Take CMs' views before changing FinCom's terms of reference, says Manmohan

Former Prime Minister Manmohan Singh on Saturday said the government should have taken chief ministers' views before changing the terms of reference of the 15th Finance Commission, adding that unilateralism is not good for federal policy and cooperative federalism.
Earlier in July, the Centre changed the terms of reference of the 15th Finance Commission and mandated the panel to suggest ways for allocation of non-lapsable funds for defence and internal security.

Speaking at an event here, Singh said any change in the panel's terms of reference at the fag-end of its term should have been done in consultation with the states.
"The best course would have been for the Central government that if it wants to tailor the terms of reference, it should be backed by Chief Ministers' Conference, which is now under the auspices of NITI Aayog, otherwise there would be strong feeling that the (Central) government is trying to rob the states of due resource allotment.
"I think that it is not good for the federal polity of our country and cooperative federalism we all swear by these days," Singh said while addressing the 'National Seminar on Additional Terms of Reference of the 15th Finance Commission: Implication for the States'.
"The commission's report goes to the finance ministry and then it goes to the Cabinet and therefore government of the day can take a view that whatever the mandate of the Parliament, the government would abide by that rather than imposing its view unilaterally on the reluctant state commissions," he added.
The government on November 27, 2017 notified the 15th Finance Commission, headed by N K Singh, to suggest the formula for devolution of funds to states by the Centre for five years commencing April 1, 2020, among other issues.
The commission, which has been mandated to use 2011 census data rather than the one of 1971 for resource allocation, was to submit its report by October 30, 2019. The deadline was later extended till November 30, 2019.
"I respectfully request to the authorities to still take this view that they will go by the advice of the Chief Ministers if there is new controversy with regard to additional terms of reference of the commission," the senior Congress leader said.
"I am told once upon a time, the 9th Finance Commission took the view that it will be guided by the Constitutional mandate and will do the fair distribution of taxes, though I don't know that whether this (15th) commission is going to adopt that line of thought. But...internal security as well as defence are subjects which are of great national importance," Singh added.
About the role of the commission, he said, "There are certain basic issues like allocations for health, education and other important subjects, environment protection, where all states have a legitimate interest. What should be done by the government is to evolve a broad national consensus in dealing with all these issues, otherwise there would be bickering and dissatisfaction. This is not good for the federal polity of our country."
He was of the view that cooperative federalism demands give and take and therefore it is very important that the Centre should take the initiative to consult states as often as necessary to carry them along.
"It's rather odd for the government to come up with additional terms of reference. Most of the states have already gone to the commission with their requirement and now you impose another terms of reference on the commission, which would complicate its work. That is certainly not good for the federal polity and cooperative federalism that we desire should flourish in the country," he added.

FM announces revised priority sector lending scheme for exporters

Finance Minister Nirmala Sitharaman on Saturday announced revised priority sector lending (PSL) norms for exporters which will release an additional funding of Rs 36,000 crore to Rs 68,000 crore to them.
PSL norms for export credit have been examined and enabling guidelines are under consideration of the Reserve Bank of India, she said.
"This will release an additional Rs 36,000 crore to Rs 68,000 crore as export credit under priority sector," Sitharaman told reporters here.
She also said export finance will be actively monitored by an inter-ministerial working group in the Department of Commerce.
Also, Export Credit Guarantee Corporation (ECGC) will expand the scope of export credit insurance scheme.
The minister said the initiative is expected to cost Rs 1,700 crore annually and will enable reduction in overall cost of export credit including interest rates, especially to MSMEs.
She also announced that Free Trade Agreement (FTA) Utilisation Mission would be set to help exporters optimally utilise the concessional tariffs under trade pacts which India has signed with several countries.
Besides, annual mega shopping festivals will be organised in the country at four places focusing on sectors like handicraft, yoga, tourism, textiles and leather.

Rs 70,000 cr package announced for exports, realty sectors to boost growth

Finance Minister Nirmala Sitharaman on Saturday announced an over Rs 70,000 crore package for the exports and real estate sectors, including setting up of a stressed asset fund, as the government continued with firefighting measures to pull the economy out of a six-year low growth rate.
A Rs 20,000 crore fund, with government putting in half of the amount, will be set up to provide last-mile funding for housing projects that are not in bankruptcy court or already tagged as bad debt, she said at a press conference here to announce the third set of measures to address stress in specific sectors and boost the economy.

Also, housing finance companies have been allowed to borrow funds abroad at relaxed rules while interest rate on housing building advance has been lowered, benefiting government servants who make up for a major component of demand for houses.
The stressed asset fund will benefit around 3.5 lakh homebuyers, Sitharaman said, adding that buyers stuck in bankruptcy-bound projects will get relief through the NCLT.
For exporters, a new scheme for reimbursement of taxes paid on exports, called the Remission of Duties or Taxes on Export Product (RoDTEP), will come into effect from January 2020 to replace existing dispensations.
The new RoDTEP "will more than adequately incentivise exporters than existing schemes put together," she said, adding the revenue government will forego on the scheme is projected at Rs 50,000 crore. The government is already providing Rs 40,000-45,000 crore refunds under existing schemes.
Besides, a Rs 1,700 crore annual dole will allow Export Credit Guarantee Corp (ECGC) to offer higher insurance cover to banks lending working capital for exports, she said. This will enable reduction in the overall cost of export credit including interest rate, especially for MSMEs, she added.
Priority sector lending tag for export credit is under consideration of the Reserve Bank, which will release an additional Rs 36,000 crore to Rs 68,000 crore as export credit.
Other measures for exporters included fully electronic refund of input tax credit from month end, action plan to reduce time to export or turnaround time at airports and ports by December and a special FTA utilisation mission that will work with export houses to utilise concessional tariffs in each free trade agreement (FTA) India has with different nations.
She also announced a mega shopping festival on the likes of the world-famous Dubai Shopping Festival, will be conducted at four places in India in March on themes of gems and jewellery, handicraft/yoga/tourism, textiles and leather.
The finance minister said the measures together with the ones announced on the previous two occasions will help lift the economy and growth rate will improve in the second quarter.
Inflation, she said, has been kept "very much" below the 4 per cent mark and there are "clear signs" of revival in the economy, as witnessed in an uptick in industrial production and fixed investment.
Measures are being taken to improve credit outflow from banks, which have also begun to transmit interest rate cuts to borrowers, she said. Sitharaman will meet heads of public sector lenders on September 19 to review the transmission.
The Reserve Bank of India has since February cut the benchmark interest rate by 110 basis points but banks have lagged in transmitting the lower rates to borrowers.
The government has been pressing banks to offer external benchmark linked loans to speed up the transmission of rate cuts.
India's GDP growth decreased for the fifth consecutive quarter in April-June 2019 to 5 per cent, the lowest in six years. This was on the back of faltering domestic demand, with both private consumption and investment proving lackluster.
The government's previous policy measures to stimulate the economy included support for the automobile sector, reduction in capital gains tax, and additional liquidity support for shadow banks. Accompanying structural reforms included a further easing of the foreign direct investment (FDI) regime and consolidation of the public banking sector.

Finance panel won't accept Centre's GDP forecasts, says N K Singh

The Fifteenth Finance Commission (FC) is not obliged to accept nominal gross domestic product (GDP) forecasts given by the central government and will make its own judgement, FC Chairman N K Singh said on Friday. Singh said he would meet state finance ministers at the next Goods and Services Tax (GST) Council meeting on September 20 in Goa.
The topics for discussion will include whether the GST compensation period should be extended by three years to be co-terminus with the 15th FC award period, and whether the 14 per cent revenue growth, on the basis of which states are compensated, needs to be given a fresh look.

Singh was briefing the media after a meeting of the 15th FC with economists who make up its advisory council.
The council’s members who attended the meeting included Chief Economic Adviser Krishnamurthy Subramanian, D K Srivastava, M Govinda Rao, Indira Rajaraman, Sudipto Mundle, Omkar Goswami, Arvind Virmani, Surjit Bhalla, Prachi Mishra, and Neelkanth Mishra. “I cannot be oblivious to what economists told me today (Friday). The Commission is not obliged to accept the numbers on nominal GDP as submitted to the Commission either in the Centre’s memorandum or as contained in the medium-term fiscal policy statement presented to Parliament,” Singh said.
“The Commission is duty-bound under the Constitution to arrive at its own independent judgement. How we intend to exercise that is entirely up to us. But the fact remains from six months ago to now the numbers on nominal GDP look more problematic. The best-case scenario is that the first quarter is a just a blip and the subsequent quarters will work out to be somewhat better,” Singh said.
The medium-term fiscal policy statement, tabled as part of the Union Budget 2019-20, forecasts nominal GDP for 2019-20 to grow 11 per cent year-on-year. Nominal GDP for 2020-21 is projected to grow at 11.6 per cent, and for 2021-22 at 11.9 per cent.
In real terms, the growth rates for 2020-21 and 2021-22 work out to 7.3 and 7.5 per cent, according to the statement.
GDP grew at 5 per cent in April-June 2019, the slowest since 2013, on account of subdued economic activity in sectors, from services and manufacturing, to agriculture and construction. But more importantly, the economy grew at 8 per cent in nominal terms — because of low levels of inflation — the slowest since the third quarter of 2002-03.
When asked how the 15th FC would come up with its own estimates, Singh said no decision had been taken on that yet. “I cannot prejudge on that but I have to take all these into account, come to a conclusion, and project a number. Now there are several ways I can do it but I do not know what I am finally going to adopt,” Singh said, adding that meetings had been held with think tanks like the National Institute of Public Finance and Policy.
At the next GST Council meeting, Singh won’t be accompanied by other members of the 15th FC. Hence it won’t be an official meeting of the 15th FC and GST Council, though views will be shared on a number of issues, he said. “As it stands, the GST compensation period ends in 2021-22, two years into our award period. A number of states have asked whether it can be extended by three more years to 2024-25 to be co-terminus with the 15th FC award period. We will continue those discussions at the meeting,” said Singh.
15th FC report to have 4 volumes
BS Reporter
The Fifteenth FC’s report, expected on November 30, could have four volumes, said an official with knowledge of the matter. “One (will be) the main report, two the statistical data and appendices, three a volume on states, and four a volume on the Union,” the person said. The Commission is also in a bind on what to do with devolution to the newly formed Union territory of Jammu and Kashmir.

Drones hit two Saudi Aramco oil facilities, fire under control: State media

Drones attacked the world's largest oil processing facility in Saudi Arabia and an oilfield operated by Saudi Aramco early Saturday, the kingdom's Interior Ministry said, sparking a huge fire at a processor crucial to global energy supplies.
No one immediately claimed responsibility for the attacks in Buqyaq and the Khurais oil field, though Yemen's Houthi rebels previously launched drone assaults deep inside of the kingdom.

It wasn't clear if there were any injuries in the attacks, nor what effect it would have on oil production in the kingdom. The attack also likely will heighten tensions further across the wider Persian Gulf amid a confrontation between the US and Iran over its unraveling nuclear deal with world powers.
Online videos apparently shot in Buqyaq included the sound of gunfire in the background and flames shooting out of the Abqaiq oil processing facility. Smoke rose over the skyline and glowing flames could be seen a distance away.
The fires began after the sites were "targeted by drones," the Interior Ministry said in a statement carried by the state-run Saudi Press Agency. It said an investigation into the attack was underway.
Saudi Aramco, the state-owned oil giant, did not immediately respond to questions from The Associated Press. The kingdom hopes soon to offer a sliver of the company in an initial public offering.
Saudi Aramco describes its Abqaiq oil processing facility in Buqyaq as "the largest crude oil stabilization plant in the world." The facility processes sour crude oil into sweet crude, then later transports onto transshipment points on the Persian Gulf and the Red Sea. Estimates suggest it can process up to 7 million barrels of crude oil a day.
The plant has been targeted in the past by militants. Al-Qaida-claimed suicide bombers tried but failed to attack the oil complex in February 2006. There was no immediate impact on global oil prices as markets were closed for the weekend across the world. Benchmark Brent crude had been trading at just above USD 60 a barrel.
Buqyaq is some 330 kilometers (205 miles) northeast of the Saudi capital, Riyadh.
While no group immediately claimed the attacks, suspicion immediately fell on Yemen's Houthi rebels.
A Saudi-led coalition has been battling the rebels since March 2015. The Iranian-backed Houthis hold Yemen's capital, Sanaa, and other territory in the Arab world's poorest country.
The war has become the world's worst humanitarian crisis. The violence has pushed Yemen to the brink of famine and killed more than 90,000 people since 2015, according to the US-based Armed Conflict Location & Event Data Project, or ACLED, which tracks the conflict.
Since the start of the Saudi-led war, Houthi rebels have been using drones in combat. The first appeared to be off-the-shelf, hobby-kit-style drones. Later, versions nearly identical to Iranian models turned up. Iran denies supplying the Houthis with weapons, although the UN, the West and Gulf Arab nations say Tehran does.
The rebels have flown drones into the radar arrays of Saudi Arabia's Patriot missile batteries, according to Conflict Armament Research, disabling them and allowing the Houthis to fire ballistic missiles into the kingdom unchallenged. The Houthis launched drone attacks targeting Saudi Arabia's crucial East-West Pipeline in May as tensions heightened between Iran and the US.
UN investigators said the Houthis' new UAV-X drone, found in recent months during the Saudi-led coalition's war in Yemen, likely has a range of up to 1,500 kilometers (930 miles).
That puts the far reaches of both Saudi Arabia and the United Arab Emirates in range.
The Houthi's Al-Masirah satellite news channel did not immediately acknowledge the attack Saturday.

RCEP: India prepares final list of products to counter Chinese imports

Aware of its massive trade deficit, India is preparing a final list of products on which it may retain import tariffs for China in the proposed Regional Comprehensive Economic Partnership (RCEP) agreement, said official sources.
The government has been preparing such a list for a while now, based on its plan of a “differential tariff reduction”. China, which has benefited the least, has opposed this move, along with richer economies such as Australia and New Zealand.

“Considering our sensitivity to imports from China, this has been the case throughout,” said a senior government official, who did not want to be named, adding: “An extensive list is being prepared.”
He also said the list was unfinished and was being drawn up after extensive consultation with domestic industry.
The RCEP, India most-ambitious trade pact, is currently under negotiation. It includes the 10-nation bloc of the Association of Southeast Asian Nations (Asean) and their six free-trade partners — China, India, Japan, South Korea, Australia and New Zealand. Twenty-eight rounds of talks have concluded, apart from eight minister-level meetings.
Senior diplomatic sources of other nations confirmed that commitments to reduce tariffs were now dependent on individual nations. This may result in each nation setting a specific tariff reduction for each of the rest.
Import ceiling
Sources also said India had suggested a mechanism to fix an import ceiling, again particularly for China. This is the first time New Delhi will fix such a ceiling in any trade deal.
Government officials did not confirm this, but they said similar proposals had been opposed by other nations before. Earlier, India had agreed to reduce tariffs on 76 per cent of all items for all nations, apart from special measures for China. Others had demanded New Delhi open up at least 90 per cent of all items.
Currently, it is broadly accepted the RCEP will lead to tariffs being eliminated on 28 per cent of the traded goods to begin with. This will be followed by 35 per cent of all products being eliminated in phases.
Officials also said the final deal would necessarily include all negotiating countries. India had been on the receiving end of repeated questions by other nations on whether it is serious about signing the deal. Senior leaders of Asean, including Malaysian Prime Minister Mahathir Bin Mohamad, had said the mega Asia-Pacific deal could be negotiated without India “for the time being”.
No early harvest
The government has also dismissed the idea of an “early harvest” approach to the RCEP talks. If this approach was adopted, it would mean the agreement would be signed after some issues had been agreed upon, while others would be resolved eventually.
The current stance is a shift from India’s earlier position of adopting a “package of early deliverables” created by the trade-negotiating committee of the RCEP. Australia’s lead trade negotiator James Baxter has said the last ministerial meet in Bangkok saw all negotiating trade ministers unanimously decided to complete the negotiations in full by November, seven years after the talks started.
“As long as India’s domestic industry and our national interests is protected, the faster it (RCEP) is done, the better it is for India,” Commerce and Industry Minister Piyush Goyal, has said.
The government had a day-long talk with RCEP members such as Australia, Singapore and others as part of a “Track 1.5” round table on “Global and Regional Trade and Economic Integration Issues” on Friday.
Representatives of all member states are set to discuss pending issues over the weekend to chart out a possible course for the trade deal, government officials said. However, since the talks do not constitute an official negotiation round, no joint statement may be issued afterwards.

On-tap licence regime: RBI doubles SFB net worth floor to Rs 200 crore

The Reserve Bank of India’s (RBI’s) new draft guidelines for on-tap licensing of small finance banks (SFBs) said the minimum net worth of such banks should be doubled from Rs 100 crore to Rs 200 crore and that the promoters’ stake be brought down to a maximum of 15 per cent within 15 years, as against the existing norm of 26 per cent within 12 years, from the date of commencement of business of the bank.
Aligning the norms with those of universal banks, the RBI said promoters wishing to set up an SFB could do so either as a standalone entity or under a holding company, which shall act as the promoting entity of the bank. However, if there is an intermediate company between the SFB and its promoting entity, it should be a non-operative financial holding company (NOFHC).

A payments bank can also apply for converting into an SFB if it meets the eligibility criteria, said the RBI, which released the guidelines on Friday. Moreover, if a promoter of a payments bank desires to set up an SFB, both the banks should be under the NOFHC structure.
The RBI has stated that the key criteria for licences will be the entity’s ability to serve smaller customers and that SFBs may be a more appropriate vehicle for local players or players who are focused on lending to unserved or underserved sections of society. Thus, proposals from public sector entities and large industrial house/business groups, including from non-banking financial companies (NBFCs) promoted by them, entities promoted by states, or subsidiaries of development financial institutions, will not be entertained.
A business group with assets of Rs 5,000 crore or more with non-financial business accounting for 40 per cent or more in terms of total assets or income will be considered to be a large industrial house/business group, and will not be permitted. The RBI will not allow joint ventures by different promoter groups to set up SFBs either.
An SFB can become a universal bank, but it should meet the net worth requirement as applicable to universal banks, besides its satisfactory track record of performance as an SFB for a minimum period of five years.
On transition into a universal bank, it will be subjected to all the norms including the NOFHC structure, the RBI said.
Primary (urban) co-operative banks that want to convert into SFBs have been allowed to continue with a minimum paid-up equity capital of Rs 100 crore to begin with, but they will have to increase their minimum net worth to Rs 200 crore within five years.
The revised draft guidelines were issued after reviewing the performance of the 10 SFBs in existence now.
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Once an SFB reaches a net worth of Rs 500 crore, it has to mandatorily go for listing within three years. But SFBs that have a net worth of less than Rs 500 crore may also get their shares listed voluntarily, subject to its fulfilment of the market regulator’s criteria. This was the case earlier also.
According to the RBI, the promoters of an SFB have to hold a minimum of 40 per cent of the paid-up voting equity capital of the bank, which shall be locked in for a period of five years from the date of commencement of business of the bank.
According to the RBI, among the many objectives of setting up an SFB, the primary one would be to undertake deposit taking and lending activities to unserved and underserved sections, including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
SFBs can also indulge in the distribution of mutual fund units, insurance products, and pension products with the prior approval of the RBI and after complying with the requirements of the sectoral regulator for such products. Only after three years from the date of commencement of operations, SFBs can, on a non-risk sharing basis, distribute third-party financial products without prior approval from the RBI.
The entities eligible for being promoters to set up an SFB, according to the RBI, include individuals who have at least 10 years of experience in the banking and financial sector and have a successful track record of running their businesses for at least five years.
Moreover, existing NBFCs, micro finance institutions (MFIs), and local area banks (LABs) in the private sector, which have a successful track record of running their businesses for at least a period of five years, can also opt for conversion into SFB. In such a case where an NBFC, MFI and LABs wish to convert itself into an SFB, the entity has to have a minimum net worth of Rs 200 crore or else it has to infuse additional paid-up voting equity capital to achieve net worth of Rs 200 crore within 18 months of getting approval from the RBI. SFBs have to maintain a minimum capital adequacy ratio of 15 per cent with Tier 1 capital at 7.5 per cent.
RBI's draft guidelines
Criterion revised to Rs 200 crore from Rs 100 crore earlier
Promoters' stake in SFBs should be brought down to 15% in 15 years
Existing payments banks can convert into SFB if they meet the criteria
SFBs have to mandatorily list within 3 years of net worth reaching Rs 500 crore
Can distribute third-party financial products after 3 years of operation