Wednesday 2 March 2016

Budget 2016: Startups not excited, expected more from government

Suncapital: The startup world reacted with muted enthusiasm to the budget, showering mild praise on proposals, which were anyway anticipated, and urging the government to do more to remove burdensome tax rules. 

Finance minister Arun Jaitley kept the prime minister's word on tax breaks on profits made by startups, and followed through on another promise by proposing to amend the Companies Law to make it easier to start a business. 

These moves, however, were anticipated and most movers and shakers in the startup community were not overly excited by what they saw.


Budget 2016: Startups not excited, expected more from government"PM Modi set very high expectations for startups in his January speech," said Ravi Gururaj, the chairman of software industry group Nasscom's product council, referring to Modi's address at the Startup India event organised by the government in New Delhi. "The budget today is lukewarm at best for startups." 

In addition to allowing 100% profit deductions in three out of the first five years for startups set up between April 1, 2016 and March 2019, Jaitley said investors in unlisted companies will be eligible for longterm capital gains treatment in two years instead of three.

Venture capital investors were asking to be treated on par with the public market investors for whom the time limit is one year. 


Vijay Shekhar Sharma, the founder of mobile marketplace Paytm, said that while reducing the time-frame for capital gains to two years is positive, it would not have any major impact because few investors exit in two years.
Moreover, since startups normally don't make profits in the first few years, tax breaks on profits are not very useful, either.
Budget 2016: Startups not excited, expected more from government
"Startups will still be liable for MAT (Minimum Alternate Tax), so the effective benefit is not likely to be very significant," he said. 

The NDA government — and particularly Prime Minister Modi —has been eager to project a startup-friendly image, engaging closely with founders and even coming up with its 'Startup India Stand Up India' programme to promote entrepreneurship. The government's initiatives have been generally wellreceived, but this budget seems to have fallen somewhat short of high expectations. 

On Monday, Jaitley also announced that the cabinet has approved the 'Stand Up India' scheme and allocated Rs 500 crore for Dalit and women entrepreneurs. 

iSPIRT said that the proposals to make it easier to start up, capital gains relaxation and the plan to tax income from patents at 10% were all good moves.

Budget 2016: Startups not excited, expected more from governmentBut confusion between "goods" and "services" for online downloads has not been cleared and foreign entities continue to sell to consumers without paying any tax here.
"The budget is semi-sweet with specific sops in continuation of earlier policy announcements made by PM," it said. 

Bhavish Aggarwal, the cofounder of Ola, said he is pleased with what he sees in the budget.

"Creating inroads for entrepreneurship in the public transportation space and amendments in the Motor Vehicles Act to allow innovations will provide a strong impetus towards enabling mobility for citizens," he said. (With inputs from Biswarup Gooptu and Madhav Chanchani)

Sun Capital Advisory Service

Tuesday 1 March 2016

How Startups Reacted to the Union Budget 2016

Suncapital: The much awaited Union Budget 2016-17 has finally been unveiled today. In his presentation, Finance Minister Arun Jaitley announced a 100% tax deduction programme for 3 years over a period of five years for startups approved before FY2019 under the Startup India scheme.
Moreover, to ensure that only deserving enterprises get to reap the benefits of the “Start Up Action Plan”, the government has strictly defined the term ‘Startup’ as “a company which would have equity funding of at least 20% by incubation, angel or private equity fund, an accelerator or angel network registered with SEBI endorsing the innovative nature of the business.”
Jaitley in his presentation, expatiated on a series of policy initiatives and schemes that aim at eliminating the common challenges startups come across, and ensure that MSMEs in the country get a fillip. Few of the key highlights are:
1. No tax on income from Startups. 100% deduction on profits for startups for 3 out of first 5 years; MAT to apply.
2. Shortening of the holding period of from three to two years to get benefits of long term Capital Gain regime in case of unlisted companies.
3.Registration of a company will take no longer than just a day under the Government’s 1 Day Incorporation Policy.
4.The corporate income tax rate for the next financial year of relatively small enterprises i.e companies with turnover not exceeding Rs. 5 crore (in the financial year ending March 2015) is proposed to be lowered to 29 % plus surcharge and cess. The new manufacturing companies which are incorporated on or after 1.3.2016 are proposed to be given an option to be taxed at 25% plus surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
Here’s how the Ecosystem Reacted to the Announcements:
NASSCOM welcomed the Union Budget 2016, while terming it as a mixed bag for the sector. The budget reiterates the 7.6% GDP growth rate for the country and provides a slew of incentives for the rural, agricultural sector to enable inclusive growth. Mohan Reddy, Chairman, NASSCOM said, “Our wish list for Budget 2016 included three key priorities – policy bottlenecks including ease of business; nurturing start-ups, products and eCommerce sector; and clarifications on transfer pricing to enable inward investments in India. Budget 2016 only partially covers these priorities. Extension of Section 10AA for SEZ units till 2020 is a positive outcome though the imposition of MAT on startups will not allow the full impact of the benefits to be realized.”
Expressing his happiness on Aadhar and IndiaStack, Vijay Shekhar Sharma, Founder and CEO, Paytmmaintained, “Finally, the government has provided legislative backing that will unleash the full potential of such an incredible platform. With the focus on digital payments and incentives to startups, the Finance Minister has boosted our Prime Minister’s Digital India and Startup India plans. Overall, the budget creates a strong foundation for sustainable growth in rural & urban India. Steps to further improve Ease Of Doing Business will drive entrepreneurship which is essential for job creation.”
Putting forth his opinion on the matter, Ajay Jalan, Founder & Managing Partner, Next Orbit Ventures said, “We welcome the initiatives taken by The Finance Minister Mr. Arun Jaitley, however we were looking forward for government support in creating a positive environment pertaining to venture capital (VC) and private equity (PE) funds in India, and bringing it at par with the global standards. We were expecting regulators should help unlock domestic capital pools by encouraging institutions regulated by them to invest in VC/PE asset classes. Pensions & provident funds should have been encouraged and investment limits for banks & insurance companies in VC/PE Funds could have been increased from 10% to 25%.
Here’s what Siddhartha Roy, CEO of Hungama.com opines- “The Union Budget 2016 has stepped in the direction to pave the way for rural digitization with a focus on digital literacy. The aim to connect 6 crore households will provide a stronger reach and deeper penetration for digital and technology driven services in rural India thus allowing residents a plethora of services. The digital literacy scheme announced by Mr. Arun Jaitley in rural India will not only give rise to increased manpower but also boost employment generation. The budget is an indication of the government’s resolve towards the Digital India scheme.”
Similarly, Manish Dashputre , Co-Founder, Medidaili, maintained, “We welcome the 100% tax deduction for start ups for 3 years as announced by the government today. However, tax exemption alone will not help spurt the government’s ambition of boosting the start up environment in India on a large scale. Exemption from indirect taxes including MAT would have greatly reduced the compliance burden. Even though the budget has announced several favourable measures, a clear framework to translate policy actions needs to be put in place to foster the start up ecosystem.”
Talking on the same line, Sumit Chhazed, Co-Founder, CredR  stated, “The Union Budget 2016 did not have much to look out for the start-up community, as we were hopeful to see some on-ground initiatives from the government to further ease regulatory clearances policies. Prime Minister’s declaration of 100% tax deductions for new startups for first 3 years is definitely an optimistic move towards nurturing entrepreneurship and facilitating ease of doing business. Government’s effort to provide skill development and training to youth along with implementation of digital literacy will help further providing a boost to the start-up ecosystem. We are hopeful to see more immediate action from the government in fostering a conducive environment for the entrepreneur community.”
Likewise, Pramod Saxena, Chairman and MD, Oxygen Services is of the opinion that  the general direction of the budget as it lays emphasis on development of the rural sector, digitization and reforms in banking is right.  He said, “The digital literacy mission that has been announced which will target 6 crore households with financial literacy, with this the digital connect and payments connect will play an important role. Also, statutory status to Aadhaar will play a very big role in promoting digital payments, social benefit transfers and allowing several services beyond banking & insurance to be also be brought into its fold, whether it is government subsidies or government payments it will open a way for more government payments and subsidies to flow into the financial inclusion program.”
Last but not the least, expressing his thoughts on the subject, Manish Kumar, Co-founder & CEO GREX said, “We believe the Union Budget 2016-17 is well aligned with Prime Minister’s ‘Make in India’ and ‘Startup India’ campaign. The budget focuses clearly on growth, development, job creation and creating a better environment for doing business in India. Besides a particular focus on startups by giving them exemption on their profits for the first three years is a welcome move. The relaxation in capital gain tax for investment in Funds of Funds and reducing the time frame to two years from three for availing long term capital gain tax benefit in the unlisted space will further boost the investment in startups.” Adding further, he stated, “Keeping the ‘Digital India’ momentum rolling during the budget, introduction of electronic auction platform for the private placement market in corporate bonds is a welcome move.”
The Union Budget 2016 has been well accepted by the ecosystem, overall.  However, there is a certain uneasiness that the industry has expressed on the imposition indirect taxes including MAT. Moreover, the effective implementation of the policies that have been announced by the government, is also something that needs to be waited and watched. Nevertheless, the startup community in general, looks quite happy with the government’s emphasis on narrowing down the digital gulf in the country; a move that would definitely help budding enterprises grow faster and expand their footprint across geographies.

Budget 2016: Jaitley walks a tightrope to fund infrastructure

Suncapital: Budget 2016: Jaitley walks a tightrope to fund infrastructure.

Finance minister Arun Jaitley’s third Union budget had a theme—Transform India. And while reading out the budget speech, Jaitley termed infrastructure and investment as the fifth support pillar of the theme championed by the National Democratic Alliance (NDA) government.



Given that infrastructure forms the backbone of the government’s flagship programmes such as Make in India, the budget announced a higher public spending to support infrastructure development.

The total outlay for infrastructure announced in the budget for 2016-17 is Rs2.21 trillion compared with Rs1.80 trillion in revised estimates for 2015-16. With NDAs focus on improving the country's transportation architecture, Rs2.18 trillion has been earmarked for roads and railways for the financial year 2016-17.

With tepid private investment due to a slowdown in emerging and developed markets coupled with weak domestic earnings by companies, public spending was required to keep the momentum going. However, the dilemma faced by the government was how to balance the spending and stick to the fiscal deficit targets of 3.5% of the gross domestic product (GDP) for 2015-16 and 3.9% for 2016-17.


The government decided to stick to the targets while creating space for infrastructure spending.

“We wish to enhance expenditure in the farm and rural sector, the social sector, the infrastructure sector and provide for recapitalization of the banks. This will address those sectors which need immediate attention,” Jaitley announced while laying the roadmap for the third year of Prime Minister Narendra Modi led government.

The Union budget proposed a capital expenditure of Rs1.21 trillion for the railways. This will support the national carrier which has mostly relied on monetising its assets and funding projects through external financing, as announced by the railway minister Suresh Prabhu on 25 February.


The government also earmarked Rs27,000 crore for Pradhan Mantri Gram Sadak Yojna and
Rs55,000 crore for roads and highways. Additionally, Rs15,000 crore is to be raised through bonds issued by National Highways Authority of India (NHAI).

“Our goal is to advance the completion target of the programme from 2021 to 2019 and connect the remaining 65,000 eligible habitations by constructing 2.23 lakh km of roads,” Jaitley said.

He also announced that contracts for constructing nearly 10,000km of national highways will be awarded in 2016-17.In addition, around 50,000km of state highways will be upgraded as national highways.

This allocation towards physical infrastructure projects comes in the backdrop of twin balance sheet problem as articulated by the Economic Survey—the stressed financial positions of staterun banks and some business houses.

Experts agree with the government’s strategy.

“Given the fiscal deficit constraint, I think the numbers for infrastructure announced today look good. There has been a hike of 20-30% in capital expenditure,” said Abhaya Agarwal, partner and public private partnership leader, EY.

Agarwal added that too much capital expenditure at one shot is not desirable given that one may end up investing in projects not worthy enough and lose market value.

An analysis of December quarter results of all staterun bank by news agency Press Trust of India shows that the cumulative gross nonperforming assets of 24 listed public sector banks, including market leader State Bank of India and its associates, stood at Rs3.93 trillion as on 31 December 2015.

As part of the comprehensive infrastructure development plan, the budget also focused on developing ports and airports.

“We are planning to develop new greenfield ports both in the eastern and western coasts of the country. The work on the National Waterways is also being expedited and Rs800 crore has been provided for these initiatives,” said Jaitley, while adding that the Airport Authority of India will revive the unutilised and underutilised airstrips across the country in partnership with state governments.

To provide further impetus to mobilise funds for infrastructure spending, a total of Rs31,300 crore will be allowed to be raised through bonds issued by NHAI, Power Finance Corp. Ltd, Rural Electrification Corp. Ltd and Inland Water Authority, among others.

Making public private partnership (PPP) as its pivot to attract private sector investment, the budget announced the government’s intent is to introduce a Public Utility (Resolution of Disputes) Bill and also guidelines for renegotiation of PPP concession contracts.

“A new credit rating system for infrastructure projects which gives emphasis to various inbuilt
credit enhancement structures will be developed, instead of relying upon a standard perception of risk which often results in mispriced loans,” Jaitley said.

Infrastructure development is necessary for realising a GDP growth of 7-7.5% for the next fiscal as projected by the Economic Survey released on 26 February. The Survey added that India could achieve a growth rate of 8-10% going forward.

“The government spending capacity cannot be increased overnight. So, taking into account other related announcements for ease of doing business and resolve to implement goods and services tax, the infrastructure sector is poised to gain,” said EY’s Agarwal.




Highlights of Union Budget 2016-17

SuncapitalFinance Minister Arun Jaitley unveiled a budget for the poor on Monday, announcing new rural aid schemes and skimping on a bank bailout, in a strategy shift that seeks to boost his ruling party in coming state elections.
Jaitley reiterated a forecast that India would grow by 7.6% in the fiscal year that is drawing to a close. He said the government wanted to spread the benefits of growth more widely among India's 1.3 billion people, but that he would stick to the government's existing fiscal deficit target for the coming year.

Here are the highlights of Jaitley's budget for the fiscal year that begins on April 1.
INTRODUCTION
1. Growth of Economy accelerated to 7.6% in 2015-16.
2. India hailed as a ‘bright spot’ amidst a slowing global economy by IMF.  Robust growth achieved despite very unfavourable global conditions and two consecutive years shortfall in monsoon by 13%
3. Foreign exchange reserves touched highest ever level of about 350 billion US dollars.  Despite increased devolution to States by 55% as a result of the 14th Finance Commission award, plan expenditure increased at RE stage in 2015-16 – in contrast to earlier years.
CHALLENGES IN 2016-17
1. Risks of further global slowdown and turbulence.
2. Additional fiscal burden due to 7th Central Pay Commission recommendations and OROP.
ROADMAP & PRIORITIES
1. 'Transform India' to have a significant impact on economy and lives of people.
2. Government to focus on –
a)ensuring macro-economic stability and prudent fiscal management.
b) boosting on domestic demand
c) continuing with the pace of economic reforms and policy initiatives to change the lives of our people for the better.
3. Focus on enhancing expenditure in priority areas of - farm and rural sector, social sector, infrastructure sector employment generation and recapitalisation of the banks.
4. Focus on Vulnerable sections through:
a) Pradhan Mantri Fasal Bima Yojana
b) New health insurance scheme to protect against hospitalisation expenditure
c) facility of cooking gas connection for BPL families
5. Continue with the ongoing reform programme and ensure passage of the Goods and Service Tax bill and Insolvency and Bankruptcy law
6. Undertake important reforms by:
a) giving a statutory backing to AADHAR platform to ensure benefits reach the deserving.
b) freeing the transport sector from constraints and restrictions
c) incentivising gas discovery and exploration by providing calibrated marketing freedom
d) enactment of a comprehensive law to deal with resolution of financial firms
e) provide legal framework for dispute resolution and re-negotiations in PPP projects and public utility contracts
f) undertake important banking sector reforms and public listing of general insurance companies undertake significant changes in FDI policy.
AGRICULTURE AND FARMERS’ WELFARE
1. Allocation for Agriculture and Farmers’ welfare is Rs 35,984 crore
2. ‘Pradhan Mantri Krishi Sinchai Yojana’ to be implemented in mission mode. 28.5 lakh hectares will be brought under irrigation.
3. Implementation of 89 irrigation projects under AIBP, which are languishing for a long time, will be fast tracked
4. A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about ` 20,000 crore
5. Programme for sustainable management of ground water resources with an estimated cost of ` 6,000 crore will be implemented through 3 multilateral funding
6. 5 lakh farm ponds and dug wells in rain fed areas and 10 lakh compost pits for production of organic manure will be taken up under MGNREGA
7. Soil Health Card scheme will cover all 14 crore farm holdings by March 2017.
8. 2,000 model retail outlets of Fertilizer companies will be provided with soil and seed testing facilities during the next three years
9. Promote organic farming through ‘Parmparagat Krishi Vikas Yojana’ and 'Organic Value Chain Development in North East Region'.
10. Unified Agricultural Marketing ePlatform to provide a common e- market platform for wholesale markets
11. Allocation under Pradhan Mantri Gram Sadak Yojana increased to ` 19,000 crore. Will connect remaining 65,000 eligible habitations by 2019.
12. To reduce the burden of loan repayment on farmers, a provision of ` 15,000 crore has been made in the BE 2016-17 towards interest subvention
13. Allocation under Prime Minister Fasal Bima Yojana Rs 5,500 crore.
14. Rs 850 crore for four dairying projects - ‘Pashudhan Sanjivani’, ‘Nakul Swasthya Patra’, ‘E-Pashudhan Haat’ and National Genomic Centre for indigenous breeds
FISCAL DEFICIT
1. Fiscal deficit in RE 2015-16 and BE 2016-17 retained at 3.9% and 3.5%.
2. Revenue Deficit target from 2.8% to 2.5% in RE 2015-16
3. Total expenditure projected at ` 19.78 lakh crore
4. Plan expenditure pegged at ` 5.50 lakh crore under Plan, increase of 15.3%
5. Non-Plan expenditure kept at ` 14.28 lakh crores.
6. Special emphasis to sectors such as agriculture, irrigation, social sector including health, women and child development, welfare of Scheduled Castes and Scheduled Tribes, minorities, infrastructure.
7. Mobilisation of additional finances to the extent of ` 31,300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority by raising Bonds.
8. Plan / Non-Plan classification to be done away with from 2017-18. Every new scheme sanctioned will have a sunset date and outcome review.
9. Rationalised and restructured more than 1500 Central Plan Schemes into about 300 Central Sector and 30 Centrally Sponsored Schemes.
10. Committee to review the implementation of the FRBM Act.
SOCIAL SECTOR INCLUDING HEALTH CARE
1. Allocation for social sector including education and health care – Rs 1,51,581 crore.
2. Rs` 2,000 crore allocated for initial cost of providing LPG connections to BPL families.
3. New health protection scheme will provide health cover up to Rs One lakh per family. For senior citizens an additional top-up package up to Rs 30,000 will be provided.
4. 3,000 Stores under Prime Minister’s Jan Aushadhi Yojana will be opened during 2016-17.
5. ‘National Dialysis Services Programme’ to be started under National Health Mission through PPP mode
6. “Stand Up India Scheme” to facilitate at least two projects per bank branch. This will benefit at least 2.5 lakh entrepreneurs.
7. National Scheduled Caste and Scheduled Tribe Hub to be set up in partnership with industry associations
8. Allocation of ` 100 crore each for celebrating the Birth Centenary of Pandit Deen Dayal Upadhyay and the 350th Birth Anniversary of Guru 5 Gobind Singh.
EDUCATION, SKILLS AND JOB CREATION
1. 62 new Navodaya Vidyalayas will be opened
2. Sarva Shiksha Abhiyan to increasing focus on quality of education
3. Regulatory architecture to be provided to ten public and ten private institutions to emerge as world-class Teaching and Research Institutions
4. Higher Education Financing Agency to be set-up with initial capital base of Rs 1000 Crores
5. Digital Depository for School Leaving Certificates, College Degrees, Academic Awards and Mark sheets to be set-up.
RURAL ECONOMY
1. Allocation for rural sector - Rs 87,765 crore.
2. 2.87 lakh crore will be given as Grant in Aid to Gram Panchayats and Municipalities as per the recommendations of the 14th Finance Commission
3. Every block under drought and rural distress will be taken up as an intensive Block under the Deen Dayal Antyodaya Mission
4. A sum of Rs 38,500 crore allocated for MGNREGS.
5. 300 Rurban Clusters will be developed under the Shyama Prasad4 Mukherjee Rurban Mission
6. 100% village electrification by 1st May, 2018.
7. District Level Committees under Chairmanship of senior most Lok Sabha MP from the district for monitoring and implementation of designated Central Sector and Centrally Sponsored Schemes.
8. Priority allocation from Centrally Sponsored Schemes to be made to reward villages that have become free from open defecation.
9. A new Digital Literacy Mission Scheme for rural India to cover around 6 crore additional household within the next 3 years.
10. National Land Record Modernisation Programme has been revamped.
11. New scheme Rashtriya Gram Swaraj Abhiyan proposed with allocation of 655 crore.
BANKING REFORMS
* Government to infuse 250 billion rupees capital into state-run banks in 2016/17; will find resources for additional capital for banks if required
TAXATION
1. Committed to providing a stable and predictable taxation regime and reduce black money.
2. Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.
3. Surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy.
4. New Dispute Resolution Scheme to be introduced. No penalty in respect of cases with disputed tax up to `Rs10 lakh. Cases with disputed tax exceeding `Rs 10 lakh to be subjected to 25% of the minimum of the imposable penalty. Any pending appeal against a penalty order can also 14 be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition.
5. High Level Committee chaired by Revenue Secretary to oversee fresh cases where assessing officer applies the retrospective amendment.
6. One-time scheme of Dispute Resolution for ongoing cases under retrospective amendment.
7. Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts.
8. Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.
9. Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty.
10. Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).
11. Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from Rs 15 lakhs to Rs 50 lakhs.
12. 11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
SKILL DEVELOPMENT
1. Allocation for skill development – Rs 1804. crore
2. 1500 Multi Skill Training Institutes to be set-up
3. National Board for Skill Development Certification to be setup in partnership with the industry and academia
4. Entrepreneurship Education and Training through Massive Open Online Courses
JOB CREATION
1. GoI will pay contribution of 8.33% for of all new employees enrolling in EPFO for the first three years of their employment. Budget provision of Rs 1000 crore for this scheme.
2. Deduction under Section 80JJAA of the Income Tax Act will be available to all assesses who are subject to statutory audit under the Act
3. 100 Model Career Centres to operational by the end of 2016-17 under National Career Service.
4. Model Shops and Establishments Bill to be circulated to States.
INFRASTRUCTURE AND INVESTMENT
1. Total investment in the road sector, including PMGSY allocation, would be Rs 97,000 crore during 2016-17.
2. India’s highest ever kilometres of new highways were awarded in 2015.
3. To approve nearly 10,000 kms of National Highways in 2016-17.
4. Allocation of ` 55,000 crore in the Budget for Roads. Additional Rs 15,000 crore to be raised by NHAI through bonds.
5. Total outlay for infrastructure - Rs 2,21,246 crore.
6. Amendments to be made in Motor Vehicles Act to open up the road transport sector in the passenger segment
7. Action plan for revival of unserved and underserved airports to be drawn up in partnership with State Governments.
8. To provide calibrated marketing freedom in order to incentivise gas production from deep-water, ultra deep-water and high pressure-high temperature areas
9. Comprehensive plan, spanning next 15 to 20 years, to augment the investment in nuclear power generation to be drawn up.
10. Steps to re-vitalise PPPs:  Public Utility (Resolution of Disputes) Bill will be introduced during 2016-17
11. Guidelines for renegotiation of PPP Concession Agreements will be issued
12. New credit rating system for infrastructure projects to be introduced
13. Reforms in FDI policy in the areas of Insurance and Pension, Asset
14. Reconstruction Companies, Stock Exchanges.
15. 100% FDI to be allowed through FIPB route in marketing of food products produced and manufactured in India.
16. A new policy for management of Government investment in Public Sector Enterprises, including disinvestment and strategic sale, 7 approved.
FINANCIAL SECTOR REFORMS
1. A comprehensive Code on Resolution of Financial Firms to be introduced.
2. Statutory basis for a Monetary Policy framework and a Monetary Policy Committee through the Finance Bill 2016.
3. A Financial Data Management Centre to be set up.
4. RBI to facilitate retail participation in Government securities.
5. New derivative products will be developed by SEBI in the Commodity Derivatives market.
6. Amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100% stake in the ARC and permit non institutional investors to invest in Securitization Receipts. 7. Comprehensive Central Legislation to be bought to deal with the menace of illicit deposit taking schemes.
8. Increasing members and benches of the Securities Appellate Tribunal.
9. Allocation of ` 25,000 crore towards recapitalisation of Public Sector Banks.
10. Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to Rs 1,80,000 crore.
11. General Insurance Companies owned by the Government to be listed in the stock exchanges.
GOVERNANCE AND EASE OF DOING BUSINESS
1. A Task Force has been constituted for rationalisation of human resources in various Ministries.
2. Comprehensive review and rationalisation of Autonomous Bodies.
3. Bill for Targeted Delivery of Financial and Other Subsidies, Benefits and Services by using the Aadhar framework to be introduced.
4. Introduce DBT on pilot basis for fertilizer.
5. Automation facilities will be provided in 3 lakh fair price shops by March 2017.
6. Amendments in Companies Act to improve enabling environment for start-ups.
7. Price Stabilisation Fund with a corpus of ` 900 crore to help maintain stable prices of Pulses.
8. “Ek Bharat Shreshtha Bharat” programme will be launched to link States and Districts in an annual programme that connects people through exchanges in areas of language, trade, culture, travel and tourism.
BOOST EMPLOYMENT AND GROWTH
1. Increase the turnover limit under Presumptive taxation scheme under section 44AD of the Income Tax Act to ` 2 crores to bring big relief to a large number of assessees in the MSME category.
2. Extend the presumptive taxation scheme with profit deemed to be 50%, to professionals with gross receipts up to Rs 50 lakh.
3. Phasing out deduction under Income Tax:  Accelerated depreciation wherever provided in IT Act will be limited to maximum 40% from 1.4.2017
4. Benefit of deductions for Research would be limited to 150% from 1.4.2017 and 100% from 1.4.2020
5. Benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020.
6. The weighted deduction under section 35CCD for skill development will continue up to 1.4.2020
7. Corporate Tax rate proposals:  New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
8. Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding ` 5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.
9. 100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019. MAT will apply in such cases.
10. 10% rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident.
11. Complete pass through of income-tax to securitization trusts including trusts of ARCs. Securitisation trusts required to deduct tax at source.
12. Period for getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from three to two years.
13. Non-banking financial companies shall be eligible for deduction to the extent of 5% of its income in respect of provision for bad and doubtful debts.
14. Determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year.
15. Commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017.
16. Exemption of service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship.
17. Exemption of Service tax on general insurance services provided under ‘Niramaya’ Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.
18. Basic custom and excise duty on refrigerated containers reduced to 5% and 6%.
MAKE IN INDIA
Changes in customs and excise duty rates on certain inputs to reduce costs and improve competitiveness of domestic industry in sectors like Information technology hardware, capital goods, defence production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals, paper, paperboard & newsprint, Maintenance repair and overhauling [MRO] of aircrafts and ship repair.


Two downgrades a day put India Inc in trouble

Suncapital: At two downgrades a day, the quality of India Inc’s debt is fast deteriorating. Thanks to160 downward revisions in the last two months alone, the tally since April 2015 has crossed 655 companies; metals, power, construction and infrastructure players lead the pack. And between January and now, rating agencies have made at least 13 revisions across seven state-owned lenders.
Jindal Steel and Power(JSPL), which owes lenders Rs 42,000 crore, is now rated below investment grade by CRISIL with the firm’s long and short-term credit rating now down by three to four notches. In mid-February, Moody’s lowered the long-term corporate family rating of Tata Steel by two notches to Ba3; soon thereafter, S&P revised downwards the grade of Vedanta Resources’ long-term foreign issuer credit rating to B, the fourth time this fiscal, citing increased pressure on liquidity as the firm attempts to refinance $1.35 billion of borrowings.
Moody’s lowered its outlook on Delhi International Airport Private Ltd’s Ba1 corporate family rating and senior secured ratings to ‘negative’, citing the impact of a new tariff order by the Airports Economic Regulatory Authority (AERA). It estimated that the new tariff guideline, applicable over 2016-2019, will lead to a decrease in annual aeronautical revenues by about R2,000 crore, or around 70%, from FY17 onwards. Among others for whom the outlook has been lowered to ‘negative’ are BHEL, DLF, Lodha Developers, Tata Tele Services and Shree Renuka Sugars.
As many as 16 sugar companies and 22 textile-linked companies have also seen rating revisions, as have several key infrastructure projects based on tariff changes or lower traffic volumes.
Given the dire situation that the steel sector is in, it’s not surprising that as many as 20 steel-producing and processing companies have been downgraded to ‘D’ or default rating in FY16 so far, according to Bloomberg data. The proportion of corporate debt owed by stressed companies, defined as those whose earnings are insufficient to cover their interest obligations, has increased to 41% in December, 2015, up from 35% in December 2014.
ICRA revised its outlook on the long-term rating of Mumbai Metro One, a special purpose vehicle (SPV) of Reliance Infrastructure, with two other entities, from stable to negative citing the shortfall in cash flow position of the project, resulting from lower than estimated actual daily passenger volume.
Gr8
CRISIL Ratings identifies two clear trends in credit quality that have emerged over the past one year. The debt-weighted credit ratio, or the ratio of quantum of debt upgraded to that downgraded, is at its lowest level in nearly three years. This is because some large corporates — whose fortunes are linked to commodity and investment cycles — or those which are highly leveraged, remain stressed. What’s positive is that several mid-sized and smaller firms have seen an improvement in credit quality, with upgrades higher than downgrades, and the credit ratio touching a four-year high in the first half of fiscal 2015-16.
However, as demand slow-down and leveraged balance sheets of some Indian corporates limit their spending capacity, the cascading impact may not be ruled out even on smaller companies.
In a recent interaction , Bharat Iyer, MD & Head of Research at JP Morgan, pointed out that the de-leveraging cycle is taking longer in the absence of a revival in earnings and the inability of companies to raise equity. Which is why although the NPL cycle looks like it’s closer to the bottom, it could be some time away from turning. “Apart from sectors such as real estate, infrastructure and resources, there is also stress in the SMEs linked to these sectors,” Iyer added.
CRISIL had downgraded debt worth R2.4 lakh crore in the six months to September with the the debt-weighted credit ratio for a set of 1,441 companies — for which ratings were altered — falling to 0.27 times. For FY15, this ratio stood at 0.62 times. For FY16, a further deterioration in the gauge cannot be ruled out as companies struggle to make ends meet.
The metals and mining was clearly the worst affected space given that almost a quarter of default ratings belonged to such entities.
Ratings plunge
* Ratings for 655 firms downgraded since April 2015
* JSPL rated below investment grade, owes lenders R42,000 crore
* Tata Steel downgraded two notches to Ba3 by Moody’s
* Vedanta Resources downgraded by S&P to B
* Dial’s outlook lowered to ‘negative’ by Moody’s
* Outlook for BHEL, DLF, Lodha, TTSL, Shree Renuka Sugars lowered to ‘negative’
* 13 revisions for seven PSBs since January

Indiabulls Real Estate Fund invests Rs125 cr in Mumbai project

Suncapital.co.inWith this deal, the fund has deployed almost 90% of its capital; remaining Rs50 crore to be deployed through another transaction





Indiabulls Real Estate Fund (IREF) has invested Rs.125 crore in an upcoming residential project in south Mumbai, its fourth transaction from the fund.
IREF, the first of the several real estate-focused funds managed by Indiabulls Asset Management Co. Ltd, made the investment in the form of structured debt in a project by the Shree Naman Group. With this, the fund has deployed almost 90% of its capital. It has invested Rs.100 crore each in projects of Supertech Ltd and Vatika Group in the National Capital Region (NCR) and Rs.125 crore in Sheth Creators Pvt. Ltd’s project in Mumbai during the course of last year, after launching its fund in February 2015.
The remaining Rs.50 crore will be deployed through another transaction. In line with its proposed strategy, IREF has invested in approved, under-construction and upcoming residential projects with visible sales, primarily in key property markets.
The investments have been done via the non-convertible debentures (NCDs) route.
“It was a successful first attempt by the fund. In 2016, deployment of capital by fund managers like us will be done with a little more caution. Cost of borrowing of developers have come down with a lot of liquidity in the market and there is a lot of pressure to deploy, but we will invest carefully,” said Ambar Maheshwari, chief executive– private equity, Indiabulls Asset Management Co. Ltd.
Jayesh Shah, chairman of Sree Naman Group, confirmed raising debt for an upcoming project and said the money will be used for project development.
In a month’s time or so, IREF plans to launch a second fund to raise another Rs.500 crore from domestic investors to invest in residential projects this year.
In the last couple of years, India’s real estate sector has witnessed a steady fall in home sales and a rise in unsold inventory.
Private equity (PE) funds and non-banking financial companies (NBFCs) have come to the rescue of many developers who needed capital to refinance loans, kick off projects or for last mile financing for ongoing projects.
“While there are ample investment opportunities in real estate, our measured and calibrated investment strategy of choosing top developers and their quality under-construction projects, has worked and will result in superior returns for our investors,” said Akshay Gupta, group executive head and chief executive officer, Indiabulls Asset Management Co. Ltd.
In 2015, PE funds invested nearly $2.77 billion in real estate projects and companies across 81 deals against $2.1 billion in 2014 through 90 deals, according to data from VCCEdge, which tracks investments. Demand for capital among developers continues to remain high this year as well.
“Fund-raising and deployment are both challenging in tough times. Fund-raising process for most funds has become a longer process as investors carry out a more rigorous due diligence process before committing capital,” said Shashank Jain, partner, transaction services, Pricewaterho\useCoopers India. “Deploying is tough because funds need to choose the best projects and developers, when they give out money when the sector is going through a rough patch.”

Arvind Subramanian’s checklist for the Union budget

Suncapital: Governments have usually ignored the advice of their economic advisers. Rumour has it that the finance ministry is haunted by the ghosts of past economic advisers brandishing copies of neglected economic surveys and wailing loudly.

Be that as it may, over the years, thanks to insistent repetition, governments have incorporated some of the reforms championed by the authors of economic surveys.
As John Maynard Keynes put it, “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
Let’s hope chief economic adviser Arvind Subramanian’s voice, too, is heard by those in authority, in spite of him being neither a “defunct economist” nor an “academic scribbler”.
We shouldn’t look to the Economic Survey to provide hints about likely announcements in the budget. What the survey does is mark the road ahead for the government. It provides a laundry list of things that need to be done for making India a modern and vibrant economy. It is a master plan for building the economy.
The Economic Survey, therefore, also serves as a yardstick with which to evaluate the Union budget. The question is: how far does the budget travel in the direction laid out by the survey? That is the basis on which we should indulge in the traditional practice of giving marks out of 10 to the budget.
What then are some of the key measures outlined in the survey? Listed below are a few of them:
1) Unlike last year, this year’s Economic Survey is rather pessimistic about growth, saying real gross domestic product (GDP) growth will be 7-7.75%, with a downward bias. It’s also pretty certain inflation will come down further, which suggests nominal GDP growth could be even lower than in the current year. That means the assumptions in the budget about revenue growth, if they are to be realistic, must be low.
2) It presents arguments both pro and con about sticking to the fiscal consolidation road map, but there does seem to be a tilt towards relaxing it a bit, especially as public investment needs to be strengthened further. And it calls for a re-look at the medium-term fiscal consolidation targets. This is one argument the finance minister will be tempted to grab with both hands.
3) The survey talks of the twin balance sheet problem of banks and the corporate sector. It says the way out is through the 4Rs—recognition, recapitalization, resolution, reform. Last year’s survey had talked of the 4Ds for banking—deregulation, differentiation, diversification and disinterring for the banking system. We can infer two things from this: a) the prime minister’s preferred style of speech-making seems to be making a strong impression, and b) the budget must have a credible scheme for recapitalizing banks and an indication of what the government plans to do to prevent the problem from arising in future. The survey says the government must sell off its non-financial companies and the Reserve Bank of India (RBI) must also contribute to recapitalization.
4) The survey says the benefits provided on account of small savings schemes and the tax/subsidy policies on cooking gas, railways, power, aviation, turbine fuel, gold and kerosene “provide a bounty to the well-off of about Rs.1 lakh crore”. It says this “represents a substantial leakage from the government’s kitty, and an opportunity foregone to help the truly deserving”. Ending these subsidies will, therefore, be a pro-poor measure. The implication is also that any benefits provided to income tax payers will go to the comparatively rich 5.8% of the population who pay income tax. Will the government be able to bite this deadly political bullet? Rather surprisingly though, there’s no mention of changes in the capital gains tax.
5) The survey points to the damage to the economy caused by the lack of exit policies. The bankruptcy bill is already in Parliament; so what else can the central government do? It could a) reform wasteful fertilizer subsidies, b) allow sick central public sector units to exit, c) disinvest in banks and d) do something to stanch the losses from Air India.
6) It calls for greater government investment in health and education.
7) It calls for greater attention to agriculture, including “the need for reorienting agriculture price policies, such that MSPs (minimum support prices) are matched by public procurement efforts towards crops that better reflect the country’s natural resource scarcities”. It calls for minimum floor prices for crops and price deficiency payments to farmers.
8) On subsidies, it wants the annual cap on household cooking gas cylinders to be pared to 10 from 12 and wants the distinction between commercial and household uses to be removed. But for other subsidies, it says the direct benefits transfer scheme is not yet ready.
9) It warns against protectionism, asking “is India really pro-competition or is it just pro-business?”
10) And it sums up its approach by saying, “the legacy of the pervasive exemptions Raj and corporate subsidies highlights why favouring business (and not markets) can actually impede competition. Similarly, scepticism about the state must translate into making it leaner, without delegitimizing its essential roles and indeed by strengthening it in important areas”.

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