‘Corruption no longer among top 3 hurdles to doing business in India’

The perception among U.K. businesses that corruption is a major barrier in doing business in India has halved, according to the latest edition of the U.K. India Business Council’s Ease of Doing Business report compared with what it was in 2015.

There has been a considerable year-on-year fall in the number of companies that viewed ‘corruption’ as a major barrier – from 34% in 2016 to 25% in 2017. It has halved since 2015, where it stood at 51%.

This decline shows a major improvement, indicating that the current government’s efforts to mitigate corruption appear to be delivering tangible and much-desired results.

Corruption is no longer considered a ‘top-three’ barrier compared to those not currently active in India.

What made such steadfast progress?

The report noted that initiative such as Aadhaar, electronic submission of government documents, acceptance of electronic signatures, and the push to file taxes online. This all have reduced face-to-face interactions where corruption is most likely to take place.

The extent of digitalization, however, varies markedly across sectors, as does corruption, with those engaging in infrastructure projects still reporting significant issues relating to corruption.

Taxation issues and Price Points overtook ‘corruption’ as major barriers identified by 36% and 29% of respondents, respectively. The proportion of respondents identifying ‘taxation issues’ was 3% lower in 2018 than in 2017.

The key issue for those outside India is increasing market demand for their products and services relative to government and bureaucracy-related barriers.

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NSE Launches Online Platform For Retail Investors To Buy Government Securities

The National Stock Exchange of India launched a mobile application and web-based platform for retail investors to buy government securities. The new app—NSE goBID—was launched by the Securities and Exchange Board of India’s Chairman Ajay Tyagi.

The app would allow investors to invest in treasury bills (T-Bills) of 91 days, 182 days and 364 days and various government bonds from one year to almost 40 years.

The retail investors would be able to make payment directly from their bank accounts using Unified Payments Interface (UPI) and Internet banking.

While investment could be done almost every week after a one-time registration, the app would be available to all investors registered with NSE’s trading members.

The launch assumes significance as government securities are among the safer investment options available to retail investors as such securities are credit risk-free instruments while providing portfolio diversification with longer investment durations.

What do you need to know about Treasury bills?

T-bills are short-term securities issued on behalf of the government by the RBI and are used in managing short-term liquidity needs of the government.

91-day T-bills are auctioned every week on Wednesday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.

Treasury bills are issued at a discount and are redeemed at par.

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Prime Minister launches Ease of Doing Business Grand Challenge

Prime Minister Narendra Modi on November 19, 2018, launched the Ease of Doing Business grand challenge on resolving seven identified ease of doing business problems with the use of cutting-edge technologies.

Ease of Doing Business Ranking

The Doing Business Ranking is an annual assessment conducted by the World Bank that measures aspects of regulation affecting 10 areas of the life of a business, evaluating 190 countries on 10 specific indicators.

The scores are based on the measures implemented by the Government departments, however, they also reflect the experience of industrial users that are counted in the rankings.

The 10 indicators include starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority interests, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

From a user’s perspective, ease of doing business signifies the ease of getting permission, license, registration or a service from a government agency. There are established processes within each government agency for issuing of such permissions or services.

Hence, the grand challenge seeks to invite innovative ideas from individuals, startups or other enterprises to implement artificial intelligence, Big Data Analytics, Internet of Things (IoT), Blockchain and other cutting-edge technologies for re-engineering related Government processes to eliminate physical interface, improve service delivery, enhance transparency and reduce cost and time.

Key Highlights

The EODB grand challenge is open to all young Indians, start-ups and private enterprises. The main purpose is to provide solutions to complex problems using current technology.

The platform for the grand challenge will be the Start-up India portal.

The date for closing of applications is January 1, 2019, and the final results will be declared on February 1, 2019.

The top 3 teams for each problem statement would be awarded cash prizes worth Rs 1 lakh, Rs 2 lakh, and Rs 3 lakh respectively.

The government would be working with all the winners for solution development and implementation.

Other Details

The Prime Minister at a programme organized at his residence on November 19 interacted with select CEOs from Indian & foreign companies.

The Prime Minister apprised CEOs of the efforts being made by the Union Government to ensure that India consistently improves its business environment.

The Prime Minister further reiterated his resolve to make India one of the easiest places to conduct business in the world.

He then congratulated all the government officials from the reforming Ministries and Departments as well as states and municipal corporations for their achievements in the last 4 years and exhorted them to work towards reforms with greater zeal and energy.

Hartwig Schafer, Vice President, South Asia of the World Bank Group, also addressed the gathering and appreciated the enormity of India’s achievement.

He also stressed that it gets tougher to improve ranks as a country moves higher up in the ranking and expressed his belief that India will continue to maintain the momentum it has gained over the last four years in its efforts in improving Ease of Doing Business.

Background

In the World Bank’s Doing Business Report (DBR, 2019) released on October 31, 2018, India recorded a jump of 23 positions from 100 in 2017 to 77 in 2018, among a total of 190 countries.

India also recorded the highest improvement in two years by any large country since 2011 in the Doing business assessment by improving its rank by 53 positions.

India improved its rank in 6 out of 10 indicators and has moved closer to international best practices (Distance to Frontier score) on 7 out of the 10 indicators.

In the grant of construction permits, India’s rank improved from 181 in 2017 to 52 in 2018, an improvement of 129 ranks in a single year.

In Trading across Borders, India’s rank improved by 66 positions moving from 146 in 2017 to 80 in 2018.

The World Bank has recognized India as one of the top improvers for the year. This is the second consecutive year for which India has been recognized as one of the top improvers.

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IndusInd Bank launches India’s first interactive credit card with buttons

IndusInd Bank has announced the launch of IndusInd Bank Nexxt Credit Card, which empowers customers with a choice of payment options such as EMI, Reward Points or Credit at the push of a button, on the card, at the point of sale (POS). The bank claims it to be the nation’s first interactive credit card with buttons.

According to the bank, this card provides customers with the flexibility of 3 payment options at a POS terminal — Credit, Converting Transactions into EMIs with 4 tenure options (6, 12, 18 & 24 months) or using accumulated Reward Points, by simply pushing a button on the card. The card has been created in partnership with Dynamics Inc, which is headquartered in Pittsburgh USA, and designs and manufactures intelligent, battery-powered payment cards.

The bank says that this card is loaded with features that will elevate the shopping experience for customers through entertainment offers, concierge services, lounge access, fuel surcharge waiver, reward earnings, and reward redemptions. The card also comes with the exclusive Nexxt Reward Points, which further add to the bouquet of customer benefits.

The card incorporates technology that is revolutionary for a payment card and provides exceptional consumer functionality as well as value. It indicates a customer’s desired payment choice using LED lights associated with the three options. A customer does not need to fill any paperwork, or call their bank, or log in to any banking channel to convert their POS transactions into EMIs, or to redeem their rewards points, according to the bank.

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Govt approves mechanism for sale of enemy shares worth Rs 3,000 cr; proceeds to be used for development

The government approved a mechanism for sale of enemy shares which at the current price is estimated at around Rs 3,000 crore.

According to Enemy Property Act, 1968, “Enemy property” refers to any property belonging to, held or managed on behalf of an enemy, an enemy subject or an enemy firm.

The decision, taken by the Union Cabinet, will lead to monetization of movable enemy property lying dormant for decades and the proceeds will be used for development and social welfare programmes, an official statement said.

A total number of 6,50,75,877 shares in 996 companies of 20,323 shareholders are under the custody of Custodian of Enemy Property of India (CEPI).

Total shares, known as “enemy shares numbering 6,50,75,877 worth Rs 3,000 crore, are lying unutilized because enemy property act includes movable and immovable property, Union Minister Ravi Shankar Prasad said after the Cabinet meeting.

Of these companies, 588 are functional/ active companies, 139 of these are listed with remaining being unlisted.

The decision will lead to monetization of movable enemy property lying dormant for decades and the proceeds will be used for development and social welfare programmes.

Total shares, known as “enemy shares numbering 6,50,75,877 worth Rs 3,000 crore, are lying unutilized because enemy property act includes movable and immovable property. Of these 996 companies, 588 are functional/ active companies, 139 of these are listed with remaining being unlisted.

When wars broke out between India and China in 1962, and India and Pakistan in 1965 and 1971, the central government took over properties of citizens of China and Pakistan in India under the Defence of India Acts. These Acts defined an ‘enemy’ as a country that committed an act of aggression against India, and its citizens.

The properties of enemies in India were classified as enemy property. The properties included land, buildings, shares held in companies, gold and jewelry of the citizens of enemy countries. The responsibility of the administration of enemy properties was handed over to the Custodian of Enemy Property, an office under the central government.

Enemy properties Act:

After the Indo-Pakistan War of 1965, the Enemy Property Act was enacted in 1968, which regulates such properties and lists the custodian’s powers.

The government amended the Act in the wake of a claim laid by the heirs of Raja Mohammad Amir Mohammad Khan, known as Raja of Mahmudabad, on his properties spread across Uttar Pradesh and Uttarakhand.

The government has vested these properties in the Custodian of Enemy Property for India, an office instituted under the Central government.

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PM launches historic Support and Outreach Initiative for MSME Sector

The Prime Minister, Shri Narendra Modi, launched a historic support and outreach programme for the Micro, Small and Medium Enterprises (MSME) sector. As part of this programme, the Prime Minister unveiled 12 key initiatives which will help the growth, expansion and facilitation of MSMEs across the country.

There are five key aspects for facilitating the MSME sector. These include access to credit, access to market, technology upgradation, ease of doing business, and a sense of security for employees. The 12 initiatives will address each of these five categories.

The 12 initiatives include:

  1. 59 minute loan portal to enable easy access to credit for MSMEs. Loans upto Rs. 1 crore can be granted in-principle approval through this portal, in just 59 minutes.
  2. A 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans. For exporters who receive loans in the pre-shipment and post-shipment period, there will be an increase in interest rebate from 3% to 5%.
  3. All companies with a turnover more than Rs. 500 crore, must now compulsorily be brought on the Trade Receivables e-Discounting System (TReDS). Joining this portal will enable entrepreneurs to access credit from banks, based on their upcoming receivables. This will resolve their problems of cash cycle.
  4. Public sector companies have now been asked to compulsorily procure 25%, instead of 20% of their total purchases, from MSMEs.
  5. Out of the 25% procurement mandated from MSMEs, 3% must now be reserved for women entrepreneurs.
  6. All public sector undertakings of the Union Government must now compulsorily be a part of GeM. He said they should also get all their vendors registered on GeM.
  7. 20 hubs will be formed across the country, and 100 spokes in the form of tool rooms will be established.
  8. Clusters will be formed of pharma MSMEs. 70% cost of establishing these clusters will be borne by the Union Government.
  9. The return under 8 labour laws and 10 Union regulations must now be filed only once a year.
  10. Now the establishments to be visited by an Inspector will be decided through a computerized random allotment.
  11. Under air pollution and water pollution laws, now both these have been merged as a single consent. The return will be accepted through self-certification.
  12. An Ordinance has been brought, under which, for minor violations under the Companies Act, the entrepreneur will no longer have to approach the Courts, but can correct them through simple procedures.

Significance of MSMEs:

Micro-, Small and Medium-sized Enterprises are the backbone of most economies worldwide and play a key role in developing countries.

According to the data provided by the International Council for Small Business (ICSB), formal and informal Micro-, Small and Medium-sized Enterprises (MSMEs) make up over 90% of all firms and account on average for 60-70% of total employment and 50% of GDP.

These types of enterprises are responsible for significant employment and income generation opportunities across the world and have been identified as a major driver of poverty alleviation and development.

MSMEs tend to employ a larger share of the vulnerable sectors of the workforce, such as women, youth, and people from poorer households. MSMEs can even sometimes be the only source of employment in rural areas. As such, MSMEs as a group are the main income provider for the income distribution at the “base of the pyramid”.

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RBI allows banks to provide partial credit enhancement of NBFC bonds

The Reserve Bank of India (RBI) on Friday allowed banks to provide partial credit enhancement (PCE) to bonds issued by systemically important non-deposit taking non-banking financial companies (NBFCs) registered with the RBI and housing finance companies (HFCs) registered with the National Housing Bank.

The move is aimed at enhancing the credit rating of the bonds and enabling these NBFCs to access funds from the bond market on better terms. PCE, which was introduced in 2015, is expected to help NBFCs and HFCs raise money from insurance and provident or pension funds who invest only in highly-rated instruments.

The tenure of these bonds shall not be less than three years and proceeds from them shall only be utilized to refinance existing debt.

Banks shall introduce appropriate mechanisms to monitor and ensure that the end-use condition is met.

The central bank has restricted the exposure of a bank through PCEs to bonds issued by each such NBFC or HFC to 1% of capital funds of the bank within the current single and group borrower exposure limits.

Banks are allowed to provide PCE as non-funded subordinated facility in the form of a contingent line of credit to be used in case of shortfall in cash flows for servicing the bonds and thereby improve the credit rating of the bond issue.

The incentive comes at a time when NBFCs and HFCs have requested the government and regulators to ensure that confidence returns to the market. They have sought relaxations of the National Housing Bank’s credit rating norms related to refinance, lowering of the criterion on years of existence to one year, providing for 10% of the loan loss by the government and capital infusion in banks.

Credit enhancement means improving the credit rating of a corporate bond. For example, if a bond is rated BBB, credit enhancement, which is basically an assurance of repayment by another entity, can improve the rating to AA. This is done to provide an additional source of assurance or guarantee to service the bond.

RBI has now allowed banks to provide credit enhancement up to 20% of the total bond issue. This means banks (one or many together) can assure repayment of dues related to a bond issue up to 20% of the value. Other than banks, organisations such as India Infrastructure Finance Co. Ltd also provide this facility.

Typically, bonds issued by subsidiaries or special purpose vehicles (SPVs) of infrastructure companies seek enhancement. Since the projects take a long time to become operational and generate money, along with the risk of implementation, often their formal credit rating is not very high. Through the credit enhancement facility, the existing rating can be improved at an early stage, which enables the issuer to raise funds at a relatively lower yield. Higher the credit rating, lower is the cost of raising funds.

Since these bonds are long-term in nature, they appeal to institutional investors like pension funds and insurers. However, these investors, especially pension funds, invest mostly in investment grade securities which are at least AA-rated. Credit enhancement makes the bonds more attractive by improving the rating enough so that institutional investors become interested in adding these to their portfolios.

BENEFIT FOR THE INVESTOR:

For the investor, the facility provides a sort of insurance in case of hard times. Basically, the credit enhancement gets used only when there is a shortfall in either paying interest or repaying principal. Hence, investors are more secure about repayment even if there is uncertainty regarding cash flows for some time.

BENEFITS FOR THE BOND MARKET:

The bond market will benefit as more issues get placed, which will help in developing the secondary market. This is useful in giving investors an early exit route, and in adding stability to secondary market transactions in long-term corporate bonds. At present, however, there is not much trading happening in long-term corporate bonds from infrastructure companies in the secondary market.

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19th meeting of FSDC held in New Delhi

The Nineteenth Meeting of the Financial Stability and Development Council (FSDC) under the Chairmanship of the Union Minister of Finance and Corporate Affairs, Shri Arun Jaitley reviewed the current global and domestic economic situation and financial sector performance. The Council discussed at length the issue of real interest rate, current liquidity situation, including segmental liquidity position in NBFCs and mutual fund space. The Council decided that the Regulators and the Government would keep a close watch on the developing situation and take all necessary measures.

The Financial Stability and Development Council (FSDC) was constituted in December, 2010. The FSDC was set up to strengthen and institutionalise the mechanism for maintaining financial stability, enhancing inter-regulatory coordination and promoting financial sector development.

The Council is chaired by the Union Finance Minister and its members are Governor, Reserve Bank of India; Finance Secretary and/or Secretary, Department of Economic Affairs; Secretary, Department of Financial Services; Chief Economic Adviser, Ministry of Finance; Chairman, Securities and Exchange Board of India; Chairman, Insurance Regulatory and Development Authority and Chairman, Pension Fund Regulatory and Development Authority. It also includes the chairman of the Insolvency and Bankruptcy Board (IBBI).

In May, the government through a gazette notification, had included ministry of electronics and information technology (MeitY) secretary in the FSDC in view of the increased focus of the government on digital economy.

The Council deals, inter-alia, with issues relating to financial stability, financial sector development, inter–regulatory coordination, financial literacy, financial inclusion and macro prudential supervision of the economy including the functioning of large financial conglomerates. No funds are separately allocated to the Council for undertaking its activities.

Why companies use commercial papers as a source of funds

Commercial papers have become one of the popular routes for corporates to raise funds when compared with loans from banks in recent times. Here is all you need to know about commercial papers.

A commercial Paper (CP) is an unsecured loan raised by firms in money markets through instruments issued in the form of a promissory note. CPs can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue.

Because of surplus liquidity, short-term borrowing rates in money markets have significantly declined post demonetisation and are much lower than the lowest benchmark lending rates of the banks.

What are the advantages of issuing CPs?

Apart from being a cheaper source of funds, it helps meet funding requirements relatively quickly for better-rated corporates. Procedural requirements for securing bank facilities and charge creation on assets is not required.

As the CP is an unsecured loan, the investor in commercial papers largely prefers highly-rated corporates or public sector entities in terms of credit rating. Lender appetite is limited to better rated companies.

Also commercial paper markets can be seasonal and vulnerable to liquidity conditions. In case of sudden tightening of liquidity, a firm’s ability to secure funding can be challenged. Within the year, liquidity conditions can become tight in certain months such as the end of a quarter, because of advance payment of taxes and the like. At such times, funding costs can also rise for the issue of CPs.

Therefore, commercial papers should not be used as a permanent source of capital and should largely be used to benefit from liquidity conditions and arbitrage in short-term borrowing rates.

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India, Japan sign $75 billion currency swap agreement

India and Japan have signed a $75 billion bilateral currency swap agreement on Monday during Prime Minister Narendra Modi’s visit to Tokyo, India said in a statement.

The agreement should help bring greater stability to foreign exchange and capital markets in India, the statement added.

The Agreement shall aid in bringing greater stability to foreign exchange & capital markets in India. The facility will serve as a second line of defense for the rupee after the $393.5 billion of foreign exchange reserves that the Reserve Bank of India (RBI) has at its disposal.

Under the arrangement, India can acquire dollars from Japan in exchange for rupees. Conversely, Japan can also seek dollars from India in exchange for yen.

The arrangement will be used only when required and will help meet short-term liquidity mismatches.

The currency swap agreement is an important measure in improving the confidence in the Indian market and it would not only enable the agreed amount of capital being available to India, but it will also bring down the cost of capital for Indian entities while accessing the foreign capital market.

The swap arrangement should aid in bringing greater stability to foreign exchange and capital markets in India. With this arrangement in place, prospects of India would further improve in tapping foreign capital for country’s developmental needs. This facility will enable the agreed amount of foreign capital being available to India for use as and when the need arises.

What is this Currency Swap Arrangement (CSA)?

This is an arrangement, between two friendly countries, which have a regular, substantial or increasing trade, to basically involve in trading in their own local currencies, where both pay for import and export trade, at the pre-determined rates of exchange, without bringing in third country currency like the US Dollar.

In such arrangements no third country currency is involved, thereby eliminating the need to worry about exchange variations.

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SBI to issue and encash electoral bonds from Oct 1 to 10, says FinMin

The finance ministry on Thursday said that State Bank of India, the country’s largest lender, was authorized to issue and encash electoral bonds with effect from October 1 to 10. These could be done at 29 of the bank’s authorized branches.

According to the provisions of the Electoral Bond scheme notified in January this year, these bonds could be purchased by a person who is a citizen of India or an entity incorporated or established in India. An individual can buy electoral bonds either singly or jointly with other individuals. Only the political parties registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and which secured not less than one percent of the votes polled in the previous Lok Sabha or Assembly election are eligible to receive the electoral bonds.

Electoral bonds will be valid for 15 calendar days from the date of issue and no payment will be made to any payee political party if the bond is deposited after the expiry of the validity period. The bond deposited by an eligible political party in its account is credited on the same day.

An electoral bond is designed to be a bearer instrument like a Promissory Note — in effect, it will be similar to a banknote that is payable to the bearer on demand and free of interest. It can be purchased by any citizen of India or a body incorporated in India.

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