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Amendment of the Amasr Act, 2010 proposal has been approved by the Cabinet
Jul 27,2017

The proposal for amendment of the Amasr Act, 2010 has been approved by the Cabinet and the pertaining Bill has been moved to Lok Sabha. The proposal is to allow public works or projects essential for public in prohibited area within 100 meter from protected monument but not having substantial impact on preservation, safety, security or access to the monument or its immediate surrounding including visual ambiance. The proposal is aimed to harmonize the existing conflict between provision of sub-section (3) and sub-section (4) of Section 20A of the Act.

The draft amendment was published in the ASI website for inviting comments from the public. Concern from the public regarding indiscriminate constructions, vibrations due to construction, gradual erosion of sanctity of protected monument, and others have been received. The Government of India has assured that only public works, essential for public safety or security of public at large will be allowed, that too if no reasonable possibility of any other viable alternative for such construction beyond the limit of prohibited area is available.

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Cabinet approves revision of cost of Socio Economic and Caste Census 2011
Jul 27,2017

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi has approved the proposal of Department of Rural Development for revision of cost of Socio Economic and Caste Census 2011 (SECC 2011). It provides for:

(a) Revising the cost of SECC 2011 to Rs. 4893.60 crore from the approved estimated expenditure of Rs.3,543.29 crore within the indicative cost of Rs.4,000 crore as approved by the Government.

(b) Approval of time and cost overrun and consequential revision in the upper limit of cost per record to the consortium of Central Public Sector Undertakings.

The SECC -2011 project has been concluded on 31.3.2016. The cost has already been committed and the project has met all its milestones.

Major Impact:

The Government of India has been spending a large sum of money on poverty alleviation and welfare programmes in rural and urban areas of the country to assist the poor and the marginalized section of the society. The SECC has paved the way for better targeting of the poor and evidence based targeted intervention for ameliorating conditions of the poor households.

Before the availability of SECC data, correct identification of eligible beneficiaries was a major challenge. Accusation of bias in the BPL list affected coverage of poorest of the poor. SECC data is based on information furnished by households. In addition, households were given opportunity to raise claims and objections on SECC enumerated and published data. Thus, SECC database provides an authentic list of information disclosed by the households for identifying and prioritising beneficiaries under various schemes run by Ministry of Rural Development and other Departments in the Government.

Ranking of Households is made through a three-step process involving thirteen Exclusion parameters for identifying not-poor households, five Automatic Inclusion parameters for identifying poorest of the poor households and seven Deprivation Criteria for identifying poor households. Government of India has advised States to use this process, SECC data and its TIN number of households for identification of poor under Deendayal Antyodaya Yojana (DAY), Pradhan Mantri Awaas Yojana-Gramin(PMAY-G), etc. Use of SECC-2011 has brought transparency in selection of beneficiary and its structured incidence with DBT having maximal impact on governance and accountability.

Background:

Before the availability of SECC -21011 data, Below Poverty Line (BPL) list prepared in 2002, by States/UTs was being used for identifying beneficiaries of development programmes and schemes including Pradhan Mantri Awaas Yojana-Gramin (PMAY-G)) and National Social Assistance Programme(NSAP). The 2002 BPL list attracted claims of biases. It was decided by the Government on 19.05.2011 to launch a Socio Economic and Caste Census 2011 in order to get data for ranking of households for receiving benefits from the Government. To avoid exclusion and inclusion errors, the SECC 2011 elicited information on identified parameters from each household for identification of deprivation and multi-dimensionality of poverty.

The Ministry of Rural Development provided financial and technical support to the States/UTs for conducting Socio Economic and Caste Census-2011 (SECC-2011) to generate a large number of socio and economic indicators for ranking of each rural household across the country. The project could not be completed in scheduled time as the States/UTs needed more time to deal with enumeration and claims and objections. Cost increased from Rs.4000 crore approved by the Government to Rs.4893.60 crore.

SECC allows ranking of households based on their socio economic status. SECC-2011 provides the government the names and number of families in each Panchayat and details their status on seven deprivation parameters. The advantage of SECC is that it provides for programme specific customized priority list to suit programme objective and budget space to address specific deprivation. Ministry of Rural Development has generated customized priority list for Pradhan Mantri Awaas Yojna-Gramin(PMAY-G) and Deen Dayal Antyodaya Yojana - National Rural Livelihoods Mission (DAY-NRLM) from SECC following due selection process approved by the Government.

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Ind-Ra: Merchant Power Market to Burgeon Over FY18-FY20; Discoms to Reap Benefits
Jul 27,2017

The short-term power market is up for an eventful journey in FY18-FY20, says India Ratings and Research (Ind-Ra). However, the market is inhibited by impediments such as transmission constraints, opaque processes on open access within most states and steep cross-subsidy charges. A power supply-demand mismatch and a hiatus in long-term power purchase by states provide immense opportunities to the merchant market.

Ind-Ra expects utilities to increase the share of short-term purchases in the next three years gradually. Against a backdrop of diminishing power rates, discoms have unfettered access to the economical merchant market, apart from existing power purchase contracts. With spot prices hitting rock-bottom levels, discoms can reap benefits in the form of cost savings. However, capacity charges payable on long-term power contracts could be a drag on state utilities.

The Ind-Ra-rated portfolio of projects witnessed a depressed plant load factor level in FY17, though cash flows of such projects were reasonably insulated from volatility due to capacity charges payments. Developers with power purchase agreements (PPAs) that find spot market prices lucrative to enhance their returns could fiercely compete with other marginal players, if power is not scheduled by counterparties. Meanwhile, power producers that have not entered into PPAs will tap the merchant market, only when cost of generation (including fixed and variable cost) is lower than merchant rates.

Cross-subsidy charges range between 9% and 44% across states, indicating the extent of high charges paid by industries. Had these charges been lower/nominal, industries would have tapped low-cost power, adding strength to the Make in India initiative and delivering a globally competitive product. Short-term open access, touted as a boon to the power sector, is marred by exorbitant cross-subsidy and other transmission charges levied to offset the revenue foregone by state utilities due to switchover by customers. However, utilities exploit these charges as a tool to prevent losing high-value industries from their portfolio to the short-term market. Although open access is being granted to generators to evacuate excess power in many states, only a handful of states permit open access to bulk consumers.

Under general network access, access to transmission systems will be location agnostic vis-n++-vis the current open access regime that requires the declaration of the target region of power supply. The GNA regime is likely to enable sufficient transmission capacity to address dynamic power flow patterns, once transmission planning is aligned to peak demand of all regions. The current system, based on declaration from generators on the target region of supply, has resulted in the building of unnecessary or inadequate infrastructure across various regions.

The power market would benefit from recent regulations focused on improvements in grid code and grid operations, as well as from the introduction of forecasting and scheduling for renewable power. The simplification of the retail tariff and the introduction of the National Open Access Registry are under consideration by regulators and stakeholders.

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GST-a real major incentive for making investments in SEZs: Commerce Ministry official
Jul 27,2017

Though imposition of Minimum Alternative Tax (MAT) in 2011 slowed down growth of special economic zones (SEZs), but implementation of Goods and Service Tax (GST) provides wonderful opportunity for making investments in Indian SEZs, a top Commerce Ministry official said at an ASSOCHAM event.

n++After 2011, today again probably is the right moment to make investments in the SEZs, as it is the only scheme of the many export promotion schemes operating in India, wherein an initio exemption has been provided from customs duty as well as IGST (Integrated Goods and Service Tax),n++ said Dr L.B. Singhal, development commissioner, Noida SEZ.

He also said that this exemption has been provided both for import as well as domestic procurement of the raw materials, capital goods and others.

n++So, this being the only export promotion scheme, this is a real major incentive for making an investment for manufacturing and services in the SEZs,n++ added Dr Singhal who has 27 SEZs operating under his jurisdiction in Northern India which employ over 81,000 people.

Earlier, he had said that after enacting SEZ Act in 2005, up to 2011 it really grew up very well by almost 100 per cent every year but in 2011, Government of India imposed MAT and that slowed down the growth a little bit.

n++The SEZ Act had provided income tax exemption for 15 years - with 100 per cent income tax exemption in first five years and 50 per cent exemption in next five years but when the MAT was imposed, the investor felt that the kind of incentive which was promised to them that was taken back,n++ said Dr Singhal.

Citing other favourable reasons for growth of SEZs in India, he said that the SEZ Act provides income tax exemption on profit on exports for 15 years to the SEZ units but now a sunset clause has been laid that this income tax exemption will be available only on the SEZ units which start operating by March 2020.

n++With GST exemption together with exemption in the income tax and in case you are able to make investments and are able to make your SEZ unit operational by March 2020 then you will get the complete income tax exemption for 15 years which is envisaged in the SEZ Act,n++ he said further.

He also said that Government has considerably addressed the issue related to MAT. n++The major issue was coming that MAT is kind of an advance income tax which you can offset in future liabilities and earlier the time period given for setting your MAT offset was seven years, now two years back that period has been changed to 12 years so for MAT liability also you get longer period for adjustment.n++

He said that in the SEZ scheme, the benefits which were provided under Foreign Trade Policy under various export promotion schemes like focus product scheme, focus market scheme and others have now all been merged into MEIS (Merchandise Exports from India Scheme).

n++These benefits are now also available for exports from SEZs - benefits from MEIS as well as services exporters are also entitled for the benefit of Service Exports from India Scheme (SEIS),n++ said Dr Singhal.

n++These reasons put together make it a attractive proposition for making investment in the SEZs,n++ he added.

He further said that the package which is provided for SEZs in India is quite comprehensive as one gets benefit of indirect exemptions on raw material together with indirect exemptions on capital goods, besides one also gets exemptions from taxes even for setting up unit of cement, steel and others.

Referring to the steps taken by the Government to expand the scope of SEZs, he said n++Earlier area requirement for setting up a multi-product SEZ was 1,000 hectares which has been reduced to 500 hectares, for sector-specific it has been reduced to 100 hectares and for IT (information technology) sector which was earlier 10 hectares has now been completely done away with and what you require is only 1 lakh sq. meter built-up space.n++

He said that government intends to promote investment in the tier-II, III cities, so the minimum area requirement for tier II cities is 50,000 sq. meters while for tier III cities it is just 25,000 sq. Meters.

Highlighting that results of these steps can be seen, he said that in the last 2-3 years, IT sector SEZs have come up in Chandigarh (employing 12,000 people), Lucknow, Indore and other such cities.

He also said that Government support is not merely limited to fiscal incentives but it includes providing ease of doing operation, single window clearance.

n++There are two tier single window approvals in place in SEZs - one apex in the Commerce Ministry at the Board Approval level chaired by Commerce Secretary where the representatives of all ministries are there. So the approval for setting up SEZ is given by the board itself and no approval from any other separate ministry is required,n++ said Dr Singhal.

n++Once the SEZ is approved and you go for setting up the unit in the SEZ, there is an approval committee meeting in every SEZ chaired by the Development Commissioner wherein the representatives of customs, central excise, DGFT (Director General of Foreign Trade), income tax, state government all are present at one place and approval is given at one place,n++ he added.

Exports from SEZs in India which were a meagre $2 billion (bn) in 2000 and reached $5 bn in 2005 had touched a massive $81 bn last year. Besides, direct employment in the SEZs which was about 1.43 lakh in 2005, today stands at 17.31 lakh. While the investments, which were just about Rs 4,000 crore in 2005, today we have investments worth Rs 4.23 lakh crore in SEZs.

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Cabinet approves revision of guidelines of Sovereign Gold Bonds Scheme
Jul 27,2017

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given approval for revision of guidelines of Sovereign Gold Bonds (SGB) Scheme with a view to achieve its intended objectives.

Two sets of changes have been made in the scheme:

I. Specific changes have been made in the attributes of the scheme to make it more attractive, mobilise finances as per the target and reduce the economic strains caused by imports of gold and reduce the Current Account Deficit (CAD).

II. Flexibility has been given to Ministry of Finance to design and introduce variants of SGBs with different interest rates and risk protection / pay-offs that would offer investment alternatives to different category of investors. Ministry of Finance (the issuer) has been delegated this power to amend / add to the features of the Scheme with approval of the Finance Minister to reduce the time lag between finalizing the attributes of a particular tranche and its notification. Such flexibility will be effective in addressing the elements of competition with new products of investment, to deal with very dynamic and sometimes volatile market, macro-economic and other conditions such as gold price.

Following specific changes in the scheme have been approved:

i. The investment limit per fiscal year has been increased to 4 kg for individuals, 4 Kg for Hindu Undivided Family (HUF) and 20 Kg for Trusts and similar entities notified by the Government from time to time.

ii. The ceiling will be counted on Financial year basis and will include the SGBs purchased during the trading in the secondary market.

iii. The ceiling on investment will not include the holdings as collateral by Banks and Financial institutions.

iv. SGBs will be available on tap. Based on the consultation with NSE, BSE, Banks and Department of Post, features of product to emulate On Tap sale would be finalised by Ministry of Finance.

v. To improve liquidity and tradability of SGBs, appropriate market making initiatives will be devised. Market makers, could be commercial banks or any other public sector entity, such as MMTC or any other entity as decided by Gol.

vi. The Government may, if so felt necessary, allow higher commission to agents.

Background:

Sovereign Gold Bond (SGB) Scheme was notified by the Government of India on November 05, 2015 after due approval of the Cabinet. The main objective of the scheme was to develop a financial asset as an alternative to purchasing metal gold. The target was to shift part of the estimated 300 tons of physical bars and coins purchased every year for Investment into demat gold bonds. The target mobilisation under the scheme at Rs. 15,000 crore in 2015-16 and at Rs.10,000 crore in 2016-17. The amount so far credited in Government account is Rs. 4,769 crore.

In view of less than expected response of the investors to the scheme, and considering its bearing on CAD and consequently on overall macro-economic health of the country, it was felt necessary to make changes in this scheme to make it a success.

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Cabinet apprised of the Joint Declaration of Intent between India and Germany on Indo German-Centre for Sustainability
Jul 27,2017

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has been apprised of the Joint Declaration of Intent (JDI) between Department of Science & Technology (DST), India and the Federal Ministry of Education and Research (BMBF), Germany on Indo German-Centre for Sustainability (IGCS). The JDI was concluded on 30th May, 2017 in Germany during the fourth Inter-Governmental Consultations (IGC) between India and Germany between Prime Minister of India and the German Federal Chancellor in Berlin. The JDI was signed by the Union Minister for Science & Technology and Earth Sciences, India, Dr Harsh Vardhan and Germanys Minister for Education & Research Prof. Dr. Johanna Wanka.

The objective of the JDI on IGCS is to promote cooperation between German and Indian scientists on fundamental and applied scientific research. It includes areas such as policy support, teaching, training and dissemination of information in the area of sustainable development and climate change through inter-disciplinary/trans-disciplinary research. The IGCS will nurture future collaboration by widening the network with other Universities, Institutes and industries both in India and Germany. On the Indian side, Indian Institute of Technology (IIT), Madras will act as the host institution for IGCS.

Under this JDI, the required institutional framework will be developed to provide fund support to the IGCS at IIT, Madras by DST and BMBF. DST will provide grant-in-aid support to IGCS for undertaking research in the areas of climate change for sustainable development. DST and BMBF will jointly support the IGCS for a period of five years starting from January 2018.

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Cabinet apprised of the MoU signed between India and Palestine on cooperation in the field of on youth affairs and sports
Jul 27,2017

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has been apprised of the Memorandum of Understanding (MoU) signed between India and Palestine on cooperation in the field of youth affairs and sports.

The MoU will help in promoting exchange of ideas, values and culture amongst all youth irrespective of their caste, religion and gender as well as development of sports in the two countries. In turn, it will help in consolidating friendly relations between the two countries.

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Cabinet gives ex-post facto approval for amendment of the Constitution (Application to Jammu & Kashmir) Order, 1954
Jul 27,2017

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi has given its ex-post facto approval for amendment of the Constitution (Application to Jammu & Kashmir) Order, 1954 by way of the Constitution (Application to Jammu & Kashmir) Amendment Order, 2017.

The approval paves the way for applicability of Goods and Services Tax regime in the State of Jammu & Kashmir.

The Constitution (Application to Jammu & Kashmir) Amendment Order, 2017 has already been notified in Gazette of India on 6th July, 2017 after the assent of the President.

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Investment of EPFO Funds in ETFs was Rs 14,984 crore in FY17
Jul 26,2017

The investment limit in ETFs has been recommended to be raised from 10 per cent to 15 per cent by the Central Board of Trustees, Employees Provident Fund in its 218th meeting held on 27 May 2017. Accordingly, the estimated investment in ETF for the current Financial Year is approximately Rs. 22,500 crore. 

The details of investment in Exchange Traded Funds (ETFs) during 2015-16 & 2016-17 are as under: 

2015-16 (Fig. in Rs. Crore)

SBI Nifty 50 ETF

4,922

SBI Sensex ETF

1,655

Total

6,577

 2016-17(Fig in Rs. Crore)

SBI Nifty 50 ETF

7,912

SBI Sensex ETF

2,691

UTI Nifty 50 ETF

1,911

UTI Sensex ETF

662

CPSE ETF

1,808

Total

14,984

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New Post Offices will be opened in this fiscal-Manoj Sinha
Jul 26,2017

The Government has planned to open 81 Sub-Post Offices and 100 Branch Post Offices during the current financial year 2017-18 under the Scheme - n++Rural Business & Access to Postal Networkn++. Minister of Communications Shri Manoj Sinha said that the Department of Posts has also planned to open 66 Branch Post Offices by creation of new posts in 32 worst affected Left Wing Extremism (LWE) districts in the country under the aforesaid scheme in the current financial year.

Shri Sinha said that out of 25,350 post offices in the States of the Country, 25,348 are computerised. He said that the Department of Posts takes action, from time to time, to induct technology and upgrade the system to cater to the growing market requirements and to increase revenue earnings. The Minister said that the increase or revision of rates of postal products and services is an ongoing exercise carried out from time to time and that there is no proposal to increase the rates of premium Business Development products at present.

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The index of mineral production of mining and quarrying sector at 0.9% in May 2017 lower than in May 2016
Jul 26,2017

Mineral Production during May 2017 (Provisional) The index of mineral production of mining and quarrying sector for the month of May (new Series 2011-12=100) 2017 at 100.5, was 0.9% lower as compared to the level in the month of May 2016.

The total value of mineral production (excluding atomic & minor minerals) in the country during May 2017 was Rs. 19944 crore. The contribution of Coal was the highest at Rs. 7171 crore (36%). Next in the order of importance were: Petroleum (crude) Rs. 5634 crore, Iron ore Rs. 2551 crore, Natural gas (utilized) Rs. 2235 crore, Limestone Rs. 602 crore and Lignite Rs. 470 crore. These six minerals together contributed about 94% of the total value of mineral production in May 2017.

Production level of important minerals in May 2017 were: Coal 505 lakh tonnes, Lignite 30 lakh tonnes, Natural gas (utilized) 2701 million cu. m., Petroleum (crude) 31 lakh tonnes, Bauxite 1973 thousand tonnes, Chromite 254 thousand tonnes, Copper conc. 11 thousand tonnes, Gold 117 kg., Iron ore 160 lakh tonnes, Lead conc. 26 thousand tonnes, Manganese ore 237 thousand tonnes, Zinc conc. 123 thousand tonnes, Apatite & Phosphorite 50 thousand tonnes, Limestone 282 lakh tonnes, Magnesite 20 thousand tonnes and Diamond 1648 carat.

The production of important minerals showing positive growth during May 2017 over May 2016 include: Zinc conc. (96.9%), Copper conc. (52.0%), Lead conc. (47.4%), Gold (25.8%), Manganese ore (19.6%), Limestone (5.6%), Natural gas (utilized) (5.2%), Petroleum (crude) (0.7%) and Chromite (0.6%). The production of other important minerals showing negative growth are: Diamond [(-) 47.4%], Magnesite [(-) 31.8%], Bauxite [(-) 22.4%], Apatite & Phosphorite [(-) 10.4%], Lignite [(-) 6.3%], Iron ore [(-) 4.5%] and Coal [(-) 3.2%].

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Moodys affirms the ratings of seven and downgrades the ratings of two Indian public sector banks
Jul 26,2017

Moodys Investors Service has affirmed the local and foreign currency bank deposit ratings of seven Indian public sector banks (PSBs) at Baa3/Prime-3 The affected banks are: (1) Bank of Baroda (BOB), (2) Bank of India (BOI), (3) Canara Bank (Canara), (4) Oriental Bank of Commerce (OBC), (5) Punjab National Bank (PNB), (6) Syndicate Bank (Syndicate) and (7) Union Bank of India (Union Bank). The counterparty risk assessment (CRA) of these banks affirmed at Baa3(cr)/P-3(cr).

Moodys also downgraded the long term local and foreign currency bank deposit ratings of Indian Overseas Bank (IOB) and Central Bank of India (CBI) to Ba3 from Ba1. In addition, Moodys downgraded IOB and Indian Overseas Bank, Hong Kong Branchs senior unsecured medium-term note (MTN) program rating to (P)Ba3 from (P)Ba1 and IOBs Hong Kong branchs senior unsecured debt rating to Ba3 from Ba1. The long term CRA of these banks has also been downgraded to Ba2(cr) from Ba1(cr).

Moodys also downgraded the standalone credit profile or the baseline credit assessment (BCA) of Syndicate to ba3 from ba2, and as a result, downgraded the subordinated MTN and junior subordinated MTN program ratings of the bank to (P)Ba3 and (P)B1 from (P)Ba2 and (P)Ba3, respectively.

Moodys changed the outlook to stable from positive for BOB and its London branch, Canara and its London branch, PNB, and Syndicate and its London branch, changed the outlook to negative from positive for BOI and its London branch and Jersey branch, OBC, and Union Bank and its Hong Kong branch, and changed the outlook to stable from negative for IOB and its Hong Kong branch. Outlook for CBI was maintained at stable.

The list of affected ratings is provided at the end of this press release.

The ratings of State Bank of India (SBI, Baa3 positive, ba1) and IDBI Bank Ltd (IDBI, Ba2 ratings under review, caa1) are not affected by this rating action.

RATINGS RATIONALE

Moderation In The Level Of Government Support Factored Into Banks Ratings

Moodys uses the joint default analysis (JDA) model to determine government support for banks. Under JDA, Moodys places each bank in a support bucket, which can be very high, high, moderate, or low. As a function of a governments sovereign credit rating and a banks designated support bucket, JDA provides a range of potential notches of support.

Until this rating action, Moodys support assumptions were generally at the maximum of the very high support bucket range. With this rating action, Moodys has repositioned the support assumption towards the mid-point of the very high support bucket range. This means that typically the maximum rating uplift above the BCA is three notches.

Indian PSBs have experienced significant asset quality problems and capital shortages over the last three years. In 2015, the government announced its Indradhanush plan to address its own estimate of INR 1,800 billion shortfall in capital that PSBs would need between 2015 to 2019 to meet Basel III requirements. Under this plan, the government would allocate INR700billion for capital injections to public sector banks over the financial years ending in March 2016 to March 2019, with the expectation that banks could access the equity capital market for additional capital.

Despite receiving INR 500 billion in capital injections under the Indradhanush plan, PSBs remain undercapitalized and burdened by bad debts. The Indradhanush plan will only provide INR200bn of additional capital in the two financial years up to March 2019, which falls short of the amount still required for banks to address solvency challenges and recapitalize themselves. The government has not increased its planned capital injections, although most public sector banks have not been able to raise the required capital from the equity capital markets.

Other policies seem to indicate a gradual shift in approach. The introduction of the Financial Resolution and Deposit Insurance Bill, 2017, indicates the governments preference to introduce more market discipline in the resolution of financial institutions. A stated intention of the resolution framework is to limit the use of public money to bail out distressed entities.

These actions suggest that the extent of support that the government would provide to some banks is likely lower than what we had previously assumed. As a result, banks benefiting from the very highest levels of support are likely to see less support over time.

Nevertheless, Moodys continues to position the rated public sector banks in the very high support bucket, reflecting the systemic importance of public sector banks in India. The government owns a majority stake in these banks and is visibly involved in their management, including appointment of senior managers and setting of key performance indicators. In addition, the viability of public sector banks is crucial for maintaining overall systemic stability, given that these banks cumulatively account for around 74% of the banking system assets.

STABLE BUT WEAK BCAs; NEGATIVE PRESSURE FOR SOME BANKs

Moodys expect asset quality to remain the key credit weakness for the rated PSBs. Net non-performing loan (NPL) formation rates, while moderating compared to the levels seen in the last two years, will remain elevated on an absolute basis.

At the same time, the need to improve loan loss provisioning levels will require banks to maintain a high level of credit costs, leading to low profitability over the next 12-18 months.

Capital levels will remain weak for most rated PSBs over the next 12-18 months, as low profitability impinges on their ability to build capital levels through retained earnings. We expect the government to remain the key source of external capital for these banks.

Nevertheless, because their current BCAs incorporate considerations for solvency weakness described above, Moodys has affirmed the BCAs for eight banks. Despite weaker asset quality and capital metrics, the BCAs of rated public sector banks benefit from sound funding and liquidity metrics, with the liquidity coverage ratio (LCR) of all rated public sector banks at or above 100%.

At the same time, the BCAs of three banks remain weak and could face further downward pressure. The position of the BCAs at the top of the range indicates potential for a further deterioration to lead to a downward BCA adjustment. At the same time, Moodys has downgraded the BCA of Syndicate to ba3 from ba2.

DISCUSSIONS ON INDIVIDUAL BANK RATING ACTIONS

Bank of Baroda and Bank of Baroda (London)

Moodys has affirmed BOBs local and foreign currency bank deposit ratings at Baa3/Prime-3. Moodys has also affirmed Bank of Baroda (London) s senior unsecured debt and senior unsecured medium-term note (MTN) program ratings at Baa3 and (P)Baa3. At the same time, Moodys has affirmed the banks BCA and Adjusted BCA at ba2. Moodys has also affirmed the CRA of Baa3(cr)/Prime-3(cr) for both the bank and London Branch. The outlook, where applicable, has been revised to stable from positive.

The affirmation of BOBs BCA and ratings reflects our expectation that the financial profile will broadly remain stable over the next 12-18 months. Asset quality has largely stabilized and new NPL formation has moderated in the financial year ended March 2017 (FY 2017). New NPL formation has meaningfully declined in FY 2017 and we expect further improvements in the next financial year. BOBs capitalization profile is also somewhat stronger than that of its peers and we expect the bank may be able to raise external capital from the equity capital market if its financial profile stabilizes further. In addition, we expect improvement in the profitability profile as credit costs will gradually come down given the relatively stronger loan loss coverage and our expectation of a stable asset quality. We expect funding and liquid profile to remain stable and support the overall financial profile.

The outlook on the banks rati

The unified tax regime has obviated the need for inter state check posts
Jul 26,2017

The transport sector stands to benefit from the recently rolled out GST in several ways. Pre- GST, the complex tax structure and paper work forced the transport industry to spend a lot of resources on tax compliance and deposit of interstate sales tax. Monitoring and collection of sales tax at interstate check posts led to major traffic congestion at these points, resulting in slower movement of freight and passenger, and consequently higher costs and pollution. An average Indian truck covers only about 50,000-60,000 km a year as against 3 lakh km done by a truck in US.

The unified tax regime has obviated the need for inter state check posts. This will result in reducing the travel time of long-haul trucks and other cargo vehicles by at least one-fifth. This, coupled with the proposed E-way bill that will require online registration for movement of goods worth more than Rs 50,000, will ease the movement of freight further, and bring in more transparency in the whole process. Efficient freight movement will also boost the demand for high tonnage trucks, which will in turn reduce the cost of transportation of freight.

A single GST also means an optimized warehousing structure. Earlier, companies had to maintain warehouses in every state due to different taxation slabs. GST does away with the need to have a separate warehouse for every state. This means a leaner and smarter logistics chain. This will also encourage more investment in the warehousing business.

Pre- GST, the statutory tax rate for most goods worked out to about 26.5%. Post GST most goods are expected to be in the 18 % tax range . India currently has very high logistics cost - about 14% of the total value of goods as against 6-8% in other major countries. GST will serve to bring down the logistics cost to about 10-12 % by facilitating efficient inter-state flow of goods and accelerating the demand for logistics services.

According to Shri Nitin Gadkari, the Minister for Road Transport & Highways and Shipping, Indias logistics sector would gain the most from the Goods and Services tax as costs would fall by almost 20%. He has also said that logistics parks are being set up at various places across the country to act as freight aggregation and distribution hubs. These logistics parks will enable long haul freight movement between hubs on larger sized trucks, rail and waterways. This will not only reduce freight transportation costs, but also throw open many employment opportunities and reduce pollution levels.

The Ministry of Road Transport and Highways has prepared a booklet on the benefits of GST for the transport sector.

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Issues arising from the implementation of Minimum Alternate Tax (MAT) provisions relating to Indian Accounting Standards (Ind AS) compliant companies
Jul 26,2017

Finance Act, 2017 amended the provisions of section 115JB of the Income-tax Act,1961(the Act) so as to provide the framework for computation of book profit for the purposes of levying Minimum Alternate Tax (MAT) in case of Indian Accounting Standards (Ind AS) compliant companies in the year of adoption and thereafter. This framework was specified on the basis of the recommendations of the MAT-Ind AS Committee (the Committee) constituted for this purpose.

Subsequently, representations have been received from various stakeholders regarding certain issues arising from the implementation of provisions of amended section 115JB of the act. These representations were forwarded to the Committee for examination. After detailed examination of implementation issues raised by the stakeholders, the Committee vide report dated 17th June, 2017 has recommended certain amendment to the provisions of section 115JB of the Act with effect from 1st April,2017 (i.e. A.Y.2017-18) which is the date of coming into effect of the amendments made in section 115JB of the Act by the Finance Act, 2017.

The recommendations of the Committee regarding issuance of circular in the form of FAQs have been accepted by the Government and circular in the form of FAQs has been issued vide No 24/2017 dated 25.07.2017.

Further, in order to have wider consultation in response of Committees recommendations regarding amendment to the provisions of section 115JB of the Act w.e.f. 1st April, 2017, the relevant part of the Committees Report has been uploaded on the department website: www.incometaxindia.gov.in. The stakeholders are requested to send the comments/ suggestions on E-mail ID dirtpl2@nic.in latest by 11th August, 2017.

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GST Council forms a Selection Committee under the Chairmanship of Cabinet Secretary
Jul 26,2017

The GST Council has formed a Selection Committee under the Chairmanship of Cabinet Secretary to identify and recommend eligible persons for appointment as the Chairman and Members of the National Anti-profiteering Authority under GST. The National Anti-profiteering Authority is tasked with ensuring the full benefits of a reduction in tax on supply of goods or services flow to the consumers.

When constituted by the GST Council, the National Anti-profiteering Authority shall be responsible for applying anti-profiteering measures in the event of a reduction in rate of GST on supply of goods or services or, if the benefit of input tax credit is not passed on to the recipients by way of commensurate reduction in prices. The National Anti-profiteering Authority shall be headed by a senior officer of the level of a Secretary to the Government of India and shall have four technical members from the Centre and/or the States.

The already notified Rules on Anti-profiteering measures provide that applications seeking to invoke anti-profiteering measures shall be examined by a Standing Committee. However, if the application relates to a local matter which the business is located in only one state, it shall be first examined by a State level Screening Committee. The Standing Committee is empowered to refer cases requiring detailed enquiry to Director General of Safeguards, CBEC who shall give his recommendation for consideration of the National Anti-profiteering Authority.

In the event the National Anti-profiteering Authority confirms the necessity of applying anti-profiteering measures, it has the power to order the business concerned to reduce its prices or return the undue benefit availed alongwith interest to the recipient of the goods or services. If the undue benefit cannot be passed on to the recipient, it can be ordered to be deposited in the Consumer Welfare Fund. In extreme cases the National Anti-profiteering Authority can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST.

The constitution of the National Anti-profiteering Authority is expected to bolster consumer confidence and ensure all stakeholders reap the intended benefits of GST.

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