Revision of base year of WPI

The base year  of All-India WPI has been revised  from  2004-05 to  2011-12  by the  Office of  Economic  Advisor (OEA), Department  of Industrial  Policy  and Promotion, Ministry of Commerce and Industry.

Background

The Wholesale Price Index (WPI) series in India has undergone six revisions in 1952-53, 1961-62, 1970-71,1981-82, 1993-94 and 2004-05 so far. The current   series is the   seventh   revision.

The revision entails shifting thebase year to 2011-12 from 2004-05,  changing  the  basket of commodities  and  assigning new  weights to the commodities.

Key Highlights

•  In the revised series, WPI will continue to constitute three Major Groups namely  Primary  Articles, Fuel &  Power  and  Manufactured Products.
• Updated  item  basket and  weighting structure conforming to  the structure of economy in 2011-12.Increase in number of items from 676 to 697.  In all 199 new items have been  added and 146  old items have been dropped.

• In the new series of WPI, prices used for compilation do not include indirect taxes in  order  to remove  impact  of  fiscal policy.  This  is  in consonance  with  international practices and  will   make  the  new  WPI conceptually closer to ‘Producer Price Index’.
• A new “WPI Food Index” will be compiled to capture the rate of inflation in food items. This is being  compiled combining  the  “Food  Articles” under  “Primary  Articles”   and “Food Products"  under  “Manufactured Products”.  Together with the    Consumer   Food  Price Index  released by Central Statistics   Office, this would help   monitor   the price situation of food items better.

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Recent FDI initiatives in India:PIB

Defence Sector:

• During 2014-15, FDI in Defence Industry has been permitted through the Government route up to 49%. Also, higher FDI can be allowed on case to case basis. Further, portfolio investment which was not permitted earlier has now been allowed up to 24% under automatic route.
• Other important changes in the revised policy include doing away of the lock-in period of three years, mandating that Investee Company should be structured to be self-sufficient in areas of product design and development, with full Indian management and control along with Chief Security Officer being resident Indian citizen.

Railway:

Further, FDI in construction, operation and maintenance of identified railway transport infrastructure up to 100% has been permitted through the automatic route. In sensitive areas, from security point of view, FDI beyond 49% would be allowed on a case to case basis.

Insurance:

The permissible FDI in insurance sector has been raised from 26% to 49%, effective from 02.03.2015, in which 26% FDI will be through automatic route and higher equity up to 49% would be permitted through the Government route.

Construction:

• The norms for FDI in Construction Development Projects (which already permitted 100% FDI through automatic route) have been further liberalised.
• The minimum land area restriction has been removed for serviced plots. In case of construction-development projects, minimum built up area of 50,000 sq. meter has now been reduced to floor area of 20,000 sq. meter.
•  Minimum capitalization has been reduced from USD 10 million to USD 5 million. Norms relating to repatriation of funds or exit from the project have also been liberalized. Investor can exit after the completion of the project or after development of trunk infrastructure.
• Earlier provision to bring in entire FDI within six months of the commencement of the project has been amended to provide that FDI can be brought in till the period of 10 years from the commencement of the project or its completion, whichever is earlier.
• To encourage investment in affordable housing, it has been provided that minimum area and capitalization norms will not apply to the projects committing 30% of the total project cost for low cost affordable housing.

Other Measures:

• The Government has also decided to permit FDI up to 100% under the automatic route both for green field and brown field projects for manufacturing of defined medical devices, which would not attract conditions specific for pharmaceutical industry. The definition of medical device for the purpose would be subject to the amendment in Drugs and Cosmetics Act.
• .Composite caps for various sectors for foreign investment have been allowed (with the limited exception of defence and private sector banks) to provide uniformity and simplicity across the sectors for attracting FDI.
• The definition of Non Resident Indian (NRI)investment has been liberalised under Schedule 4 of FEMA.
• The permissible FDI ceiling for approval of Foreign Investment Promotion Board (FIPB) has been enhanced from Rs 2000 crore to Rs 3000 crore.
• Henceforth, facility sharing arrangements between group companies through leasing/subleasing arrangements for larger interest of business, when carried out at arm’s length price in accordance with the Income Tax Act and lease rent earned is under 5% of the revenue of the lessor, such  leasing will not be considered as ‘real estate business’ under FDI policy.
• The Foreign Direct Investment into White Labelled ATM Operations (WLAO)has been allowed upto 100% in automatic route. Prior to this foreign investment in WLAO, was being allowed only through government approval route.
• The Government of India has reviewed the extant FDI Policy and decided to allow Foreign Investment up to 100% in white Label ATM Operations under the automatic route.
• The Government of India has reviewed the extant Foreign Direct Investment (FDI) Policy  on various sectors and made amendments in the Consolidated FDI Policy Circular of 2015 (FDI Policy) effective from May 12, 2015 and as amended from time to time

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Cabinet approves amendment in Power Tariff policy

• The Union Cabinet has approved the proposal of the Ministry of Power for amendments in the Tariff Policy. For the first time a holistic view of the power sector has been taken and comprehensive amendments have been made in the Tariff policy 2006.
• The amendments are also aimed at achieving the objectives of Ujwal DISCOM Assurance Yojana (UDAY) with the focus on 4 Es: Electricity for all, Efficiency to ensure affordable tariffs, Environment for a sustainable future, Ease of doing business to attract investments and ensure financial viability. 

Major Amendments: 

Electricity:

• 24X7 supply will be ensured to all consumers and State Governments and regulators will devise a power supply trajectory to achieve this. 

• Power to be provided to remote unconnected villages through micro grids with provision for purchase of power into the grid as and when the grid reaches there. 

• Affordable power for people near coal mines by enabling procurement of power from coal washery reject based plants. 

Efficiency:

• Reduce power cost to consumers through expansion of existing power plants. 

• Benefit from sale of un-requisitioned power to be shared allowing for reduction in overall power cost. 

• Transmission projects to be developed through competitive bidding process to ensure faster completion at lower cost. 

• Faster installation of Smart meters to enable “Time of Day” metering, reduce theft and allow net-metering. 

• Lower power cost by creating transmission capacity for accessing power from across India. 

Environment:

• Renewable Power Obligation (RPO): In order to promote renewable energy and energy security, 8% of electricity consumption excluding hydro power, shall be from solar energy by March 2022. 

• Renewable Generation Obligation (RGO): New coal/lignite based thermal plants after specified date to also establish/procure/purchase renewable capacity

• Affordable renewable power through bundling of renewable power with power from plants whose PPAs have expired or completed their useful life. 

• No inter-State transmission charges and losses to be levied for solar and wind power. 

• Swachh Bharat Mission to get a big boost with procurement of 100% power produced from Waste-to-Energy plants. 

• To release clean drinking water for cities and reduce pollution of rivers like Ganga, thermal plants within 50 km of sewage treatment facilities to use treated sewage water. 

• Promotion of Hydro projects through long term PPAs and exemption from competitive bidding till August 2022. 

• Ancillary services to support grid operation for expansion of renewable energy. 

Ease of Doing Business: 

• Generate employment in coal rich Eastern states like Odisha, West Bengal, Jharkhand, Chhattisgarh etc. by encouraging investments. States allowed to setup plants, with up to 35% of power procured by DSICOMs on regulated tariff. 

• Remove market uncertainty by allowing pass through for impact of any change in domestic duties, levies, cess and taxes in competitive bid projects. 

• Clarity on tariff setting authority for multi-State sales. Central Regulator to determine tariff for composite schemes where more than 10% power sold outside State. 

Analysis:

• While reducing the cost of power through efficiency, they will spur renewable power for a cleaner environment and protect India's energy security.
• They would also aid the objectives of Swachh Bharat Mission as well as Namami Gange Mission through conversion of waste to energy, usage of sewage water for generation and in turn ensure that clean water is available for drinking and irrigation. 
• These amendments will ensure availability of electricity to consumers at reasonable and competitive rates, improve ease of doing business to ensure financial viability of the sector and attract investments, promote transparency, consistency and predictability in regulatory approaches across jurisdictions.
• The regulations tighten the norms followed by electricity regulators for setting power tariffs by requiring them to “necessarily” be guided by the new policy while framing regulations under section 61 of the Electricity Act 2003.
•  It will further facilitate competition, efficiency in operations and improvement in quality of supply of electricity. These holistic amendments to Power Tariff Policy which complement schemes like UDAY will ensure the realization of vision of 24X7 affordable power for all. 

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"Startup India - Standup India"

• Startup India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large scale employment opportunities.
• The Government through this initiative aims to empower Startups to grow through innovation and design.
• Government has defined Startups as an entity incorporated or registered in India not prior to five years, with annual turnover not exceeding INR 25 crore in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
• This definition of start-ups will be applicable in case government schemes only.
• To Spread this Startup movement from digital sector to other sector(agriculture, manufacturing, social sector, healthcare, education, etc) and from existing tier 1 cities to tier 2 and tier 3 cities including semi-urban and rural areas,Government has made an action plan which is divided in three parts.

Simplification and Handling:

Compliance Regime based on Self-certification- To reduce the regulatory burden on Startups thereby allowing them to focus on their core business and keep compliance cost low

Startup India Hub- To create a single point of contact for the entire Startup ecosystem and enable  knowledge exchange and access to funding

Rolling out of Mobile App and Portal- To serve as the single platform for Startups for interacting with Government and Regulatory Institutions for all business needs and information exchange among various stakeholders

Legal Support and Fast-tracking Patent Examination at Lower Costs- To promote awareness and adoption of IPRs by Startups and facilitate them in protecting and commercializing the IPRs by providing access to high quality Intellectual Property services and resources, including fast-track examination of patent applications and rebate in fees.

Relaxed Norms of Public Procurement for Startups- To provide an equal platform to Startups (in the manufacturing sector) vis-à-vis the experienced entrepreneurs/ companies in public procurement

Faster Exit for Startups- To make it easier for Startups to wind up operations. The Insolvency and Bankruptcy Bill 2015 (“IBB”), tabled in the Lok Sabha in December 2015 has provisions for the fast track and / or voluntary closure of businesses.

Funding Support and Incentives

Providing Funding Support through a Fund of Funds with a Corpus of INR 10,000 crore- To provide funding support for development and growth of innovation driven enterprises

Credit Guarantee Fund for Startups-To catalyse entrepreneurship by providing credit to innovators across all sections of society. Debt funding to Startups is also perceived as high risk area and to encourage Banks and other Lenders to provide Venture Debts to Startups, Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC)/ SIDBI is being envisaged with a budgetary Corpus of INR 500 crore per year for the next four years.

Tax Exemption on Capital Gains-To promote investments into Startups by mobilizing the capital gains arising from sale of capital assets. Due to their high risk nature, Startups are not able to attract investment in their initial stage. It is therefore important that suitable incentives are provided to investors for investing in the Startup ecosystem. With this objective, exemption shall be given to persons who have capital gains during the year, if they have invested such capital gains in the Fund of Funds recognized by the Government.

Tax Exemption to Startups for 3 years-To promote the growth of Startups and address working capital requirements

Tax Exemption on Investments above Fair Market Value-To encourage seed-capital investment in Startups

Industry-Academia Partnership and Incubation

Organizing Startup Fests for Showcasing Innovation and Providing a Collaboration Platform-To galvanize the Startup ecosystem and to provide national and international visibility to the Startup  ecosystem in India

Launch of Atal Innovation Mission (AIM) with Self-Employment  and Talent Utilization (SETU) Program-To serve as a platform for promotion of world-class Innovation Hubs, Grand Challenges, Startup businesses and other self-employment activities, particularly in technology driven areas

Harnessing Private Sector Expertise for Incubator Setup-To ensure professional management of Government sponsored / funded incubators,Government will create a policy and framework for setting-up of incubators across the country in public private partnership

Building Innovation Centres at National Institutes-To propel successful innovation through augmentation of incubation and R&D efforts

Setting up of 7 New Research Parks Modelled on the Research Park Setup at IIT Madras-To propel successful innovation through incubation and joint R&D efforts between academia and industry

Promoting Startups in the Biotechnology Sector-To foster and facilitate bio-entrepreneurship

Launching of Innovation Focused Programs for Students-To foster a culture of innovation in the field of Science and Technology amongst students

Annual Incubator Grand Challenge-To support creation of successful world class incubators in India

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Gold menace :Govt.'s steps to curb gold import

Gold having a cultural value in India has become one of the greatest challenge to its balance sheet. Used mostly in jewellery,currently India imports almost 800-1000 tonnes of gold and have become the largest importer of gold. Earlier Govt. has introduced many measures like gold import duty but the move has resulted into smuggling of gold by illicit channels. Recently govt. has introduces slew of measures to curb this surging gold import.

                                                                            1)Sovereign gold bond scheme.

• This scheme is especially for retail investor ,wherein investor can invest in gold bond.
• Bond is issued by RBI on the behalf of GOI and it is restricted to Indian citizens including individuals, HUFs(Hindu undivided family),trusts, universities  and charitable institutions.
• Bond’s price is fixed on the basis of the previous week’s(Mon-Fri) simple average of the closing price of gold of 999 purity published by Indian Bullion and Jewellers Association.
• Minimum investment unit is 2 units(2 grams) and maximum is 500grams.
• Presently only banks and selected post-offices are allowed to distribute these bonds.

How it is beneficial for customer:

• Issue price(the price at which the gold bond will be issued) is quoted higher against the ruling market price.
• No dilemma of keeping gold at safe place.
• Facility of investment in paper form.
• Bond can be issued as collateral for loan.

How to make scheme more attractive: The present scenario of distribution(which is limited to banks and post-offices) should be extended to NBFCs, jewellers. So that investor could go to wherever he/she feels comfortable.

2)Gold Monetisation scheme:

• It would replace the earlier Gold Deposit and Gold Metal Scheme.
• Under this scheme customer brings their gold to specified agency or bank where its purity is determined and that quantity is deposited into customer’s metal account.
• Customers started to earn interest once he deposit the gold. The deposited gold is melted  and stored as form of bullion.
• Customer has to state their preference(either cash or bullion) of redemption at the initial stage(while opening account).
• The interest rate is decided by concerned banks and customer has option to invest even small amount like 30grams(so that it can even attract small investor).
• The scheme is intended to mobilise the gold stored in homes.

3)Indian Gold Coin:

• Indian Gold Coin is a part of Gold monetisation programme.  
• It will be the first ever national gold coin and will have the national emblem of Ashok Chakra engraved on one side and the face of Mahatma Gandhi on the other side.
• The coins will be available in denominations of 5 and 10 grams. The Indian Gold Coin is unique in many respects and will carry advanced anti-counterfeit features and tamper-proof packaging that will aid easy recycling.

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New initiatives of Government to improve fiscal balance and ease of doing business

CCEA approved 10% government stake in CIL(Coal India Ltd.):
It would provide huge chunk of money which government can spend to improve the health of other PSUs.It has also lead to opposition form ‘trade unions’ across various corners of country.

Interest Equalisation Scheme:

• Under it Govt. has approved 3% interest subvention scheme for SME(Small and Medium enterprises) exporters in a move to boost exports.
• As it has been found that in recent months there was fall in exports(in terms of total value) due to declining  global oil prices. So this move will encourage SMEs to increase production leading to exports surge and more employment opportunities.

Empowering NHAI(National Highway Authority of India):

• Allowed NHAI to extend the tolling period for concessionaires(in case of project delays due to land acquisition and other relevant clearances).
• Allowing NHAI to pay compensatory annuities to concessionaires (when delay is not attributed to concessionaires)
• Both steps will increase the autonomy of NHAI and will ease the process thereby encouragement in investor’s confidence and giving every opportunity to recover their investment.

About NHAI:

• It is an autonomous agency of GOI ,responsible for development, maintenance, management and operation of National Highways in India.
• Being an statutory agency it was established through National Highway Authorities Act,1988 .
• It is a nodal agency of Ministry of Road  Transport and Highways of India.

Govt. approved new system to improve clearance process:

• In a move to expedite  NH project approvals govt. has segregated construction cost from cost of land acquisition and other pre construction activities.
• Under the new system only those projects which have construction cost more than Rs. 1000 crore will need Cabinet approval. Less than Rs. 1000 crore project can be approved at ministry level.
• Earlier NH projects need approval at various levels which often lead to delays thereby depriving people from various socio-economic welfare opportunities.

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E-Pharmacy : A cause of worry

Why in news: 

A case was emerged where Snap deal and some other e-commerce company were criticised for allegedly selling drugs including prescription drugs.Recently Drug Controller-General of India (DGCA)permitted online pharmacy netmeds.com to sell medicines through online booking.Owing to which many chemist have come to protest this move. 

Background:

• Selling medicine  online is prevalent in advanced countries and it is also mushrooming in India owing to booming e-commerce business. Sale of over-the-counter medicine is permissible online but selling prescription drugs(where doctor’s prescription is needed ) is not allowed.
• The Drugs and Cosmetics Act, 1940, and the Drugs and Cosmetics Rules, 1945, have guidelines on Scheduled drugs which can be sold only on prescription and there are specific rules, including for labelling.
• And in India e-pharmacy is still in nascent stage and there is no dedicated law for it.
• Though Information Technology Act,2000 regulates some legal issues in online dealings but is silent on e-pharmacy.As a result various cases of illegal online selling of drugs have been emerged.

Why e-Pharmacy is cause of worry:

• As Scheduled drugs are to be taken as per the doctor’s prescription ,there is danger of re-using  and misusing prescription randomly on online platforms.
• There are many ‘do’s and don’ts’ with regard to storage of prescription medicines and there might be possibilities that these online platforms do not follow these guidelines(due to lack of proper warehouse).
• It would encourage the practice of self-medication. Indiscriminate usage of medicine without guidance is a leading cause of drugs resistance which is often seen in cases of MDR/XDR and antibiotic resistance.
• As Govt. is working towards providing more generic medicines to people(to restrict their ‘out-of-pocket’ expenditure’) but with online selling of prescription drugs(that to expensive branded drugs) will only harm customer’s money.
• Without any proper regulations it could also lead to smuggling of narcotics in the name of drugs.
• Apart from that there is also concerns regarding small retailers. As there are many manufacturing companies for drugs on same disease so chemists have to kept medicine for long which sometimes results into expiry of medicine(means loss of investment).And with online selling the competition for small retailers have increased.

Need of hour:

The e-commerce business is booming globally and it is the time to integrate e-commerce into mainstream. However pharmacy is one field where no compromise could be made and having a regulatory framework for online selling(keeping in mind of all stakeholders like small retailers) is very essential at the moment.

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Non Performing Assets(NPA):A burgeoning burden

Why in news?

An increasing amount of NPA has become a cause of worry for the financial system. The percentage of gross non-performing assets (GNPAs) for the banking sector is expected to worsen from 3.9 % of advances in fiscal 2013-14 to about 4-4.2 % in 2014-15. The NPAs of private banks also increased by 20 basis points to 2.0 % in the quarter.

The steep economic activity, accompanied by high interest rates, has led to a sharp deterioration in asset quality for the banking sector and increased the pressure of NPAs.

What is NPA?

• Non- Performing Assets (NPA) are the assets i.e. the loans and advances given to customers of the banks which do not bring any return. If the customers do not pay either interest or part of principal or both, the loan is called a Bad Loan or NPA.
• According to RBI, the terms loans on which interest or instalment of principal remain overdue for a period of more than the grace period (90 days) from the end of a particular quarter is called a Non-performing Asset.

How it works?

Suppose a bank gives loan to a person, now the person has become an asset to the bank. If the person doesn’t repay any principal or interest on that loan even after the grace period from the date of taking the loan, the bank will consider that person to be a probable defaulter and it will create a provision for doubtful debts (debts which won’t be recovered) at the rate specified by RBI and the Banking Regulation Act, 1949.

Why it matters?

• As the bad loans keep increasing in the company’s bank account, the less revenue will be generated and it will make the banks inflows weaker.
• The increased NPA will have impact on many PSB’s overall survival which are planning to raise capital to meet BASEL III norms.
• Increasing bad loans have an impact on overall economy as bank will lend less leading to less investment in projects thereby decline in growth.
• The decline in growth could start flight of money(due to crisis of confidence),depreciation in currency which ultimately will accentuate the problem.
• It also affects the socio-economic well being of people as it will have an impact on the Govt. policies, micro-finance, farmer’s loan etc. Retail investors will have to bear the higher interest rates.

Why loans became bad loans:

• Domestic slowdown in economy led to non-realisation of profits and in turn big corporate were unable to recover their investment thereby leading to non-payment of loan.
• The global financial crisis(2008) and recent slowdown in various big economies have largely impacted the investment and export process of India.
• As per RBI reports the share of NPA in industrial sector(non-priority) is greater than priority sector which is a big concern as major chunk of GDP is associated with non-priority sector.
• Delay in projects (due to environmental clearance, land acquisition),long gestation periods, difficulty in getting credit is also worsening the problem.
• Apart from it indiscriminate lending by many PSBs to large corporate, loan waiver to farmers(due to political pressure),delay in realisation of bad loans ,wilful defaulters are also the cause of NPA.

Govt.’s steps to improve bad loans:

• The SARFAESI Act:The banks can use an effective tool for the recovery of NPAs known as “The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act .Enacted in 2002 the SARFAESI, Act has the provisions for the banks to take legal recourse to recover their dues. In case of default payment, the bank can issue a notice to the borrower to pay his dues with 60 days and if the dues are not paid within the given time period  the bank has the power to take possession of the asset (except agricultural land) and can also give it on lease or sell it, without any intervention of the court. With this regard banks have started to sell it to the Asset restructured company(ARC).
• For early recognition of bad assets banks have been asked to form JLF(joint lenders forum,a formal group of lenders) to initiate the resolution mechanism.
• Corporate Debt Restructuring(CDR)under which banks and other financial institutions will come together to restructure the debt of a company facing financial difficulties.
• Recently RBI has initiated Strategic Debt Restructuring(SDR) which will convert lender’s debt into equity in distressed listed firms, following which banks may not need to make the mandatory open offer in case of acquiring control in such entities.
• Govt. has also initiated the process to infuse the capital in state owned banks on the basis of performance so than they can maintain their CAR(Capital Adequacy Ratio)   

Need of Hour:

The burgeoning NPA have become the burden on overall economy which requires a thoughtful solutions. So early recognition and resolution of sticky assets with better recovery of funds( by strengthening the debt recovery tribunal and starting of national ARC),strict action against wilful defaulters, more freedom in asset restructuring and infusion of capital in the market which can reduce long term funding ,can help to keep the business cycle at pace.

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