India attracts massive FDI worth $ 239 bn in last 5 yrs

India attracts massive FDI worth $ 239 bn in last 5 years 

India has received massive foreign direct investment worth USD 239 billion in the last five years on account of a stable and predictable regulatory regime, growing economy and strong fundamentals, Finance Minister Piyush Goyal said Friday. “Due to a stable and predictable regulatory regime, a growing economy and strong fundamentals, India could attract massive amount of foreign direct investment during the last five years, as much as USD 239 billion worth received as FDI.

India attracted massive FDI worth USD 239 bn in last 5 years: FM

“This period also witnessed a rapid liberalisation of the FDI policy allowing most FDI to come through the automatic route,” the minister said in his budget speech for 2019-20.

The government has relaxed foreign investments norms in several sectors, including single-brand retail, defence, airlines and food processing.

The main sectors that receive the maximum foreign inflows include services, computer software and hardware, telecommunications, trading, construction, automobile, and power.

The top sources of FDI include Mauritius, Singapore, Netherlands, the US and Japan. While several sectors attract foreign investments through the automatic approval route, certain segments need government approval.

FDI is important as India would require huge investments in the coming years to overhaul its infrastructure sector to boost growth. Healthy growth in foreign inflows helps maintain balance of payments and value of the rupee.

-PTI | 01 February 2019 | New Delhi

Moody’s ups India’s rating to highest since 1991 reforms

Moody’s ups India’s rating to highest since 1991 economic reforms

Global ratings agency Moody’s revised the country’s sovereign ranking to Baa2 from Baa3 – its first upgrade in almost 14 years — citing implementation of a string of economic reforms, including demonetisation and rollout of the goods and services tax. The new rating, India’s highest since the 1991 reforms, comes as a huge boost for the government.

Moody’sThe action looks beyond the present slowdown in economic growth and a surge in bank bad loans, and bets on India’s medium- and longterm growth potential.

The markets cheered, with the rupee, bonds and equities all reacting positively. Although the rupee and the sensex gained over 1% intraday, both retracted some of their gains toward the close. The move comes close on the heels of the sharp improvement in India’s ranking in the World Bank’s ease of doing business survey.

Moody’s gives govt ammo to battle oppn

The ratings upgrade by Moody’s could position India as an attractive investment destination, apart from making it easier for companies to raise resources abroad. The ratings agency highlighted reforms such as the Goods and Services Tax (GST) and demonetisation, which it said would lead to greater formalisation of the economy. Besides upgrading India’s ratings, Moody’s also revised the outlook from positive to stable, indicating that the next upgrade might take a while coming.

“The government is midway through a wide-ranging programme of economic and institutional reforms. While a number of important reforms remain at the design phase, Moody’s believes that those implemented to date will advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth,” the agency said.

The ratings action comes days ahead of the crucial Gujarat assembly elections where the opposition Congress has sought to portray GST and demonetisation as triggers for the slowdown. The Moody’s upgrade is expected to provide ammunition to the government to blunt criticisim about its handling of the economy after growth slowed to a three-year low of 5.7% in the June quarter and rollout issues linked to GST triggered a political backlash.

Industry, stock brokers and bankers said the revised rating would accelerate fund flow to the country. “This move will now give India access to cheaper capital funds for investment, helping accelerate growth,” said Shikha Sharma, MD & CEO, Axis Bank. So far India’s cohorts in the rating table were countries like South Africa and Indonesia. With this upgrade, India has moved into the same league as Italy, Spain, Oman and the Philippines.

Moody’s Upgrade Lifts Mood On D-St & Main St

Sensex Rallies Over 400 Pts Intra-Day

The sensex started the session almost at the day’s high, rallied over 400 points (1.2%) to an intraday high at 33,521. But, due to weekend profit-taking, it closed 236 points higher at 33,343. Market players interpreted Moody’s decision as an approval by the ratings major’s for the Narendra Modiled government’s reforms-oriented initiatives, which would put the country back on a strong economic growth path. The day’s rally added about Rs 1.7 lakh crore to investors’ wealth with the BSE’s market capitalisation now just a tad above the Rs 150-lakh-crore mark.

A section of the market believes that the Moody’s action has helped changed the mood on Dalal Street, but its impact would not last long. Jimeet Modi, founder & CEO, Samco Securities said that although Moody’s upgrade has helped a pull-back in the benchmark indices, this would prove to be short-lived as economic fundamentals have not changed. “China’s substantial reduction of rating from Aa3 to A1 did not lead to a fall in the markets. On the contrary, the stock market rose 20% since the downgrade. Therefore, the current upgrade should not be read into too much, it is merely a short-term sentiment booster,” Modi said.

Riding on reforms, govt cracked the code

‘Action Should Have Come A Year Earlier’

Several key serving and former policymakers said the upgrade should have been announced one year ago given the spate of reforms. “They always said they would like the reforms to take deep roots and the reforms are sustainable. From the department of economic affairs (DEA) we had written a letter pointing out what we considered as deficiencies in their rating methodology. They had of course replied,” former economic affairs secretary Shaktikanta Das who had spearheaded the effort told TOI.

“But the fact that reforms are deep rooted and sustainable are also a matter of subjective assessment. Now, subjective assessments can vary but at the same time our point was that subjective assessments are based on objective facts. Therefore, we felt India deserved a credit rating upgrade much earlier. It has to be recognised that without this rating upgrade India was attracting a lot of investments. Now with this upgrade, together with improved ease of doing business, India emerges as a very attractive destination,” said Das.

The 2016-17 economic survey had also questioned the rating methodology of the agencies and used the rating of China and India to point out the flaws. While it was pointing out the gaps, North Block mandarins, such as Das and CEA Arvind Subramanian realized that trying too hard with the agencies may not work and instead it is better to focus on the job at hand. “We do what we do,” Subramanian was overheard telling his colleagues in the finance ministry in the afternoon, in what was probably a take on Raghuram Rajan’s latest book ‘I do what I do’.

Former NITI Aayog vice chairman Arvind Panagariya pointed to flawed methodology that rating agencies pursue. “Of course, our ratings continue to be well below what they ought to be. We have no record of ever defaulting and we are among the fastest growing large economies. But the ratings agencies seem to attach a huge negative weight to our low level of percapital income,” he said.

“Nevertheless, while we must rejoice the rare event, we must also reaffirm our resolve to continue moving ahead with reforms to create the New India that the PM envisages by 2022,” Panagariya said. Economic affairs secretary Subhas Chandra Garg said the upgrade is a credible stamp of approval of deep and comprehensive structural reforms undertaken by the government to put India on a sustainable high growth and institutional development path.

N K Singh, a former civil servant and a member of the now-wound up Planning Commission, echoed the sentiment. “It is a very strong vindication going beyond recognition of the government’s overall economic strategy. This is not the result of a single measure but a constellation of measures which includes continued fiscal consolidation, convergence of fiscal and monetary policies, and continuous fine tuning of GST.”

International borrowings to be cheaper for India Industries

“Usually, rating upgrades are anticipated 30-60 days in advance and the effect of the change lingers on till 30-60 days after the event. However, in the current case, as the change in ratings by Moody’s was completely unanticipated, the decrease in yields might materialise in a short duration,” said HDFC Bank chief economist Abheek Barua.

In its earlier rating of Baa3, India’s peers included South Africa, Hungary, Indonesia, Kazakhstan and Romania. The borrowing costs for these companies ranged between 4.3% and 9.3%. The cohorts under the new rating of Baa2 include Spain, Italy, Philippines and Oman. The borrowing costs for these countries range from 1.5% to 4.9%.

Bank of America president and India country head Kaku Nakhate said, “This ratings upgrade will help India Inc’s future external borrowings becoming cheaper, which in turn will lead to higher investments in manufacturing and infrastructure sector.” Following the ratings upgrade, prices of bonds issued by Indian corporates rose in the international markets.

‘Upgrade shows reforms may boost growth’

Moody’s Investors Service vice-president (sovereign risk group) William Foster explains to TOI the rationale behind the ratings upgrade. Foster also sounds upbeat about India’s prospects, although he says the fiscal deficit could be wider than expected this year. Excerpts:

William Foster

VP (SOVEREIGN RISK GROUP), MOODY’S

What prompted the ratings upgrade?

How do you expect growth to pan out?

Longer term, India’s growth potential is significantly higher than most other Baa-rated sovereigns. The reforms — aimed at improving the business environment, increasing formalisation of the economy or anchoring stable inflation — contribute to further enhancing the economy’s capacity to absorb shocks. We have revised our GDP growth forecast down to take into account the immediate impact of demonetisation and disruptions related to GST. We forecast real GDP growth to moderate to 6.7% in the year ending in March 2018. However, as disruption fades, we expect to see a rebound growth to 7.5% in the next fiscal year.

Will the reforms undertaken by the government be enough to tackle the problem in the banking sector and revive growth?

The recapitalisation of public sector banks announced last month should enable them to move forward with the resolution of NPLs (non-performing loans) through comprehensive write-downs of impaired loans and increase lending gradually. This represents a step forward in addressing a key weakness in India’s credit profile. Over the medium term, if met by rising demand for investment and loans, the measures will help foster more robust growth, in turn supporting fiscal consolidation.

When do you expect private sector investments to pick up?

Private sector investment has been weak, likely hampered by high corporate debt in investment-intensive sectors and ongoing challenges in the business environment and infrastructure gaps. Over time, measures implemented and planned such as GST removing barriers to trade within India, steps aimed at enhancing the business environment, encouraging foreign direct investment, providing greater visibility about future inflation will contribute to higher investment. Most of these measures will take time.

The FM has said that the fiscal glide path may be affected due to the structural changes India has undertaken. Do you think the fiscal deficit target for this year will be missed?

We forecast the general government budget deficit (state and Centre) at 6.5% of GDP this fiscal year, similar to the last two fiscal years. Lower government revenues than planned in the Budget and somewhat higher government spending could lead to a deficit somewhat wider than targeted. However, we think that the government’s commitment to fiscal consolidation remains. Over time, measures aimed at broadening the tax base and improving the efficiency of government spending will contribute to a gradual narrowing of the deficit. Together with robust and sustained nominal GDP growth, this would be conducive to a gradual decline in the government debt burden.

ENDORSES REFORMS

Moody’s upgrade is a hugely welcome endorsement of the govt’s reform policies, and the economy’s enormous potential. Key reforms will surely have large payoffs in the coming years. Economic cycle too is on an upswing

KUMAR M BIRLA | CHAIRMAN, AB GROUP

It’s a welcome development, but we also feel it was long overdue… it’s a recognition of the actions that the govt has undertaken. We also need to keep all these things in perspective

ARVIND SUBRAMANIAN | CEA

r s

Moody’s has noticed the seriousness of the government in carrying out the reforms like GST, which has been pending for 10 years. Some of these reforms are transformational

DEEPAK PAREKH | CHAIRMAN, HDFC

Borrowing costs are expected to come down for corporates. Banks are well poised to contribute to growth of economy. By January, some of the bad debt resolution plans should be in place

RAJNISH KUMAR | CHAIRMAN, SBI

A large part of capital allocation are ratings-led. It leads to lower credit premium for corporates and makes capital cheaper. Some more pension funds will now be able to invest in India

CHANDA KOCHHAR | MD & CEO, ICICI

It highlights the immense potential that India offers. More importantly, it also emboldens the government to stay true to the path of strong and transformational reforms

SUNIL MITTAL | CHAIRMAN, BHARTI ENTERPRISES

We believe private sector capital will still take some time to come back. The central & state governments and PSUs are expected to drive capital expenditure for another 9-12 months

S N SUBRAHMANYAN | CEO & MD, L&T

-Mumbai, 18 November, 2017

Arun Jaitley tears into Yashwant Sinha

Arun Jaitley tears into Yashwant Sinha, terms him a ‘job applicant at 80’ 

Finance Minister Arun Jaitley on Thursday tore into former finance minister and BJP veteran Yashwant Sinha for his criticism of the government’s handling of the economy. Without mentioning Mr Sinha, Mr. Jaitley referred to him as a ‘job applicant’ who appeared to be working in tandem with another ex-finance minister P. Chidambaram and had the ‘luxury of being a columnist’.

Arun Jaitley“I have some very distinguished predecessors in my present job, one of whom is a former president (Pranab Mukherjee), one is a former Prime Minister (Manmohan Singh) — and I am certainly not referring to them. The others have decided to act in concert. Speaking on persons and then bypassing the issues is very easily done,” the Minister said after launching a book co-edited by the Chairman of the Prime Minister’s Economic Advisory Council and Niti Aayog member Bibek Debroy and Press Secretary to the President, Ashok Malik.

“Probably, a more appropriate title for your book would have been ‘India at 70, Modi at 3.5 and a job applicant at 80’,” Mr Jaitley told Mr Debroy and Mr Malik, whose book is titled ‘India at 70, Modi at 3.5 – Capturing India’s transformation under Narendra Modi.

Stressing that the government’s efforts over the past three years have been focused on ensuring that the benefits of growth percolate to the poor and improve their quality of life while dispelling the policy paralysis, Mr. Jaitley red-flagged the abandonment of the centrist space by the Congress and the emergence of an ideological polarisation in the country caused by a convergence between the ultra-left and extreme Jihadi elements.

The decisive nature of the government will help revive private investments, Mr. Jaitley said, contrasting it to the ‘indifference in dealing with that problem when it was taking place during 2012-14.”

“Just looking the other way is not the approach of the government. …It’s a situation I am sure we will be able to respond to appropriately. India at 70 is an India which we look up to, where we want to continue to occupy the space of a fast growing economy.”

“We want each village to be connected by road by 2019, electrified by early next year, and each house to get a power connection by 2018-end… The entire additional resources that come from growth are blended with the needs of this section. This is how we visualise India at 70. Obviously, when India is at 70, there are always attempts to change the narrative,” he said.

“I must confess that I do not have the luxury as yet of being a former finance minister; nor do I have the luxury of being a former finance minister who’s turned columnist. Therefore, I can conveniently forget a policy paralysis, I can conveniently forget the 15% NPAs (non-performing assets) of 1998-2002, I can conveniently forget the $4 billion forex reserves left in 1991 and I can switch over and change the narrative,” Mr Jaitley said, in an oblique reference to Mr Sinha’s article questioning the Finance Minister’s performance.

Recalling BJP veteran L.K. Advani’s advice to him after his first intervention in Parliament in 1999 over the Bofors case, Mr. Jaitley said: “He made an interesting comment: ‘When you speak in Parliament or outside, speak on issues. Avoid speaking on persons.’ I have breached this rule once in a while, but I try to follow it as far as possible.”

NEW DELHI, SEPTEMBER 28, 2017

Need bold reforms to transforms economy: Arun Jaitley

Need bold reforms to transform economy: Arun Jaitley

Need bold reforms to transform economy: Arun Jaitley

Finance Minister Arun Jaitley on Wednesday said that bold reforms are required to transform economy.

Speaking at the 8th edition of Vibrant Gujarat Summit in Gandhinagar, Jaitely said, “India needs bold decisions, time now to clean up table.”

Jaitley said that India was substantially a non tax-compliant society and demonetisation can lead to more formal banking transactions, thus nudging the society towards more compliance.

“We are substantially in terms of taxation, a non-compliance society. The narrowness of our tax base is realised by the data. Formal transactions can lead to higher revenues, and make us more compliant,” Jaitley said.

“Difficult decisions initially pass through difficult phases,” he added.

Jaitley said that excessive paper currency has its own vices, it leads to its own temptations.

Stating that GST and demonetisation will boost growth, the finance minister said that its impact will be seen this year. Talking on the demonetisation of high value currency notes, FM added, ” After transient impact, demonetisation will lead to cleaner and larger GDP”.

-January 11, 2017, New Delhi

 

PM Modi calls NITI meeting to review economy amid currency crunch

PM Modi calls NITI meeting to review economy amid currency crunch

PM Modi calls NITI meeting to review economy amid currency crunch

Prime Minister Narendra Modi has called a high-level meeting at NITI Aayog on Tuesday to take stock of the economy and other important issues particularly the currency crunch post demonetisation.

Modi has called the meeting to seek feedback of NITI Aayog members, economists and top officials of various concerned ministries particularly Finance and Commerce & Industries, a highly placed source in the Prime Minister’s office said.

The source said that the government is keen to chalk out a strategy to deal with adverse impact of currency crunch on the economy particularly on unorganised sector where people lost jobs because of currency crunch prevailing since November 8, 2016.

The meeting assumes significance in view of various multilateral agencies and RBI lowering growth forecast for the current fiscal. RBI has reduced the economic growth forecast to 7.1 per cent from 7.6 per cent in its monetary policy review earlier this month.

Multilateral funding agency ADB too lowered growth projection to 7 per cent for the current fiscal from its earlier projection of 7.4 per cent due to the impact of demonetisation on economic activities.

Indian economy expanded by 7.1 per cent and 7.3 per cent in the first and second quarters of 2016-17.

The economists including former Planning Commission Deputy Chairman Montek Singh Ahluwalia has expressed opinions that the demonetisation will disrupt the economy and will pull down the GDP growth rate for the current fiscal by up to two percentage points.

The source said that Prime Minister will also take stock of various initiatives of the NITI Aayog to promote the digital economy like Lucky Grahak Yojana and Digi-Dhan Vyapar Yojana for incentivising digital payment.

The estimated expenditure on the first phase of the scheme (up to April 14, 2017) is likely to be 340 crores.

-December 23, 2016, New Delhi

 

RBI reviews global, domestic challenges to economy

Board meets to review global, domestic challenges to economy

The Reserve Bank of India, RBI Central Board met in Kanpur on Thursday to take stock of the global and domestic challenges faced by the Indian economy, an official statement said.
 RBI
“The Board reviewed the current economic situation, global and domestic challenges and other specific areas of operations of the RBI,” a statement from the apex bank said.
The discussions were a part of the 560th meeting of the Central Board of the RBI.
The meeting was chaired by Reserve Bank of India Governor Urjit R. Patel and had Deputy Governors R. Gandhi, S.S. Mundra and N.S. Vishwanathan in attendance. From the Finance Ministry, Department of Financial Services Secretary Anjuly Chib Duggal attended the meeting.
-20 October 2016 | IANS | Kanpur
———————————————————————————-

The Reserve Bank of India, RBI Central Board met in Kanpur on Thursday to take stock of the global and domestic challenges faced by the Indian economy, an official statement said.

“The Board reviewed the current economic situation, global and domestic challenges and other specific areas of operations of the RBI,” a statement from the apex bank said. The discussions were a part of the 560th meeting of the Central Board of the RBI.

The meeting was chaired by Reserve Bank of India Governor Urjit R. Patel and had Deputy Governors R. Gandhi, S.S. Mundra and N.S. Vishwanathan in attendance. From the Finance Ministry, Department of Financial Services Secretary Anjuly Chib Duggal attended the meeting.

The Reserve Bank of India, RBI Central Board met in Kanpur on Thursday to take stock of the global and domestic challenges faced by the Indian economy, an official statement said.
“The Board reviewed the current economic situation, global and domestic challenges and other specific areas of operations of the RBI,” a statement from the apex bank said. The discussions were a part of the 560th meeting of the Central Board of the RBI.

Economy on ‘upward curve’, monsoon, GST to push growth: Jaitley

Economy on ‘upward curve’, monsoon, GST to push growth: Jaitley 

With India retaining the fastest growing large economy tag post latest GDP numbers, Finance Minister Arun Jaitley today said the country is on an “upward curve” and a good monsoon, GST passage and increased infra and rural spending will further accelerate the growth.
With pro-growth policies helping gross domestic product grow a faster-than-expected 7.9 per cent in January-March quarter and 7.6 per cent in the entire 2015-16 fiscal, he asserted that these are not “stray figures” and an analysis of the pattern shows inherent strength in the economy.
Also aiding was the growth in output of eight core sectors growing 8.5 per cent in April on the back of pick up in output of refinery products, fertilisers, steel, cement and electricity.
“Last two years, a number of factors were loaded against us – there was a global slowdown and we had two consecutive below normal monsoon rainfalls,” he said, adding that people are surprised how India has managed to grow at the fastest pace in the world.
Going forward, “reform process is going to continue. Hopefully, Goods and Services Tax (GST) bill is passed (in ensuing monsoon session of Parliament), which has the potential to add to GDP growth. Also, our infrastructure and rural spending will add to that,” he said commenting on the latest GDP numbers.
On the forecast of a good monsoon this year, Jaitley said it “would mean an increase in agriculture production, more purchasing power and rural demand.”
On the growth clocked in 2015-16, Jaitley — who is on a six-day investor wooing tour of Japan — said, there was improvement in the agriculture as well as the services sector. “More importantly, there is a consumer demand and there is increased consumer spending,” he added.
The GDP expansion in January-March period bettered 7.2 per cent of December quarter and helped extend the lead over China, which grew 6.7 per cent in the March quarter – the slowest in the world’s second largest economy in seven years.
Earlier speaking at a meeting organised by Japan-India Business Cooperation Committee, he said investors looking for higher returns should park funds in India’s infrastructure and manufacturing sectors.
“As growth would return to the world, consumer spending would pick up, hopefully the monsoons would be better, this trend which has been set in India itself could be improved upon. That we are on an upward curve seems evident,” he said.
-01 June 2016 | PTI | Tokyo

Economy to grow at 7-7.5 pc in 2016-17, 7.6 pc in current yr

Economy to grow at 7-7.5 pc in 2016-17, 7.6 pc in current yr

Ahead of the Union Budget, the Economic Survey today termed external environment as challenging but projected a 7-7.5 per cent GDP growth rate in the next fiscal which could accelerate to eight per cent in a couple of years.
The Economic Survey for 2015-16, which was tabled in Parliament today, also made a case for carrying forward the reform process to achieve macro-economic stability.
Inspite of challenges and lower than projected GDP growth rate during 2015-16, “the fiscal deficit target of 3.9 per cent of GDP seems achievable.”
After a 7.2 per cent economic growth in 2014-15, it said the expansion in economy will be 7.6 per cent in the current fiscal, the fastest in the world.
However, it cautioned that if the world economy remained weak, India’s growth will face considerable headwinds.
On the domestic side, two factors can boost consumption, increased spending from higher wages and allowances of government workers if the 7th Pay Commission is implemented and return of normal monsoon.
At the same time, the Survey enumerated three downside risks – turmoil in global economy could worsen the outlook of exports, contrary to expectations oil price rise would increase the drag from consumption and the most serious risk is the combination of these two factors.
“One of the most critical short-term challenges confronting the Indian economy is the twin balance sheet problem – the impaired financial positions of the public sector banks and some corporate houses. The twin balance sheet challenge is the major impediment to private investment and a full-fledged economic recovery,” the Survey said.
-26 February 2016 | PTI | New Delhi

As economy slips, China’s wealthy move money out

As economy slips, China’s wealthy move money out

As the Chinese economy stumbles, wealthy families are increasingly trying to move large sums of money out of the country, worried that the value of the currency will fall and their savings will be worth less.

To get around the country’s cash controls, individuals are asking friends or family members to carry or transfer out $50,000 apiece, the annual legal limit in China. A group of 100 people can move $5 million overseas.

The practice is called Smurfing, named after the blue, mushroom-dwelling cartoon characters, and it is part of an exodus of capital that is casting doubt on China’s economic prospects and shaking global markets. Over the last year, companies and individuals have moved nearly $1 trillion from China.

Some methods are perfectly legal, like investing in real estate elsewhere, buying businesses overseas and paying off debts owed in dollars. Others, like Smurfing, are more dubious, and in certain cases, outright illegal. Chinese customs officials caught a woman last year trying to leave the mainland with $250,000 strapped to her chest and thighs and hidden inside her shoes.

If the government cannot keep citizens from rushing to the financial exits, China’s outlook could darken. The swell of outflows is a destabilizing force in China’s slowing economy, threatening to undermine confidence and hurt a banking system that is struggling to deal with a decade-long lending binge.

The capital flight is already putting significant pressure on the country’s currency, the renminbi. The government is trying to prevent a free fall in the currency by stepping into the markets and tapping its huge cash hoard to shore up the renminbi. But a deep erosion of those reserves may set off further outflows and create turbulence in the markets.

China is also trying to put the brakes on outflows, by tightening its grip on the country’s links to the global financial system. The government, for example, just started to clamp down on people’s use of bank cards to buy overseas life insurance policies.

Such moves have trade-offs. The limits create concerns that the government is pulling back on reform efforts that China needs to keep growth humming in the decades to come. But the near-term pressure also requires serious attention, given the global shock waves.

“The currency has become a very near-term threat to financial stability,” said Charlene Chu, an economist at Autonomous Research. Navigating such problems is fairly new for China.

For years, China soaked up much of the world’s investment money, as the economy grew at annual rates in the double digits. A largely closed financial system kept China’s own money corralled inside the country.

Now, with growth slowing, money is gushing out of the country. And the government has a looser grip on the spigot, because China dismantled some currency restrictions to open up its economy in recent years.

“Companies don’t want renminbi and individuals don’t want renminbi,” said Shaun Rein, the founder of the China Market Research Group. “The renminbi was a sure bet for a long time, but now that it’s not, a lot of people want to get out.”

The Chinese central bank is fighting the downward pressure by purchasing large sums of renminbi, selling dollars from its currency reserves to do so. China’s reserves sank by $108 billion in December and an additional $99 billion in January, to $3.23 trillion. A year and a half ago, they stood at $4 trillion.

And the renminbi still faces plenty of headwinds.

The government has been cutting interest rates to stimulate the economy, making it less attractive for savers to keep their money in the country. Corporate profits are shrinking because China has too many spare steel mills, car factories and empty houses, leading investors to seek better returns elsewhere.

Ronald Wan, a Hong Kong money manager who is on the boards of numerous state-owned enterprises in mainland China, said that pessimism was becoming the consensus.

“Among the companies I have been in contact with,” he said, “all of them have the intention of moving money out of the country.”

Individuals can move $50,000 a year across China’s borders. Companies and sophisticated investors have more freedom to send out money legally for big-ticket purchases and investments. Overseas and domestic companies, which maintain bank accounts in various currencies, can also shift their cash, as well as borrow based on which currency they think will fall in value.

Companies have inflated trade invoices to keep more profits outside the country, although Chinese authorities have cracked down on the practice.

Rein described doing market research with a wealthy woman in Shanghai who changed $7 million this winter from renminbi into dollars, by using 140 relatives, friends and even friends’ relatives who each carried $50,000 apiece. The government, though, is trying to cut off some routes.

Two years ago, the government gave permission for insurers to invest 15 percent of their assets overseas, up from 1.5 percent. But China abruptly told insurers this winter to suspend many of their overseas plans, according to Hong Kong financiers.

Beijing has restricted the withdrawal of renminbi from overseas branches of Chinese banks. In Shenzhen, banks have begun requiring that residents make reservations up to a week in advance if they want to change the daily maximum of $10,000 worth of Chinese currency into dollars.

In January, Zou Tai, a hospital worker from east central China, caught an early morning flight to buy a $50,000 life insurance policy in Hong Kong. Scores of Chinese customers have been doing the same to get money out of the country, since the policy is bought in renminbi and can be cashed out in U.S. dollars.

“The buying power of the renminbi keeps dropping,” Zou said. “I feel that China’s leaders will have no choice but to devalue the renminbi.”
Zou acted in the nick of time, because the government is now pushing back. UnionPay International, a government-controlled bank card company, recently announced that it would start strictly enforcing a pre-existing but widely ignored limit on overseas insurance purchases of $5,000 a year per card.

KEITH BRADSHER | NYT News Service | Feb 14, 2016

‘Start-up India’ Action Plan: a good start, but Govt apathy, big corporates a hurdle- Rajeev Chandrasekhar

‘Start-up India’ Action Plan: a good start, but Govt apathy, big corporates a hurdle

 By Rajeev Chandrasekhar 

Start-ups and entrepreneurship are critical to India’s efforts to restart private investment into the economy

The much anticipated, and needed, ‘Start-up India’ initiative was launched last weekend by Prime Minister Narendra Modi in a move to help start-ups and catalyse entrepreneurship. Start-ups and entrepreneurship are critical to India’s efforts to restart private investment into the economy, in the face of risk aversion, stalled or slow investments from corporate India.

Start-ups in India have faced two significant obstacles. One is government apathy, corruption and a complex approvals process. The other is the power of entrenched corporates, to oppose or kill start-ups which challenge them. So while the Action Plan unveiled by Mr. Modi is a catalyst, also needed are structural reforms that permit free and fair competition and other issues that determine the viability and existence of start-ups. Net neutrality, for instance, is a policy requirement that will determine the future for tech start-ups.

Prime Minister Narendra Modi releasing the Action plan for start-up India in New Delhi. File Photo

Prime Minister Narendra Modi releasing the Action plan for start-up India in New Delhi.

The Start-up India Action Plan lists out a comprehensive set of structural and regulatory reforms in order to achieve this. Income tax exemption, easing compliance through reduction of regulations and having fixed qualifications as to what a ‘start-up’ is, were expectations at the top of the entrepreneurial bucket-list.

But the Action Plan goes further. It goes on, for instance, to provide an 80 per cent waiver on patent filing fees by start-ups, provide advisory services and create a Rs.10,000 crore fund-of-funds which is to be managed by professionals drawn from the private sector. These are just a few of the ‘sweetheart’ deals for start-up entrepreneurs under the Action Plan.

Money matters

But the Action Plan also appears to have a few flaws which need to be addressed. For instance, it sets up an ‘Inter-Ministerial Board’ led by the Department of Industrial Policy and Promotion which ‘validates’ the innovative nature of an enterprise, thereby qualifying it as a start-up – an involvement of government in this ecosystem that is hardly desirable. It also requires a start-up to obtain a recommendation from an incubator in order to be eligible. The most obvious and tangible benefits to start-ups under the Action Plan are the tax breaks and funding support. The Action Plan waives income tax on profits for a period of three years and also exempts taxes on capital gains which are invested in the ‘fund-of-funds’.

This move will help to reduce cash outflows and bring down the cost of running a start-up. In conjunction with the waiver of the ‘angel investor’ tax under the Finance Act, 2013, start-ups now can have improved access to funding opportunities.

Pending reforms like the GST regime, would also make it easier for small start-ups to operate across the country.

Rs.10,000 crore ‘fund-of-funds’

The Rs.10,000 crore ‘fund-of-funds’ is a significant financial commitment by the Government under the Action Plan. It is set to start with Rs.2,500 crore initially with the amount set to recur for 4 years.

This mega fund will not directly invest in start-up ventures. Instead, it will do so via SEBI registered venture funds. This fund will contribute a maximum of 50 per cent of the daughter fund size, providing a significant boost to the corpus of investments that start-ups have access to. It is important that this corpus is not managed by Politicians or bureaucrats, but smart, savvy fund managers who have a track record on investing.

On the cost saving side, an 80 per cent rebate on patent filing costs alongside an exemption from having ‘prior-experience’ to be eligible under the public procurement process are steps taken to promote tech-based start-ups in particular.

While tax incentives, cost saving measures and funding support will undoubtedly drive up investment into innovative start-ups it is essential that the government not lose sight of non-tech start-ups. It should make special provisions to ensure that this support structure extends to the agriculture, manufacturing, and handicrafts sectors.

Ease of doing business

Promoting start-ups by improving ease of doing business is clearly at the forefront of the Action Plan. A significant benefit a start-up accrues under this policy is the waiver from labour inspections for 3 years.

Now, anyone who has run a business and navigated the maze of bureaucracy understands the quagmire that labour laws can be, especially for a start-up. Along with the ease in environmental checks, these changes to labour inspections are a step in the right direction — particularly for those start-ups which are based in the manufacturing sector. But the Action Plan exempts starts-up from inspection under a fixed number of labour laws — six to be specific. There are about 45 laws at the central level and about four times this number at the state level. The Centre needs to work with the States to ensure a smooth rollout of the benefits under the Action Plan and avoid discord between policies at the two levels.

‘Start-up India Hub’

The Action Plan also creates a centralised system under the ‘Start-up India Hub’ which assists start-ups by providing advisory services on financing, business structuring and improving management skills. It also provides for a mobile app which allows start-ups to self-certify themselves and also acts as a single point of contact between entrepreneurs, regulators and the government. This is a positive move in simplifying the registration process.

This is perhaps the most pertinent question which has been answered by the Action Plan. In order to obtain the wide ranging benefits which have been detailed in the 40-page Action Plan, it is essential for an enterprise to qualify as a ‘start-up’. An uncontroversial requirement, but the devil is in the details.

The Action Plan requires an enterprise or partnership to be innovative by developing and commercialising a new product or service — a step to promote truly innovative ideas. But it institutes an inter-ministerial body led by DIPP to examine whether an enterprise is ‘innovative’.

It also requires a ‘recommendation’ from an incubator setup by the government or be supported by an incubator in a post-graduate institution recognised by the government — this need for validation and recommendation goes against the very steps the Action Plan takes to reduce government involvement. This additional layer of bureaucracy could slow down the starting up process and needs to go.

Start-up India is consistent with the PM’s call for innovation when he launched Digital India. The Start-up India Action plan is a good start to this – but will need continued support and evolution to make this a true, deep revolution for the youth of India.

The author is a Member of Parliament & a Tech Entrepreneur

– rajeev.c@nic.in

-January 25, 2016 (Link-http://www.thehindu.com/business/Industry/startup-india-action-plan-a-good-start-but-govt-apathy-big-corporates-a-hurdle/article8148219.ece?w=alauto)