Govt clears direct subsidy payout plan

The government has approved a three-step strategy to create a foolproof system for transferring fertiliser subsidy directly to farmers.

The decision was taken yesterday by a Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee.

“The plan will be carried out in three phases,” a senior Department of Fertiliser (DoF) official told Business Standard.

In the first step, the government plans to track the movement of fertilisers from factories to farmers via retailers. This is expected to be over by December. After this, based on the collected data, it would start paying retailers.

According to DoF, there are around 230,000 retailers who will be paid based on the quantity of fertiliser they receive from companies or through the wholesale route. In the third stage, the government would gradually start paying farmers directly.

“The government should first conduct a dry run to create a database of farmers by recording details (of beneficiaries) at dealerships,” said Satish Chander, director general, Fertiliser Association of India.

However, industry officials, who refused to be named, said the strategy would increase transaction costs. Moreover, as dealers would have to bear the entire cost, the payout should be expeditious, they said.

Fertiliser companies said the strategy might cause delays and the deadline of March 2012 for directly transferring kerosene, LPG and fertiliser subsidies to consumers could be missed.

In order to account for all subsidy liabilities and lower the outgo, the government has set up a task force under Nandan Nilekani, the chairman of the Unique Identification Authority of India. It is expected to come out with its interim report soon. It has been given a deadline of March 2012.

The revised estimates put the subsidy bill — food, kerosene and fertilisers — at Rs 1,64,153 crore for 2010-11. The subsidy bill for food, petroleum and fertilisers is estimated at Rs 1,34,210 crore for 2011-12.

“Direct subsidy transfer is positive for the industry, as it removes the working capital issues which arise from delayed payments and underrecoveries,” said Tarun Surana, research analyst, Sunidhi Securities & Finance Ltd.

Source: http://www.business-standard.com/india/news/govt-clears-direct-subsidy-payout-plan/430684/

'Fiscal adjustment has to be the priority'

Arvind Virmani, the country’s Executive Director at the International Monetary Fund, says use of fiscal policy to help contain inflation was an important issue in the Budget and the finance ministry appreciated that. Edited excerpts from an interview with Vrishti Beniwal:

Did the Budget address the key concerns?

In a global context, there are two things standing out about India, inflation and fiscal deficit. Inflation is important from the domestic and global angle. To a certain extent, things were being tried but not working. So, you needed bigger tools. The important thing in the Budget was an implicit recognition that tighter fiscal control at this point would be good for overall macroeconomic control of inflation. That would allow you greater flexibility on monetary policy, especially given the large capital inflows into emerging markets across the world. It would be appreciated in global circles that room has been made for that in fiscal deficit reduction

The fiscal deficit target has been lowered from 4.8 per cent to 4.6 per cent next year. Some economists are sceptical. Is it achievable?

There is a good chance it will be achieved. My basis for saying so is that they are quite clear fiscal consolidation is important for macroeconomic balance, particularly inflation. Given that, I’d be willing to bet they’ll achieve the target, unless there is a shock of a completely different kind.

At the IMF, how did they look at India’s macroeconomic situation and handling of the issues?

The international perspective has been that the fiscal issue is important for India’s economy. Before the previous Article IV, there was a lot of interest on what would happen to the fiscal deficit. In fact, we have argued very strongly against their judgment that temporary expenditures and temporary revenues were matching and there would be an adjustment in the Budget. So, in that sense, it makes my job also much easier and we can say that four months ago, what we said was right. What you are seeing is three per cent increase, but if you take away the temporary measures, it would be a reasonable increase. Part of the expenditure was from higher revenues from non-tax sources such as telecom spectrum revenue. If you remove those expenditures, the growth between two Budget Estimates is in the normal range.

What should be the monetary policy stance in the current situation?

The quicker and stronger the fiscal adjustment is once the growth is back to the higher level, the easier it is for monetary policy to address issues like capital flows and agricultural shortfalls. It would make it even easier to control inflation if fiscal consolidation proceeds rapidly over the next few years.

The Economic Survey has favoured banking licences for industrial houses. What are your views?

This has been discussed for a long time. It’s a very difficult issue and that’s why no decision has been taken. The important lesson from the global situation is that you have to be very careful with the regulatory systems. One assumes the RBI now feels confident enough of the regulatory aspects to let this happen. As long as it is regulated properly, the more the competition, the better it is. However, we also know that in a sensitive sector like banking and finance, without regulation you can get all kinds of malpractices when banks compete too strongly, on the assumption that they will eventually be bailed out by the government. So, risk-taking can be very high.

When are quota reforms at IMF coming into force?

It’s a matter of time. The vote has been completed on the second one. The Fund administration was hopeful that it would be completed by end of March. We are already at the beginning of March. I hope they are able to get to it. The next one has to be completed by, hopefully, the end of the year.

Source:http://www.business-standard.com/india/news//fiscal-adjustment-has-to-bepriority//427706/

AI wants Rs 17,500 cr more to clean books

To come out of the financial mess, Air India, in its turnaround plan, will be asking for one-time infusion of Rs 17,500 crore from the government. The turnaround plan has been vetted by financial advisory firm Delloite and will be taken up in a board meeting of the airline slated for next month. The matter will then be referred to the government.

“Air India is asking for Rs 17,500 crore to clean its books and start its finances afresh. This demand is huge considering the airline has not been able to perform in the past,” said a senior ministry official, who did not want to be identified.

This government support, which could be in the form of equity infusion and loan waiver, is set to clean Air India’s books, which has a debt of over Rs 40,000 crore on an equity base of Rs 2,145 crore — it received an equity infusion of Rs 800 crore in 2009-10 and Rs 1,200 crore in 2010-11. Out of the Rs 40,000 crore, working capital debt is at Rs 21,000 crore and the rest are loans taken to fund aircraft acquisition.

The national carrier had ordered 111 aircraft worth Rs 46,000 crore and taken deliveries of 80 aircraft till now.

Air India also has an annual interest payment of around Rs 1,800 crore and has accumulated losses of over Rs 15,000 crore. The carrier lost Rs 2,226 crore in 2007-08, Rs 7,189 crore in 2008-09, and Rs 5,551 crore in 2009-10.

The airline is also losing money on a daily basis. Out of the Rs 22 crore the national carrier earns every day, Rs 13.5 crore go to the oil companies and Rs 8 crore to the airport operator and ground handlers and spare-parts companies, leaving the airline with only Rs 50 lakh a day. This translates into only Rs 15 crore a month. The monthly wage bill and interest payment of the airline are about Rs 250 crore and Rs 150 crore.

The five-year turnaround plan also talks about Air India increasing domestic market share to over 30 per cent, operating a fleet of 280 aircraft and around 10 per cent of its employees retiring.

The national carrier with a fleet of 130 aircraft is consistently losing its market share in the domestic sector and flew only 15.4 per cent of the total passengers in January.

The report projects that around 2,600 employees of the airline will retire from the airline in the coming three-year period. Currently, Air India has around 30,000 employees and the airline also plans to shift people to these subsidiaries. It has created a ground-handling subsidiary called Air India-Singapore Airport Terminal Services and is awaiting Cabinet approval for an aircraft maintenance subsidiary called Air India Engineering Service.

Source:-http://www.business-standard.com/india/news/ai-wants-rs-17500-cr-more-to-clean-books/426480/

Rail PPP on a slow track

The government’s plan to transform the country’s crumbling transport infrastructure through private participation has not made much headway. While just over a year remains in the current Plan period, the projected private investment of Rs 211,600 crore in railways, roads and airports has already been lowered by 60 per cent to Rs 86,700 crore.

Not surprisingly, Indian Railways, which has resisted privatisation for years, has fared the worst. The Planning Commission recently slashed the expected private investment of Rs 50,354 crore — or, 20 per cent of the overall investment of Rs 261,800 crore — in railways for the current Plan period by as much as 83 per cent to Rs 8,316 crore.

That comes as disappointing news, given that the public-private participation (PPP) model has proved a major success in telecom and highway development. In a recent discussion with the media, Prime Minister Manmohan Singh said the country would see a fresh wave of infrastructure investment via the PPP route.

The ministry of railways has issued several policies aimed at building infrastructure with private participation in the past two years. Crucial projects on offer via PPP include new engine manufacturing units in Marhoura and Madhepura in Bihar, high-capacity freight bogey manufacturing factories in Dalmianagar in Bihar and Majerhar in West Bengal and the Son Nagar-Dankuni Section of the dedicated freight corridor.

Industry’s response to these schemes has, however, been somewhat muted. A host of reasons, including ill-designed model agreements and the railways’ insistence on majority stake in projects, have ensured delays in awarding PPP projects, according to experts.

The showcase Madhepura locomotive project in Bihar, conceived in February 2007 at an investment of Rs 1,290 crore, is an example. Bids to select a joint venture partner were invited in May 2008. The rail ministry shortlisted Alstom, Bombardier and Siemens through competitive bidding and issued draft requests for proposal in September. However, none of them applied for the financial bid.

The ministry then decided to set up the unit as a railways production factory, which was approved by the Cabinet. In December 2009, the ministry decided to revert to the JV mode and a fresh request for quotes was issued in March 2010.

The ministry shortlisted Alstom, Bombardier, Siemens and GE Transportation and final bids will be invited soon, according to sources.

“PPP is a game of structuring a project well. The structure of projects being planned by Indian Railways is not up to the expectation of private players. Projects have to be made bankable. Otherwise, private players are reluctant to invest, given the long gestation period of rail projects,” said Akhileshwar Sahay, president, transportation, at Delhi-based project management firm Feedback Ventures.

Apart from expectations of a greater role in running a project, the lack of adequate concessions and assured off-take often dampen private players’ interest in projects. A case in point is the Son Nagar- Dankuni section of the dedicated freight corridor.

While 14 top infrastructure companies have evinced interest in the project, talks have remained inconclusive owing to their demand for a change in the project model. “We had initially said the project would be on design-build-finance-transfer basis. But the companies said they want design-build-finance-operate-maintain-transfer basis. And this is in addition to appropriate concessions. That is currently being discussed. Indian Railways has never done this,” said a senior rail ministry official.

Another issue is the government’s insistence on a majority stake in projects. The rail ministry was initially unwilling to accept less than 51 per cent stake in PPP projects. “Now, it has come down to 26 per cent. Actually, the government’s stake should be less than 26 per cent,” Sahay said.

“PPP is about sharing risk and ownership, and the rail ministry has been touchy on this issue,” said Tarun Kumar Gupta, senior manager, PricewaterhouseCoopers. However, he added that the entire concept of PPP is still new for Indian railways.

"Another issue is the lack of players with the kind of technical expertise required to execute large projects being offered by the government. Also, the lack of a proper policy document detailing the government's thinking on PPP makes private players apprehensive of railway projects,” he said.

While Minister for Railways Mamata Banerjee had said in her Budget speech last year that policy guidelines on private investment would be made simple, easy and investment friendly, a month before the current financial year comes to an end, her ministry is still struggling to finalise a workable PPP policy. The ministry last month set up a six-member committee to do the job. It has so far had only “generic” discussions on the concept of PPP, according to Railway Board chairman Vivek Sahay.

Banerjee had also set up an expert committee in 2009-10 under Ficci Secretary-General Amit Mitra to work out a suitable PPP model for rail projects and suggest innovative ways to finance them. While the panel submitted its report last month, according to sources, the railways’ limited financial resources might come in the way of implementing provisions like assured off-take.

Experts agree that at the current pace, meeting the Vision 2020 target of mobilising a “considerable share” of the required Rs 14 lakh crore investment in Indian Railways over the next decade through private participation might be difficult.

Source:-http://www.business-standard.com/india/news/rail-ppp-onslow-track/425749/