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Fitch: Proportion of Higher Ratings Well Below Pre-Crisis Level
Mar 01,2017

The proportion of A- and higher ratings in Fitchs global portfolio of sovereigns, corporates and banks remains well below the pre financial-crisis level and could fall further over the next couple of years as the balance of ratings outlooks has deteriorated, Fitch Ratings says.

Our sovereign portfolio has recorded some of the biggest moves, with the proportion of AAA sovereigns dropping to 10% at the end of 2016, its lowest-ever level. Around 36% of the portfolio is rated in the A to AAA categories, down from 48% at the end of 2006 while 27% is rated B+ or below, compared to 20% in 2006.

The fall in the number of high investment grade ratings largely reflects the lingering effects of the global financial crisis, when government debt in several advanced economies increased significantly. We believe high government debt levels will persist for some time based on growth, interest rate and primary balance projections.

Our sovereign ratings also have the greatest share of negative outlooks on a net basis, at 21%. This suggests downgrades could outnumber upgrades by a wide margin. Pressures include a stronger US dollar, which is challenging for many emerging-market borrowers. Rising trade protectionism and economic nationalism could also hurt growth and boost inflation.

The proportion of corporate ratings in the A to AAA categories has dropped to 20% from 30% over the last decade, but unlike sovereigns the proportion rated B+ and below has only ticked up by 1 percentage point. Instead ratings have become increasingly compressed in the BB and BBB categories.

The downward shift reflects a mix of longer term and cyclical trends, as well as a willingness by companies to run at higher debt levels in an era of historically low borrowing costs. Longer term, utilities and telecoms have been affected by changes in the energy mix and technology landscape. While these trends have stabilised, they show no evidence of reversing.

For other sectors such as autos and natural resources there is more potential for ratings to rise. Autos are well on the path to recovery after severe weakness around the time of the global financial crisis. Oil, iron ore and steel companies are beginning to see slow improvement as rising demand and rationalisation reduces commodity overcapacity.

Financial institutions, which have historically had a bigger share of high investment grade ratings, have seen the proportion of A to AAA category ratings slip to 39% from 53%. While ratings overall remain below pre-crisis levels, many financial institutions credit profiles have strengthened since the end of 2013 as banks increase capital and liquidity buffers to meet tougher standards. However, low interest rates and reduced sovereign support have also had a negative impact.

The trend seems set to worsen, as a net 11% of financial institution ratings outlooks were negative at end-2016, driven largely by outlooks on emerging-market banks, which themselves often reflect the outlooks of their sovereign.

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Fitch: Bad Bank May Push India Loan Clean-up; Leaves Capital Gap
Mar 01,2017

The creation of a bad bank could accelerate the resolution of stressed assets in Indias banking sector, but it may face significant logistical difficulties and would simultaneously require a credible bank recapitalisation programme to address the capital shortfalls at state-owned banks, says Fitch Ratings.

Indias banks have significant asset-quality problems that are putting pressure on profitability and capital, as well as constraining their ability to lend. Fitch expects the stressed-asset ratio to rise over the coming year from the 12.3% recorded at end-September 2016. The ratio is significantly higher among state-owned banks. Asset-quality indicators may be close to their weakest levels, but the pace of recovery is likely to be held back by slow resolution of bad loans.

A bad bank that purchases stressed assets and takes them to resolution was featured in the governments latest Economic Survey, and in a speech by a senior Reserve Bank of India official. Its most likely form would be that of a centralised asset-restructuring company (ARC). Its proponents believe it could take charge of the largest, most complex cases, make politically tough decisions to reduce debt, and allow banks to refocus on their normal lending activities. Similar mechanisms have previously been used to help clean up banking systems in the US, Sweden, and countries affected by the Asian financial crisis in the late 1990s. Senior European policymakers have recently discussed the prospect of a bad bank to deal with NPLs in the EU.

Fitch believes that a bad bank might provide a way around some of the problems that have led Indian banks to favour refinancing over resolving stressed loans. For example, large corporates often have debt spread across a number of banks, making resolution difficult to coordinate. The process would be simplified if the debt of a single entity were transferred to one bad bank. This could be particularly important in Indias current situation, with just 50 corporates accounting for around 30% of banks stressed assets.

Several small private ARCs already operate in India but they have bought up only a very small proportion of bad loans in the last two years, as banks have been reluctant to offer haircuts on bad loans even where they are clearly worth much less than their book value. This is, in part, because haircuts invite the attention of anti-corruption agencies, making bank officials reluctant to sign off on them. Reduced valuations also increase pressure on capital.

A larger-scale bad bank with government backing might have more success. However, it is unlikely to function effectively without a well-designed mechanism for pricing bad loans, particularly if the intention is for the bad bank to be run along commercial lines and involve private investors. One estimate from the Economic Survey suggests that 57% of the top 100 stressed debtors would need debt reductions of 75% to make them viable. Banks would need capital to cover haircuts taken during the sale of stressed assets, and the bad bank would most likely require capital to cover any losses incurred during the resolution process.

Fitch estimates that the banking sector will require around US$90bn in new total capital by FY19 to meet Basel III standards and ongoing business needs. This estimate is unlikely to be significantly reduced by the adoption of a bad-bank approach, and could even rise if banks are forced to crystallise more losses from stressed assets than we currently expect. We believe that the government will eventually be required to provide more than the USD10.4bn that it has earmarked for capital injections by FYE19 - be it directly to state-owned banks or indirectly through a bad bank.

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Central Board of Direct Taxes (CBDT) signs ten (10) more Advance Pricing Agreements (APAs) pertaining to various sectors of the economy
Feb 28,2017

The Central Board of Direct Taxes (CBDT) has entered into 10 more Advance Pricing Agreements (APAs) over the last one week, including 7 Unilateral APAs signed today. Two of these ten agreements are Bilateral APAs with the United Kingdom and Japan. Seven of these Agreements have Rollback provisions in them.

With this, the total number of APAs entered into by the CBDT has reached 140. This includes 10 Bilateral APAs and 130 Unilateral APAs. In the current financial year, a total of 76 APAs (7 Bilateral APAs and 61 Unilateral APAs) have already been entered into. The CBDT expects more APAs to be concluded and signed before the end of the current fiscal.

The APAs entered into over the last week pertain to various sectors of the economy like Telecom, Pharmaceutical, Banking & Finance, Steel, Retail, Information Technology, etc. The international transactions covered in these agreements include Payment of Royalty Fee, Trading in Goods, IT Enabled Services, Software Development Services, Marketing Support Services, Clinical Research Services, Non-binding Investment Advisory Services, Payment of Interest on ECB, etc.

The APA Scheme was introduced in the Income-tax Act in 2012 and the n++Rollbackn++ provisions were introduced in 2014. The scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and setting the prices of international transactions in advance. Since its inception, the APA scheme has evinced a lot of interest from taxpayers and that has resulted in more than 700 applications (both unilateral and bilateral) being filed so far in about five years.

The progress of the APA Scheme strengthens the Governments resolve of fostering a non-adversarial tax regime. The Indian APA programme has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.

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GDP grows 7.0% in October-December 2016 quarter
Feb 28,2017

As per the Second Advance estimates of national income from Central Statistics Office (CSO) under Ministry of Statistics and Programme Implementation, the GDP growth is estimated to be 7.0% for Q3FY2017. The growth in GDP during 2016-17 is estimated at 7.1% as compared to the growth rate of 7.9% in 2015-16.

Growth rates in various sectors for Q3FY2017 are as agriculture, forestry and fishing(6.0%), mining and quarrying (7.5%), manufacturing (8.3%), electricity, gas and water supply and other utility services (6.8%) construction (2.7%), Trade, hotels, transport, communication and services related to broadcasting (7.2%), financial, real estate and professional services (3.1%), and Public administration, defence and Other Services (11.9%).

Anticipated growth of real GVA at basic prices in 2016-17 is 6.7% against 7.8% in 2015-16. The sectors which are likely to register growth rate of over 7.0% are public administration, defence and other services, manufacturing and trade, hotels, transport, communication and services related to broadcasting. The growth in the agriculture, forestry and fishing, mining and quarrying, electricity, gas, water supply and other utility services, construction and financial, real estate and professional services is estimated to be 4.4%, 1.3%, 6.6%, 3.1% and 6.5% respectively.

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India Ratings Maintains Stable Outlook on Cement Sector for FY18 on Stable Demand Growth
Feb 28,2017

India Ratings and Research (Ind-Ra) has maintained a Stable Outlook on Indian cement manufacturers for FY18. Ind-Ra expects the operating profitability of cement manufacturers in FY18 to be around the FY16 and estimated FY17 levels, due to stable demand growth, despite an increase in input cost. Demand will be backed by an increase in government expenditure. Ind-Ra also expects the credit profile of cement manufacturers to remain stable on stable operating profitability and in the absence of debt-led capex.

Ind-Ra has revised down its FY17 growth estimates to 3%-3.5% from 4%-6% earlier. This revision is largely attributed to a blip in demand due to demonetisation. Ind-Ra however expects the cement industry to grow 4%-5% yoy in FY18, driven largely by the demand stemming from infrastructure activities and a revival in housing demand in rural areas, both led by government spending.

The price of pet coke and coal has almost doubled since September 2016. The current increase in crude oil prices is also likely to lead to an increase in diesel prices. Ind-Ra expects stable cement demand to enable cement manufacturers to pass on increases in cost during FY18.

Ind-Ra believes that a 38% and 23% increase in the allocation of funds towards the housing sector under Pradhan Mantri Awas Yojna and spending of the ministry of road transport and highways to INR290 billion and INR649, respectively, would increase cement demand in FY18.

Ind-Ra expects cement producers to add additional 50mtpa capacity over FY16-FY18 at a CAGR of 6% compared to the CAGR of 4.9% during FY13-FY16 (additional 40mtpa). The countrys eastern region will continue to lead supply growth and is likely to add 17mtpa through FY16-FY18, followed by north (14mtpa). The CAGR capacity additions in the eastern (10%) and northern regions (7%) may outpace cement demand in these regions.

Pan-India capacity utilisation remained stable in FY16 at around 70%. However, Ind-Ra has revised pan-India capacity utilisation for FY17 to 65% from 69%-70%, due to the weak demand outlook in 2HFY17 on account of demonetisation. Ind-Ra does not expect capacity utilisation to improve significantly in FY18. It is likely to remain around 70% during FY18.

The credit profile of cement manufacturers for FY17 is likely to remain stable. The negative impact of a possible decline in operating profitability during 2HFY17 due to an increase in fuel cost and lower volumes will be compensated by the higher operating profitability reported by the companies during 1HFY17 due to lower fuel prices and higher demand. Median EBITDA margins for a sample of 17 cement companies improved to 15.37% in 1HFY17 (FY16: 14.38%, FY15: 15.07%).

Ind-Ra expects the credit profile of cement manufacturers to remain stable during FY18 in the absence of major debt-led capex plans and on an improvement in cement demand despite a possible increase in input costs.

OUTLOOK SENSITIVITIES

Housing Demand

Ind-Ra does not expect any significant turnaround in housing demand in the near term; however, a higher-than-expected housing demand or significant progress by the government on schemes such as Housing for All or Smart Cities could result in a better cement demand and thus in a positive sector outlook.

Construction/Infrastructure Sector

A lower-than-expected pick-up in construction/infrastructure projects could affect the credit profile of cement players and result in the sector outlook being revised to negative.

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Eight core infrastructure sector output rises 3.4% in January 2017
Feb 28,2017

The eight core infrastructure sector output, comprising nearly 38% of the weight of items included in the Index of Industrial Production (IIP), rose 3.4% in January 2017 over January 2016. Its cumulative growth was 4.8% in April-January 2016-17.

Coal production (weight: 4.38%) increased by 4.8% in January 2017 over January 2016. Its cumulative index during April to January 2016-17 increased by 2.3% over corresponding period of previous year.

Crude Oil production (weight: 5.22%) increased by 1.3% in January 2017 over January 2016. Its cumulative index during April to January 2016-17 declined by 2.8% over the corresponding period of previous year.

The Natural Gas production (weight: 1.71%) increased by 11.9% in January 2017 over January 2016. Its cumulative index during April to January 2016-17 declined by 1.9% over the corresponding period of previous year.

Petroleum Refinery production (weight: 5.94%) declined by 1.5% in January 2017 over January 2016. Its cumulative index during April to January 2016-17 increased by 6.8% over the corresponding period of previous year.

Fertilizer production (weight: 1.25%) declined by 1.6% in January 2017 over January 2016. Its cumulative index during April to January 2016-17 increased by 2.9% over the corresponding period of previous year.

Steel production (weight: 6.68%) increased by 11.4% in January 2017 over January 2016. Its cumulative index during April to January 2016-17 increased by 9.2% over the corresponding period of previous year.

Cement production (weight: 2.41%) declined by 13.3% in January 2017 over January 2016. Its cumulative index during April to January 2016-17 increased by 1.0% over the corresponding period of previous year.

Electricity generation (weight: 10.32%) increased by 4.8% in January 2017 over January 2016. Its cumulative index during April to January 2016-17 increased by 5.4% over the corresponding period of previous year.

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Ind-Ra: Robust Profitability to Support Credit Metrics of Pharma Companies in FY18
Feb 28,2017

India Ratings and Research (Ind-Ra) has maintained a stable outlook on the pharmaceuticals sector for FY18, as the agency believes the sectors profitability will remain stable and support credit metrics. Regulatory actions resulted in a dip in the sectors profitability during FY15, which recovered in FY16 and 1HFY17.

Ind-Ra continues to maintain the overall sector growth at 8%-10% yoy for FY18, on the back of brisk domestic market growth. Though the intensity of new actions by the US Food and Drug Administration (USFDA) against Indian manufacturing facilities was lower in 2016, export revenue growth remained weak as the number of manufacturing facilities facing regulatory actions has not declined. Eight warning letters and three import alerts (2015: 17 and 12, respectively) were issued by USFDA in 2016 and the number of facilities under import alert has now increased to 45.

The National Pharmaceutical Pricing Authority is likely to further expand the price control regime, which can impact the profitability of domestic market focussed companies. The profitability of companies exporting to regulated markets improved during FY16 and 1HFY17, due to a higher proportion of revenue from new products. Indian companies received close to 200 abbreviated new drug application (ANDA) approvals each in 2015 and 2016 (2014: 122) from the USFDA. The agency believes that the new US administrations avowed plan to reduce the cost of medicines will increase the focus on generics, reduce inefficiencies in the market, and favour efficient manufacturers of generic drugs. Also, the proposed reforms in the approval process are likely to cut the time-to-market for products and benefit companies with a large pipeline of ANDAs pending approval. While competition for Indian companies can intensify, we believe the shifting product development focus towards difficult-to-develop dosage and delivery forms will enable the sector to sustain profitability and meet the possible fallout of policy uncertainty.

The agency expects pharmaceutical companies to engage in targeted acquisitions to overcome regulatory and competition headwinds. Especially the large companies are likely to use debt to fund acquisitions. While we expect a majority of pharma companies to generate positive cash from operations, free cash flow could remain stretched in FY18. The sectors credit metrics remain comfortable and most of the pharmaceutical companies are rated at IND A or above. Ind-Ra expects this to continue over FY18.

OUTLOOK SENSITIVITIES

Rebound in Export Growth: A sustained improvement in export growth of the sector and/or an increase in the proportion of revenue from differentiated generic products resulting in a sustained improvement in operating profitability can be positive for the sector.

Regulatory Concerns: An increase in regulatory actions by the National Pharmaceutical Pricing Authority and/or USFDA against manufacturing facilities adversely impacting revenue generation and/or pricing ability of sector companies and leading to a further slowdown in revenue and margin erosion will be negative for the sector.

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Asia Infrastructure Needs Exceed $1.7 Trillion Per Year, Double Previous Estimates
Feb 28,2017

Infrastructure needs in developing Asia and the Pacific will exceed $22.6 trillion through 2030, or $1.5 trillion per year, if the region is to maintain growth momentum, according to a new flagship report by the Asian Development Bank (ADB). The estimates rise to over $26 trillion, or $1.7 trillion per year, when climate change mitigation and adaptation costs are incorporated.

The report, Meeting Asias Infrastructure Needs, focuses on the regions power, transport, telecommunications, and water and sanitation infrastructure. It comprehensively examines current infrastructure stocks and investments, future investment needs, and financing mechanisms for developing Asia.

n++The demand for infrastructure across Asia and the Pacific far outstrips current supply,n++ said ADB President Takehiko Nakao. n++Asia needs new and upgraded infrastructure that will set the standard for quality, encourage economic growth, and respond to the pressing global challenge that is climate change.n++

Infrastructure development in the 45 countries covered in the report has grown dramatically in recent decades n++ spurring growth, reducing poverty, and improving peoples lives. But a substantial infrastructure gap remains, with over 400 million people still lacking electricity, 300 million without access to safe drinking water, and about 1.5 billion lacking access to basic sanitation. Many economies in the region lack adequate ports, railways, and roads that could connect them efficiently to larger domestic and global markets.

n++ADB pledges to work with member countries and use our 50 years of experience and expertise to meet infrastructure needs in the region. As the private sector is crucial to fill infrastructure gaps, ADB will promote investment friendly policies and regulatory and institutional reforms to develop bankable project pipelines for public-private partnerships,n++ said Mr. Nakao.

Report Highlights:

n++ Developing Asia will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion per year, if the region is to maintain its growth momentum, eradicate poverty, and respond to climate change (climate-adjusted estimate). Without climate change mitigation and adaptation costs, $22.6 trillion will be needed, or $1.5 trillion per year (baseline estimate).

n++ Of the total climate-adjusted investment needs over 2016-2030, $14.7 trillion will be for power and $8.4 trillion for transport. Investments in telecommunications will reach $2.3 trillion, with water and sanitation costs at $800 billion over the period.

n++ East Asia will account for 61% of climate-adjusted investment needs through 2030. As a percentage of GDP, however, the Pacific leads all other sub-regions, requiring investments valued at 9.1% of GDP. This is followed by South Asia at 8.8%, Central Asia at 7.8%, Southeast Asia at 5.7%, and East Asia at 5.2% of GDP.

n++ The $1.7 trillion annual climate-adjusted estimate is more than double the $750 billion ADB estimated in 2009. The inclusion of climate-related investments is a major contributing factor. An even more important factor is the continued rapid growth forecasted for the region, which generates new infrastructure demand. The inclusion of all 45 ADB member countries in developing Asia, compared to 32 in the 2009 report, and the use of 2015 prices versus 2008 prices also explain the increase.

n++ Currently, the region annually invests an estimated $881 billion in infrastructure (for 25 economies with adequate data, comprising 96% of the regions population). The infrastructure investment gap n++ the difference between investment needs and current investment levels n++ equals 2.4% of projected GDP (climate-adjusted) for the 5-year period from 2016 to 2020.

n++ The Peoples Republic of China (PRC) has a gap of 1.2% of GDP in the climate-adjusted scenario. Without the PRC, the gap rises to a much higher 5% of the remaining 24 economies projected GDP. Public finance reforms could generate additional revenues estimated to bridge around 40% of the gap (or 2% of GDP) for these 24 economies. For the private sector to fill the remaining gap (3% of GDP), it would have to increase investments from about $63 billion today to as high as $250 billion a year over 2016-2020.

n++ Regulatory and institutional reforms are needed to make infrastructure more attractive to private investors and generate a pipeline of bankable projects for public-private partnerships (PPPs). Countries should implement PPP-related reforms such as enacting PPP laws, streamlining PPP procurement and bidding processes, introducing dispute resolution mechanisms, and establishing independent PPP government units. Deepening of capital markets is also needed to help channel the regions substantial savings into productive infrastructure investment.

n++ Multilateral development banks (MDB) have financed an estimated 2.5% of infrastructure investments in developing Asia. Excluding the PRC and India, MDB contributions rise above 10%. A growing proportion of ADB finance is now going to private sector infrastructure projects. Beyond finance, ADB is playing an important role in Asia by sharing expertise and knowledge to identify, design, and implement good projects. ADB is scaling up operations, integrating more advanced and cleaner technology into projects and streamlining procedures. ADB will also promote investment friendly policies and regulatory and institutional reforms.

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Ind-Ra: State Finances to Remain Resilient in FY18
Feb 28,2017

India Ratings and Research (Ind-Ra) expects the aggregate fiscal deficit of Indian states to increase marginally to 3.3% of gross domestic product (GDP) in FY18 from its forecast of 3.2% for FY17. The agency has maintained its forecast for FY17. The aggregate states debt/GDP ratio may increase marginally to 24.3% in FY18 from Ind-Ras forecast of 24% for FY17.

The central government is evaluating the report of the N. K. Singh panel on Fiscal Responsibility and Budget Management, which allows the fiscal deficit of the central government to be increased by 0.5% of GDP. Ind-Ra believes once the report is accepted, states would also make suitable changes in the fiscal deficit targets specified under their Fiscal Responsibility and Budget Management acts.

Ind-Ra estimates the net market borrowings of states will increase to INR3.7 trillion in FY18 from its forecast of INR3.5 trillion for FY17. However, as a percentage of GDP, states net market borrowings is likely to moderate to 2.2% in FY18 from its forecast of 2.3% for FY17.

Ind-Ra expects goods and services tax to be implemented from July 2017.Ind-Ra believes the proposed compensation of INR500 billion by the central government to state governments to cover revenue losses post tax implementation will be sufficient.

Ind-Ra expects demand for petroleum products in FY18 to increase 9.5% yoy and the prices of Indian crude basket to increase to INR4,015/bbl from INR3,122/bbl in FY17 (April-January). Ind-Ra expects states with a higher proportion of revenue from petroleum products in own tax revenue to benefit from the increase in crude oil prices.

On the expenditure side, Ind-Ra expects the aggregate capital expenditure/GDP ratio of states to remain stable at 3.4% in FY18, same as in FY16 and FY17 (FY15: 2.5%). Despite a salary revision, Ind-Ra expects select committed expenditure (in the form of salary, pension and interest payments)/current expenditure ratio to remain stable in FY18.

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India and ADB sign $375 million in loans and grants for first phase of 2,500-kilometer long East Coast Economic Corridor
Feb 28,2017

The Asian Development Bank (ADB) and the Government of India signed here $375 million in loans and grants to develop 800-kilometer Visakhapatnam-Chennai Industrial Corridor, which is the First Phase of a planned 2,500-kilometer long East Coast Economic Corridor (ECEC). The Corridor is expected to spur development on Indias eastern coast in line with the Government of Indias Make in India policy to stimulate manufacturing, and Act East policy to integrate the Indian economy with Asias dynamic global production networks.

The signing event was held on 23 February 2017 followed the ADB approval of $631 million in loans and grants in September 2016 to develop the Visakhapatnam-Chennai Industrial Corridor. ADBs approved loans comprise a $500 million multi-tranche facility to build key infrastructure in the four main centers along the corridor - Visakhapatnam, Kakinada, Amaravati, and Yerpedu-Srikalahasti in the State of Andhra Pradesh. The First Tranche of $245 million was signed today that will finance sub-projects to develop high-quality internal infrastructure in 2 of the 4 nodes of the corridor-Visakhapatnam and Yerpedu-Srikalahasti.

Another component of the approved ADB funds signed on 23.02.2017 was a $125 million policy-based loan that will be used for capacity development of institutions engaged in corridor management, provide support to enhance ease of doing business and for supporting industrial and sector policies to stimulate industrial development.

n++ADB is supporting an industrial corridor development approach that involves creation of efficient transport, and reliable water and power supplies in the industrial clusters along with a skilled workforce, to be backed by industry-friendly policies that improve ease of doing business for integration of local economy with global production networks,n++ said L. B. Sondjaja, Deputy Country Director of ADBs India Resident Mission who signed the loan agreement on behalf of ADB. n++We estimate that by 2025, annual industrial output along the corridor will increase fourfold to $64 billion from about $16 billion in 2015 if investment opportunities are maximized over the next few years.n++

The project is an important milestone in the process of developing the corridor and realizing the objectives of Make in India. We sincerely hope that the project will complement the ongoing efforts of the Government of Andhra Pradesh to enhance industrial growth and create high-quality jobs,n++ said Raj Kumar, Joint Secretary (Multilateral Institutions), in the Ministry of Finance, who signed the loan agreement for Government of India. The project agreement was signed by Hema Munivenkatappa, Special Secretary to Government (Finance) on behalf of the Government of Andhra Pradesh.

Along with the ADB loans, agreement was also signed for a $5 million grant from the multi-donor Urban Climate Change Resilience Trust Fund that is managed by ADB to build climate change resilient infrastructure. The Government of India will provide extra funding of $215 million to the $846 million project.

Among the outputs envisaged under the $245 million tranche 1 loan include strengthening and widening of a 29.6-kilometer section of state highway to four lanes to improve connectivity from Kakinada Port to National Highway 16, investments in smart water management in Visakhapatnam to reduce nonrevenue water and provide continuous water supply, upgrading 7 power substations to supply high-quality and reliable power supply to Visakhapatnam, Naidupeta, and Yerpedu-Srikalahasti industrial clusters, and effluent treatment facility in Atchutapuram and Naidupeta clusters.

The tranche 1 loan will have a 25-year term, including a grace period of 5 years, a 20-year straight line repayment method at an annual interest rate determined in accordance with ADBs LIBOR-based lending facility.

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India signs Financing Agreement with World Bank for US$ 63 mln for Tejaswini: Socio-Economic Empowerment of Adolescent Girls C& Young Women Project
Feb 28,2017

A Financing Agreement for IDA credit of US$ 63 million (equivalent) for the n++Tejaswinin++ Socio-Economic Empowerment of Adolescent Girls and Young Women Projectn++ was signed here with the World Bank on 23rd February, 2017. The Financing Agreement was signed by Mr. Raj Kumar, Joint Secretary, Department of Economic Affairs, Ministry of Finance on behalf of the Government of India and Mr. Junaid Kamal Ahmad, Country Director, World Bank (India) on behalf of the World Bank. A Project Agreement was also signed by Mr. Mukhmeet Singh Bhatia, Principal Secretary, Department of Women, Child Development, Government of Jharkhand and Mr. Junaid Kamal Ahmad, Country Director, World Bank.

The project seeks to empower the adolescent girls with basic life skills and thereafter provide further opportunities to acquire market driven skill training or completion of secondary education, depending on the inclination of the beneficiary. The project will be delivered in 17 Districts of Jharkhand. The project has three main components, (i) Expanding social, educational and economic opportunities (ii) Intensive service delivery (iii) State capacity-building and implementation support. About 680,000 adolescent girls and young women in the project Districts are expected to benefit from the program.

The closing date for the project is 30th June, 2021.

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Ministry of UD to push dense urban growth along mass transit corridors for better living experience
Feb 28,2017

To effectively address the emerging urbanization challenges, the Ministry of Urban Development has come out with a multi-pronged policy framework to promote living close to mass urban transit corridors. This new initiatives seeks to promote Transit Oriented Development (TOD) which enables people to live within walking or cycling distance from transit corridors like the Metros, Monorail and Bus Rapid Transit (BRT) corridors, currently being taken up on a large scale.

The Ministry has formulated a National Transit Oriented Development Policy which will be discussed with the States and Union Territories at a National Workshop on Urban Development to be held next week. This policy seeks to enhance the depth of understanding of States and UTs on TOD as a viable solution to many of the challenges like haphazard urban growth and sprawl, mobility, rapidly rising private vehicles on roads, pollution, housing choices etc.. This new urban design and planning in the form of TOD, is being incentivesed by the Ministry under two more initiatives viz., Metro Policy and Green Urban Mobility Scheme which also will be discussed with States and UTS for taking them on board.

Under TOD, city densification will be promoted along mass transit corridors through vertical construction by substantially enhancing FARs (Floor Area Ratio) backed by promotion of Non-motorised Transport Infrastructure for walking and cycling to transport stations, development of street networks in the influence zone of transit corridors, multi-modal integration, effective first and last mile connectivity through feeder services to enable people access public transit in 5 to 10 minutes from home and work places.

Dense living along transit corridors besides resulting in enhanced living and travel experience, will also improve ridership of mass transit systems. If properly executed, TOD could emerge as a means of financing mass transit project, for which the demand is growing.

TOD promotes integration of land use planning with transportation and infrastructure development to avoid long distance travel in cities through compact development as against the present pattern of unplanned and haphazard urban growth.

Under the new Metro Policy, TOD has been mandatory while under Green Urban Mobility Scheme, TOD has been made an essential reform and is given priority for receiving central assistance.

The Ministrys initiative comes in the context of over 300 km of Metro lines being operational in seven cities, another 600 kms of metro line projects under construction in 12 cities and over 500 km projects under consideration. The Ministry has supported BRTS projects in 12 cities which are under different stages of progress and eight more cities are set to take up BRT projects. Mass Rail Transit System of 380 km length is being taken up in Delhi.

Transit Oriented Development will be financed by channelizing a part of increases in property values resulting from investments in transit corridors through Betterment Levies and Value Capture Financing tools. Increased private sector participation will result in economic development and employment generation.

TOD Policy also aims at inclusive development by ensuring mixed neighbourhood development in the form of a range of housing choices including affordable housing and ensuring spaces for street vendors.

States and UTs will be required to incorporate TOD in the Master Plans and Development Plans of cities besides identifying Influence Zones from transit corridors for tapping revenue streams.

TOD is being taken up Ahmedabad, Delhi(kakardooma), Naya Raipur, Nagpur and Navi Mumbai and the Ministry would like this to be expanded to other cities as well.

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Strong growth has raised Indias incomes and reduced poverty, but challenges remain: OECD
Feb 28,2017

The Indian economy is expanding at a fast pace, boosting living standards and reducing poverty nationwide. Further reforms are now necessary to maintain strong growth and ensure that all Indians benefit from it, according to a new report from the OECD.

The latest OECD Economic Survey of India finds that the acceleration of structural reforms and the move toward a rule-based macroeconomic policy framework are sustaining the countrys longstanding rapid economic expansion.

The Survey, presented in New Delhi by OECD Secretary-General Angel Gurrn++a and Indias Secretary Economic Affairs Shaktikanta Das, hails Indias recent growth rates of more than 7% annually as the strongest among G20 countries. It identifies priority areas for future action, including continuing plans to maintain macroeconomic stability and further reduce poverty, additional comprehensive tax reforms and new efforts to boost productivity and reduce disparities between Indias various regions.

India provides a welcome counter-point to a global economy that has been under-performing for years, Angel Gurrn++a said. Reforms are historic and are bearing fruit, growth is strong and other macroeconomic indicators are improving. Maintaining the reform momentum will be critical to boosting investment and creating the quality jobs needed to ensure strong and inclusive growth for future generations, with all segments of society benefitting from it.

The implementation of the landmark GST reform will contribute to making India a more integrated market. By reducing tax cascading, it will boost competitiveness, investment and job creation. The GST reform - designed to be initially revenue-neutral - should be complemented by a reform of income and property taxes, the Survey said.

The Survey points out the need to make income and property taxes more growth-friendly and redistributive. A comprehensive tax reform could help raise revenue to finance much-needed social and physical infrastructure, promote corporate investment, enable more effective redistribution and strengthen the ability of states and municipalities to better respond to local needs, according to the Survey.

The OECD points out that achieving strong and balanced regional development will also be key to promoting inclusive growth. Inequality in income and in access to core public services between states and between rural and urban areas is currently large across India, while rural poverty is pervasive. Continuing efforts to improve universal access to core public services is essential.

Recent changes in Indias federalism model have given states more freedom and incentives to modernise regulations and tailor public policies to local circumstances. Ranking states on the ease of doing business is opening a new era of structural reforms at the state level and will help unleash Indias growth potential. Further benchmarking among states and strengthening the sharing of best practices, particularly on labour regulations and land laws, could add to the reform momentum.

Raising living standards in poorer states will require increasing productivity in the agricultural sector. With employment expected to gradually shift away from the agricultural sector, urbanisation will gather pace. Thus, better urban infrastructure will be needed to fully exploit cities potential for job creation, productivity gains and improving the quality of life.

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ASSOCHAM concerned over lukewarm response to year-old proposal for keeping shops open all 7 days
Feb 28,2017

Expressing concern over a lukewarm response on allowing small and medium scale shop-keepers to remain open for all seven days, the ASSOCHAM has impressed upon the Centre to ask the states to realise benefits of model Shops and Establishments Bill and adopt the same , for promoting retail trade which is the largest sector employer in the country.

Only Rajasthan has so far initiated an exercise for bringing in legislative provisions in sync with the model Bill proposed by the Centre over a year ago, in the Finance Minister`s Budget speech of 2016-17. The state has begun work on bringing amendments in the Rajasthan Shops and Commercial Establishments Act, 1958 to permit the small traders to keep their shops and retail outlets open throughout the week.

n++As per the Outcome Budget of 2016-17, while the Labour and Employment Minister and other senior officers in the Union ministry have written to the states for adoption of the model bill, the states too need to realise importance of the measure which can immediately bring good results and add to employment and consumer demandn++, ASSOCHAM Secretary General Mr D S Rawat said.

He said, it was rightly stressed by the Centre that if the large shopping malls can remain open all seven days of the week, why not the small and medium shops?.

Needless to say the interests of the workers employed in the shops and small outlets should be protected and they should not be made to work in double shifts without additional benefits. Besides, safety and security of the staff working late hours, particularly for women should be ensured.

n++The states need to work closely with Centre and create an eco system for making our urban landscape more safe and vibrant. The security of citizens should remain the key area of priority. Thus, the blueprint must be made in a perfect coordination of all the civic agencies like those in-charge of street lights, city transport including metro rail and the citizens societiesn++ the chamber said.

But, surely the measure would boost the traditional bazaars helping them modernize in their systems of stocking and sale. Moreover, getting them into the formal sector, would be a great booster to the economy. Besides, the sector provides a low hanging fruit for employment creation.

n++Cities with large population and those attracting domestic and foreign tourists could benefit a lot if the markets become more productive the chamber added.

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Doubling of SIDBI Fund of Funds Operations Focusing MSME and Startups
Feb 28,2017

In its 7th meeting on the February 11, 2017 VCIC examined requests from 11 fund managers and cleared for sanction requests from 9 Funds aggregating Rs. 300 crores. It is evident that there is a significant upsurge in the fund of funds operations if seen from the number of funds supported by SIDBI during the current FY. During FY 15 and 16 sanctions were made to 11 funds (Rs. 314 crores) and 16 funds (Rs. 607 crores) respectively while the number during the current FY has already crossed Rs. 1112 crores to 30 funds.

It may be recalled that the government had announced establishment of Rs. 10,000 crore fund of funds to support AIFs who invest in Startups. This money will be released spread over two finance commission cycles (14th and 15th viz. till 2025) based on progress under the Scheme. An amount of Rs. 500 crore has been released so far to SIDBI which is managing the programme. It may added that SIDBI is also operating various other fund of fund programmes invsting in MSMEs and Startups viz. India Aspiration Fund [IAF] launched formally by Honble Finance Minister in August 2015, ASPIRE Fund focused on agri and rural enterprises launched by Honble Minister for MSME last year and Rs. 200 crore on behalf of LIC. SIDBI as manager of these Funds has constituted with the consent of the Government, a Venture Capital Investment Committee [VCIC] which includes external experts viz. Mohandas Pai, Sanjeev Bikchandani, Saurabh Srivastava, H.K.Mittal, Prof. Vaidyanathan, Kiran Karnik.

Out of the those cleared earlier by VCIC, SIDBI has so far accorded formal sanction, for an aggregate contribution of Rs. 1619.25 crores after undertaking detailed appraisal and due diligence (including Rs. 1580 crore under IAF/FFS and Rs. 39.50 crores under ASPIRE). Operations under IAF and FFS are complimentary as both target startups and the exact coverage depends on the status of compliance to the guidelines under these funds at the time of signing of the contribution agreements. FFS initially focussed on motivating AIFs to float schemes which will invest in startups alone. With difficulties expressed by the industry in this regard, the government is re-examining the issue. With the modification proposed, coverage under FFS is expected to stand at around Rs. 600 crore in respect of 15 AIFs by March 31, 2016.

These programmes are serving the objectives with which these funds were formed. For example under IAF based on the drawals of Rs. 177 crores made, the investments by the supported funds are reported to be in 124 MSMEs/Startups for an aggregate support of Rs. 452 crores. Thanks to the rise in AIFs supported under the above programmes, there is significant investment happening in startups as well, with current year expected to close with around 150 startups receiving Rs. 588 crore. This is expected to grow fast in the next year as investments by AIFs supported pickup. The investment in startups by the 15 funds as aforesaid is likely to investment approximately Rs. 187 crores in startups by March end.

The story of IAF and FFS is in line with the industry trend. AIFs have a long investment / divestment cycle of 7-10 years with investments beginning a good 6-9 months (or longer) after an AIF gets its approval from SIDBI and scales gradually thereafter. It is expected that the investment in startups by the Funds supported under FFS may cross Rs. 1200 crores over next twelve months as they raise the balance contribution from other investors and pick up the pace of investing.

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