Article

Stimulus Day-4; It is Over to Structural Reforms

18 May 2020

The penultimate day of the post-COVID reforms announcements shifted focus to more structural areas. The first 3 days were spent on addressing the pain points of COVID-19 including farm incomes, agricultural infrastructure, NBFCs, MFIs, migrant labourers and MSMEs. With the pain points addressed, the Finance Minister shifted focus on the fourth day to more structural issues pertaining to foreign participation, domestic self reliance, investment in critical sectors etc. if you were to sum up the reforms announced on 16th may, it can be divided into two distinct segments; strengthening the “Make in India” initiative and enhancing foreign investments / private participation. After all, any recovery will now predicate on a delicate balance between foreign investments and local jobs.

A big thrust for Make in India on Day-4

A slew of reforms have been announced to give a boost to the “Make in India” initiative by opening many sectors (hitherto closed) to the private sector.

  • In a major push for reforms, the government will now permit research into setting up of atomic reactors via public-private partnerships (PPP). Being a sensitive sector, this was hitherto closed to private participation. It will be drawn into the start-up ecosystem.
  • Space travel and space research to be opened up to private sector. Planetary exploration and space travel will be opened to the private sector. Private sector can use ISRO facilities to boost skills and private parties can now launch their own satellites.
  • As a means to boost business, the government has allocated Rs.8100 crore for viability funding. This will enhance the quantum of viability gap funding up to 30% of total project cost. This will ensure quick completion of pending projects.
  • Major power tariff policy reforms to encompass consumer rights, promote industry and ensure sustainability of power sector. In addition, as a starting step, the power distribution companies in union territories will be privatised. States will wait for now.
  • India to emerge as global hub for aircraft maintenance, repair, overhaul (MRO). Tax regime for MRO will be rationalised. This will reduce maintenance costs of airlines which can be passed on to fliers. Government to additionally invest in 12 airports.
  • Currently, there are stringent restrictions on the use of air space for civil aviation and only 60% of Indian airspace is freely available. Such restrictions on utilisation of air space will be eased so that civilian flying becomes more efficient.

Enticing foreign investments where they can add value

The second part of the reforms on the fourth day focused on getting foreign capital where warranted.

  • The big takeaway is that coal will no longer be a government monopoly but domestic and foreign private participation will be allowed. Govt will bring in commercial mining in coal sector for the sake of competition and transparency. Domestic and foreign investment will be encouraged through revenue sharing mechanism.
  • Foreign direct investment (FDI) limits in defence manufacturing to be increased from 49% to 74%. Ordnance boards will be listed on stock exchanges as corporate entities. This will go a long way in reducing the defence import bill.
  • Govt will introduce joint auction of bauxite and coal mineral blocks to enhance aluminium industry's competitiveness. Foreign participation will improve mining best practices, improve output and lower costs. In addition, stamp duty on mining leases to be rationalized and distinction between captive and non-captive mines scrapped.
In short, government will create an enabling environment to fast-track investments. This will include fast track investment clearance through an empowered group of secretaries with limited red tape.

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Stimulus Day-4; It is Over to Structural Reforms

18 May 2020

The penultimate day of the post-COVID reforms announcements shifted focus to more structural areas. The first 3 days were spent on addressing the pain points of COVID-19 including farm incomes, agricultural infrastructure, NBFCs, MFIs, migrant labourers and MSMEs. With the pain points addressed, the Finance Minister shifted focus on the fourth day to more structural issues pertaining to foreign participation, domestic self reliance, investment in critical sectors etc. if you were to sum up the reforms announced on 16th may, it can be divided into two distinct segments; strengthening the “Make in India” initiative and enhancing foreign investments / private participation. After all, any recovery will now predicate on a delicate balance between foreign investments and local jobs.

A big thrust for Make in India on Day-4

A slew of reforms have been announced to give a boost to the “Make in India” initiative by opening many sectors (hitherto closed) to the private sector.

  • In a major push for reforms, the government will now permit research into setting up of atomic reactors via public-private partnerships (PPP). Being a sensitive sector, this was hitherto closed to private participation. It will be drawn into the start-up ecosystem.
  • Space travel and space research to be opened up to private sector. Planetary exploration and space travel will be opened to the private sector. Private sector can use ISRO facilities to boost skills and private parties can now launch their own satellites.
  • As a means to boost business, the government has allocated Rs.8100 crore for viability funding. This will enhance the quantum of viability gap funding up to 30% of total project cost. This will ensure quick completion of pending projects.
  • Major power tariff policy reforms to encompass consumer rights, promote industry and ensure sustainability of power sector. In addition, as a starting step, the power distribution companies in union territories will be privatised. States will wait for now.
  • India to emerge as global hub for aircraft maintenance, repair, overhaul (MRO). Tax regime for MRO will be rationalised. This will reduce maintenance costs of airlines which can be passed on to fliers. Government to additionally invest in 12 airports.
  • Currently, there are stringent restrictions on the use of air space for civil aviation and only 60% of Indian airspace is freely available. Such restrictions on utilisation of air space will be eased so that civilian flying becomes more efficient.

Enticing foreign investments where they can add value

The second part of the reforms on the fourth day focused on getting foreign capital where warranted.

  • The big takeaway is that coal will no longer be a government monopoly but domestic and foreign private participation will be allowed. Govt will bring in commercial mining in coal sector for the sake of competition and transparency. Domestic and foreign investment will be encouraged through revenue sharing mechanism.
  • Foreign direct investment (FDI) limits in defence manufacturing to be increased from 49% to 74%. Ordnance boards will be listed on stock exchanges as corporate entities. This will go a long way in reducing the defence import bill.
  • Govt will introduce joint auction of bauxite and coal mineral blocks to enhance aluminium industry's competitiveness. Foreign participation will improve mining best practices, improve output and lower costs. In addition, stamp duty on mining leases to be rationalized and distinction between captive and non-captive mines scrapped.
In short, government will create an enabling environment to fast-track investments. This will include fast track investment clearance through an empowered group of secretaries with limited red tape.