfolio Investments” under the Chairmanship of Shri K. M. Chandrasekhar.
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Implementation of K.M.
Chandrasekhar Committee Recommendations: K.M. Chandrasekhar Committee set up by SEBI to
harmonize various routes of portfolio investment and convergence of different
KYC norms and adoption of a risk-based approach to KYC submitted its report
on June 12, 2013. Subsequently the
draft Foreign Portfolio Investors (FPI) Regulation 2013 was prepared based on
the KMC recommendations and the same has been approved by SEBI Board on
October 5-2013.
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Other Initiatives: Satisfactory
resolution of GAAR / retrospective taxation issues for foreign investors.
Reduction in WHT from 20 % to 5 % for ECBs, G-Secs
& Corp. Bonds.
Standing Council
of Experts has been constituted to analyze and advice on international
competitiveness of the Indian financial sector.
Secondary Market
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Implemented the Rajiv Gandhi Equity
Savings Scheme (RGESS): Pursuing
the Union Budget announcement of 2012-13, Government on 23rd November 2012
notified a new tax saving scheme called “Rajiv Gandhi Equity Savings
Scheme“(RGESS), exclusively for the first time retail investors in securities
market. The Scheme was launched in February 2013 and is implemented through
depositories. RGESS has been further liberalized in the Union Budget 2013-14
to enable the first time investor to invest in listed mutual funds and equity
for three successive years, instead of the present provision of one year. The
income limit applicable for RGESS beneficiaries has been raised from Rs. 10 Lakh to Rs.12 Lakh.
Electronic
Voting Facility made mandatory for top listed companies: Union Budget
2012-13 has made it mandatory for top listed companies to offer electronic
voting facility to its shareholders. Vide circular dated 13 July 2012, SEBI
initially made e-voting mandatory for the top 500 listed companies at BSE and
NSE in respect of business to be transacted through postal ballot. This was applicable
for shareholder meetings, for which notices were issued on or after October
01, 2012. This will enhance corporate governance standards and will thereby
encourage greater participation of small investors in corporate decision
making.
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Granted
Income Tax Exemption to Investor protection Funds of Depositories (Budget
Announcement): Vide
Union Budget 2013-14, Income tax exemption presently granted to the investor
protection funds of stock / commodity exchanges, has been extended to the
funds set up for the same purposes by Depositories. This would give a boost
to the investor protection and awareness programmes.
Financial
Sector Legislative Reforms Commission (FSLRC):
During
the Budget speech of 2010-2011, Hon’ble FM had
announced setting up of the Financial Sector Legislative Reforms Commission
(FSLRC) with a view to rewriting and cleaning up the financial sector laws to
bring them in tune with current requirements. The Resolution notifying the
FSLRC was issued by the Government on 24 March 2011.
On 22 March 2013, the Commission submitted its Report to the
Government. The
recommendations of the Commission can broadly be divided into two categories;
a)
a. the
recommendations which potentially involve institutional restructuring through
rigorous legislative enactment such as creation of additional or new
institutions or transformation of existing institutions; and
b. The
recommendations which can be operationalised in the
existing financial regulatory framework.
DEPARTMENT OF
EXPENDITURE
1.
In order to enhance transparency and accountability
and make public procurement more efficient a Central Public Procurement
portal has been established. It has
been made mandatory from 1st January 2012 that all Government
Department/Central Public Sector Undertakings should place their tender
inquiries, details of the contracts awarded etc in the portal. Further all
procurements estimated to cost above Rs 10 lakhs
are to commence e-procurement. This would also help in monitoring delays and
reduce the procurement cycle. Further
a Public Procurement Bill is under consideration of the Parliament.
2.
2.
The State Governments are supported through Non-Plan
grants as per recommendation of the Finance Commission whose recommendations
are valid for a period of five years. The Commission recommends various areas
where allocations are to be provided including grants-in-aid t as various
activities. The current
recommendations are valid upto March 2015. The
Government has already set a new Finance Commission (XIV) whose
recommendations are expected in the next year.
3.
3.
The Government of India has a unique Central Plan
Scheme Monitoring System CPSMS). This
is a web-based online transaction system for fund management and e-payment to
implementing agencies and beneficiaries. The system is envisaged as a end to end solution for fund management of Plan Schemes
of the Government. It helps in establishment of an effective expenditure
information network; maintain a centralised data
base of all important agencies administering various Schemes up-to the lowest
level in a district, capture information on beneficiaries etc. The system also helps in direct transfer of
funds to accounts of beneficiaries on real time basis and brings in
transparency.
4.
4.
The Government of India is providing subsidy on
Petrol, diesel, public distribution kerosene and domestic liquefied petroleum
gas. In order to contain the oil subsidy bill, the Government has decided to
sell diesel to bulk consumers at non-subsidized market determined price to
avoid under-recoveries. Similarly, the annual quota of public distribution
kerosene is being continually reduced. Further the supply of subsidized
domestic liquefied petroleum gas per consumer has been capped at 9 cylinders
per annum.
5.
DIRECT
BENEFITS TRANSFER (DBT)
·
The Government launched Direct Cash Transfer
scheme on 1 January 2013 to transfer cash directly into bank accounts of
beneficiaries across different districts in the country. The scheme has now
been rechristened as Direct Benefits Transfer (DBT) Scheme.
·
DBT covers schemes including scholarships, Janani Suraksha Yojana, Indira Awas Yojana, Unemployment
assistance, payment of Pension and wages for work under MGNREGA etc. among
others.
·
DBT also covers schemes where in Govt. will
transfer subsidies in form of cash directly in the bank accounts of the
different beneficiaries such as LPG subsidies etc.
·
Purpose of having DBT is to ensure accurate
targeting, avoid duplication, reduction of fraud and corruption and bring greater
accountability and elimination of wastes in subsidy transfer.
·
Prerequisites for taking benefit of DBT
i)
Name of beneficiary in the digitized database of
beneficiary.
ii)
To have Aadhaar card/
number.
iii)
To open a bank account in name of beneficiary
******
DSM/MJPS/AK/ka
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