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DEPARTMENT OF ECONOMIC AFFAIRS

Subject: Background material for Economic Editor’s Conference (EEC)-2016

(1.) Current Indian Economic Situation

Global context • The current global economic situation is marked by: subdued growth with a downward

revision of the advanced economies growth projections, specifically in the U.S; improved prospects in emerging market and developing economies despite China’s rebalancing strategy; and, a downward revision of global growth projections in subsequent assessments by the IMF.

• IMF has assessed that the decline in oil prices since 2014, associated with higher oil supply, could have a positive impact on global growth, which would be more than offset by the general weakness in global economic activity; though in the recent months oil prices have registered an increase.

• BREXIT affected the global economy by contributing to a decline in equity markets and interest rates. In the short run, BREXIT may lead to decline in growth prospects in UK and advanced EU countries because of political, economic and institutional uncertainty. As per IMF, ‘market reaction to the Brexit shock was reassuringly orderly, the ultimate impact remains very unclear, as the fate of institutional and trade arrangements between the United Kingdom and the European Union are uncertain’.

• As per IMF’s assessment, emerging market and developing economies as a group has seen a pick-up in growth momentum in 2016 so far. Emerging Asian countries in general and India in particular is showing strong growth. The situation is improving slightly for stressed economies such as Brazil and Russia. However, some Middle East and sub-Saharan African countries are facing challenges.

Improvement in India’s Macroeconomic Stability: Growth in India remains strong and stable • India recorded a higher growth in GDP of 7.2 per cent in 2014-15, as compared to 6.6 per cent

in 2013-14 and 5.6 per cent in 2012-13.It is further estimated to have grown at a faster rate of 7.6 per cent in 2015-16. GDP growth for the first quarter (Q1) of 2016-17 is estimated to be 7.1 per cent as against 7.5 per cent for Q1 of 2015-16.The lower growth in Q1 of 2016-17, compared to Q1 of 2015-16 is attributable to increase in subsidies by 53 per cent which has resulted in lower growth of net indirect taxes. Investment has also not picked up in the recent quarters.

• The manufacturing sector attained 9.3 per cent growth in 2015-16 as against 5.5 per cent in 2014-15. This was followed by 9.1 per cent growth in manufacturing sector in 1st Quarter of current financial year 2016-17.

• India’s ranking in the ease of doing business index by World Bank improved by four positions to 130th rank in 2016 from 2015. Improved competitiveness and brighter perceptions about ease of doing business in India are reflected in greater foreign direct investment inflows.

• In Global Competitiveness Report 2016-17 released by World Economic Forum, India has made the biggest leap among all countries of the world by standing at 39th position in the world, from 55th position in last year.

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• The IMF, in its World Economic Outlook (WEO), published in October 2016, estimated that India will grow by 7.6 per cent each in 2016-17 and 2017-18 (revised upward by 0.2 percentage point as compared to the WEO’s July Update for both the years).World Bank’s Report on Global Economic Prospects, published in June 2016, estimated that India will maintain the robust growth of 7.6 per cent in 2016 and 7.7 per cent in the following two years.

• This growth compares favourably with the growth of 3.2 per cent achieved by the global economy and 4.0 per cent by the emerging market and developing economies as a block in the year 2015 (IMF).Thus, against the global background, the current Indian growth is remarkable.

Major Concerns and challenges to the Indian Economy • Weak global demand is one among the strongest challenges in the near term. Exports and

imports together constitute 42 per cent of the GDP, even at the reduced levels in 2015-16. Slowdown in China and turmoil in global economy could lead to some uncertainty in financial markets.

• A critical challenge is the twin balance sheet problem: stressed financial positions of some large corporate houses leading to stressed assets of banks; which may affect private investment. The problem of non-performing assets needs to be resolved and bank lending needs to pick up. Already, there are some signs of improvement. As per the Financial Stability Report (June 2016) of the RBI, “the proportion of ‘leveraged’ companies in the sample [defined as those either with negative net worth or debt to equity ratio ≥ 2] declined sharply from 19.0 per cent in March 2015 to 14.0 per cent in March 2016, and their share in the total debt also declined from 33.8 per cent to 20.6 per cent.

• The saving-investment story stood slightly abated in recent years. Reviving the saving and investment cycle is challenging. The savings rate (savings as ratio of GDP) that stood at 34.6 per cent in 2011-12, declined to 33.0 per cent in 2014-15. Investment rate declined from 39.0 per cent of the GDP in 2011-12 to 34.2 per cent in 2014-15. Government gave substantial boost to public investment in 2015-16.

• Creating quality jobs is the imperative of the time; hence the Government has focused its efforts on removing impediments to job creation, including addressing the issue of shortage of skills to the workforce.

Some major steps taken by the government to boost growth • The merger of Railway budget with the General budget will help to present of a unified

budget and to bring the affairs of the Railways to centre stage and present a holistic picture of the financial position of the Government. The merger is also expected to reduce the procedural requirements and instead bring into focus, the aspects of delivery and good governance. The advancing of the budget calendar will help completion of procedural formalities sufficiently early, leaving greater space and time for project planning and implementation.

• The landmark Goods and Service Tax (GST) bill was passed by the Parliament and received President’s assent.

• Initiatives and various facilitation measures under flagship programmes like Make-in-India, Start-up India, Stand-up India, Skill India and Digital India that would improve the attractiveness and competitiveness of India globally and help develop a fresh investment cycle.

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• Institutional reforms including: expenditure rationalization and progressive elimination of leakages in public delivery through stress on targeting and direct benefit transfer; instituting a impactful financial inclusion programme; measures to improve policy transparency in governance and decision-making; Ujwal DISCOM Assurance Yojana (UDAY) programme for DISCOMs; liberalization of FDI norms in various sectors; and approval of National Intellectual Property Rights Policy for laying down the future roadmap for intellectual property in India. Initiatives through ‘Make in India’:

• The aim is to make manufacturing contribution to GDP 25 per cent by 2022 from 16 per cent. • The ‘Make in India’ initiative is based on four pillars viz. new processes, infrastructure, new

sectors and new mindset. These have been identified to give boost to entrepreneurship in India, not only in manufacturing but also other sectors.

• Equipping the youth with the requisite skills is an integral part of the programme. • Further, the Government of India is also building a pentagon of corridors across the country to

boost manufacturing and to project India as a global manufacturing destination. Measures Taken under “Ease of Doing Business”:

• The process of applying for Industrial License (IL) and Industrial Entrepreneur Memorandum (IEM) has been made online and this service is now available to entrepreneurs on a 24x7 basis at the eBiz website.

• Twenty services are integrated with the eBiz portal which will function as a single window portal for obtaining clearances from various governments and government agencies.

• Notification has been issued by Directorate General of Foreign Trade (DGFT) to limit number of documents required for export and import to three.

• The Ministry of Corporate Affairs has introduced an integrated process of incorporation of a company, wherein applicants can apply for Director’s Identification Number (DIN) and company name availability simultaneous to incorporation application [Form INC-29].

• Application forms for Industrial Licence (IL) and Industrial Entrepreneur Memorandum (IEM) have been simplified.

• Defence products’ list for industrial licensing has been issued, wherein a large number of parts/components, castings/forgings, etc. have been excluded from the purview of industrial licensing.

• The Ministry of Home Affairs has stipulated that it will grant security clearance on IL applications within 12 weeks.

• An Investor Facilitation Cell has been created under Invest India to guide, assist and handhold investors during the entire life-cycle of the business.

• The process of applying for environment and forest clearances has been made online through the Ministry of Environment and Forests and Climate Change portals.

• Registration with the Employees Provident Fund Organization (EPFO) and Employees State Insurance Corporation (ESIC) has been automated and ESIC registration number is being provided on a real-time basis.

• A unified portal for registration of units for Labour Identification Number (LIN), reporting of inspection, submission of returns and grievance redressal has been launched by the Ministry of Labour and Employment. Liberalized and Simplified Foreign Direct Investment (FDI) policy

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• The Government radically liberalized the FDI regime on 20thJune 2016, with the objective of providing major impetus to employment and job creation. This is the second major reform after the major changes announced in November 2015. Now most of the sectors would be under automatic approval route, except a small negative list. Changes introduced in the policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionalities for foreign investment. With these changes, India is now one of the most open economies in the world for FDI.

• The recent amendments in Foreign Direct Investment (FDI) policy include allowing FDI in Defence up to 100% ( 49% under automatic route and above 49% through government approval), in Railway infrastructure up to 100%, in Teleports, Direct to Home (DTH), Cable Networks, Mobile TV, Head-in-the Sky Broadcasting Service (HITS) up to 100% and also 100% in Animal Husbandry.

• In pharmaceutical sector, it has been decided to permit up to 74% FDI under automatic route in brownfield pharmaceuticals and government approval route beyond 74% will continue. In Civil Aviation Sector, 100% FDI under automatic route in Greenfield Projects and 74% FDI in Brownfield Projects under automatic route are permitted. FDI up to 49% is now permitted under automatic route in this sector and FDI beyond 49% and up to 74% would be permitted with government approval route. Establishment and development of world class infrastructure

• India is developing mature and extensive infrastructure networks. With the changing world economy, India’s infrastructure must be secure, flexible, and well inter-connected in order to support India’s long term economic growth.

• The Government of India is also building a pentagon of corridors across the country to boost manufacturing and to project India as a global manufacturing destination. The National Investment and Infrastructure Fund (NIIF) has been approved to extend equity support to infrastructure Non-Bank Financial Companies (NBFC). Issue of tax free infrastructure bonds has been allowed for rail, roads and irrigation programmes.

• In view of the growing need of the Indian economy, massive programmes have been taken for increasing power generation, strengthening of transmission and distribution, separation of feeder and metering of power to consumers.to provide uninterrupted continuous access to power supply in the country. Programmes like Integrated Power Development Scheme (IPDS), Deendayal Upadhyay Gram Jyoti Yojana, Ujwal DISCOMM Assurance Yojana (UDAY), and National LED Programme have brought reforms in power sector in an equitable and sustainable manner.

• Considering the constraints in infrastructure, particularly in the road sector, that had more than 70 projects that were languishing at the beginning of the year 2015. With exemplary and proactive interventions, nearly 85% of these projects have been put back on track. An allocation of Rs. 55,000 crore has been proposed in the Budget for Roads and Highways. This will be further topped up by additional Rs. 15,000 crore to be raised by NHAI through bonds. Thus the total investment in the road sector, including PMGSY allocation, would be Rs. 97,000 crore during 2016-17.

• Together with the capital expenditure of the Railways, the total outlay on roads and railways will be Rs. 2,18,000 crore in 2016-17. The total outlay for infrastructure in BE 2016-17 stands at Rs. 2,21,246 crore.

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• Infrastructure: The three planks of India’s infrastructure strategy are: (a) prioritization (Budget 2016-17 has prioritized irrigation, roads especially rural roads railways for public investment); (b) innovativeness (key innovative initiatives are; National Infrastructure Investment Fund on the equity side; revenue raising efforts off the budget like issue of bonds by NHAI, municipal bonds, etc.; and, initiatives to strengthen bond market); and (c) and debottlenecking.

• Bankruptcy Code: Parliament has recently passed the Insolvency and Bankruptcy Code, 2016. The law aims to consolidate the laws relating to insolvency of companies and limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals, presently contained in a number of legislations, into a single legislation. Such consolidation will provide for a greater clarity in law and facilitate the application of consistent and coherent provisions to different stakeholders affected by business failure or inability to pay debt. The four pillars of institutional infrastructure are: (a) a class of regulated persons called ‘Insolvency Professionals; (b) ‘Information Utilities' to store facts about lenders and terms of lending in electronic databases; (c) adjudication mechanism consisting of National Company Law Tribunal (NCLT) to act as Adjudicating Authority, Debt Recovery Tribunal (DRTs) to hear cases of individual insolvencies and their Appellate bodies, viz., NCLAT and DRATs; and, (d) the regulator called ‘The Insolvency and Bankruptcy Board of India’ to oversee works of the professionals, agencies and information utilities.

• India’s plan to ramp up solar power generation, as reported by the World Bank, is among the largest in the world and will help bring sustainable, clean, climate-friendly electricity to millions of people. Recently, the World Bank Group has decided to collaborate with India on a large scale in its solar power initiatives.

• Measures for textile industry: A special package including a slew of labour-friendly measures that would promote employment generation, economies of scale and boost exports have been introduced in Textile and Apparel sector. The main reforms are: government bearing the entire employer’s contribution of 12% under the Employers Provident Fund Scheme, for new employees of garment industry earning less than Rs. 15,000 per month, for the first three years; increasing overtime caps (in line with ILO recommendations); introduction of fixed term employment (fixed term workman will be considered at par with permanent workman in terms of working hours, wages, allowanced and other statutory dues); higher subsidy to garment industry under Amended Technology Upgradation Funds Scheme (ATUFS); refunding certain state levies to increase export competitiveness.

• New Mineral Exploration Policy: The new policy primarily aims at accelerating the exploration activity in the country through enhanced participation of the private sector. The Ministry of Mines will carry out auctioning of identified exploration blocks for exploration by private sector on revenue sharing basis in case their exploration leads to auctionable resources. The revenue will be borne by the successful bidder of those auctionable blocks. If the explorer agencies do not discover any auctionable resources, their exploration expenditure will be reimbursed on normative cost basis.

• Initiatives to revive the Construction Sector: The Cabinet Committee on Economic Affairs approved on 31st August 2016 a series of initiatives to revive the Construction Sector.These initiatives are expected to help in improving the liquidity in the short run and reform the contracting regime in the long run. The measures, inter alia, provide that Department of Financial Services, in consultation with Reserve Bank of India, may evolve a suitable one-time

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scheme for addressing stressed bank loans in the construction sector; speedy conciliatory mechanisms for disposal of pending or new cases; transfer the arbitration cases to the amended Arbitration Act, wherever possible; etc.

Priorities for reforms • ‘Housing for all’ by 2022: A roof for each family in India. To complete 2 crore houses in

urban areas and 4 crore houses in rural areas. • Basic facilities for each house: 24-hour power supply, clean drinking water, a toilet, and be

connected to a road. • Educating and skilling our youth to enable them to get employment. Skill India and the Make

in India programmes to ensure that our young get proper jobs. • Encourage the spirit of entrepreneurship by supporting new start-ups. • Electrification of the remaining 20,000 villages in the country. • Connecting each of the unconnected habitations by all-weather roads. • Good health: Providing medical services in each cluster of villages and city. • Digital connectivity for all villages. • Ensure that the Eastern and North Eastern regions of the country which are lagging behind in

development on many fronts are on par with the rest of the country.

Money and Banking • Gross non-performing assets (GNPA) at the institutional level increased from Rs. 3.1 lakh

crore to Rs. 5.6 lakh crore between March 2015 to March 2016. GNPA ratio at the institutional level has increased from 4.6 per cent in March 2015 to 7.8 per cent in March 2016. At the bank level, GNPA ratio for foreign banks (FBs) and private sector banks (PVBs) have increase from 3.2 per cent to 4.2 per cent and from 2.2 per cent to 2.7 per cent respectively. For public sector banks (PSBs) on the other hand, GNPA increased sharply from 5.4 per cent to 9.8 per cent during the same period. This sharp increase in PSBs’ GNPA ratio has mainly been on account of cleaning up of their balance sheet.

• Growth of Aggregate deposits of SCBs as of 23rd September 2016 was 9.8 per cent on YoY basis as compared to 10.9 per cent recorded during the corresponding date of the previous year. Table below shows the y-o-y growth of non-food credit (NFC) and its components. NFC continues to grow at sub 10 per cent level.

July-16 July-15

Non-food Credit (NFC) 8.3 8.4

Agriculture & Allied Activities (A&A) 13.4 12.2

Industry

- Micro & Small

-Medium

-Large

0.6

-3.3

-8.7

1.7

4.8

6.1

-5.4

5.3

Services 10.8 6.4

Personal Loans (PL) 18.8 16.8

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• The base lending rate as of 23rd September 2016 was 9.30/9.70 percent as compared to 9.70/10.00 per cent during the corresponding period a year ago. The term deposit rates for above one year was 7.00/7.3 per cent of 23rd September 2016 as against 7.25/8.00 per cent during the corresponding period a year ago. The RBI has cut the repo rate by 150 basis points since January 2015. Consequently, the repo rate has come down from 8 per cent in January 2015 to 6.5 per cent as of August 2016. However, the transmission of monetary policy has remained incomplete. The reduction in average base rate has only been nearly 62 basis points.

• Liquidity condition has eased continuously since April Monetary Policy Statement (MPS). The trend continued after the August MPC. Average daily borrowings by banks was as high as Rs. 1.3 lakh crore before April MPS. However, the condition has eased considerably since then and average daily borrowings fell to fallen to Rs. 7000 crore after June policy statement. In fact, since the August MPC, average daily borrowings under LAF have turned negative. Banks on an average, instead of borrowing from the RBI, are now parking Rs. 22000 crore with the RBI under reverse repo transactions. This easing of liquidity was reflected in the call money market as well. The weighted average call rate (WACR) was trending below the repo rate after June 2015 rate cut but this wedge disappeared after October 2015 rate cut. This wedge has appeared again after June 2016 policy statement. The WACR on an average has remained 10 bps below the repo rate after August 2016 MPC.

• The spread between 91 days t-bill rate and repo rate had widened since October 2015 policy statement in spite of the rate cut. This spread too has narrowed substantially since June 2016 policy statement. In fact this spread was just 6 bps as of 5th of August 2016 which is the lowest since August 2015.

• There was a sharp fall in the 91 days t-bill rate in April 2016 owing to 25 bps cut in repo rate. G-sec yield however continued to tread high in spite of the rate cut and in fact increased marginally after the rate cut. However, yield on 10 year g-sec has started soften now and it has declined by 42 bps sine 24th June 2016. As of 23rd September, 10 year g-sec yield stood at 6.88per cent. The sub-7 percent yield set on the benchmark bond translated into lower borrowing costs for the government and for corporate

Recent measures taken by the RBI to improve corporate bond market: • The government has launched a phased program for bank recapitalization. RBI initiated

schemes which incentivize banks to come together with their borrowers to rehabilitate stressed assets. Recently, the Government has decided to set up an autonomous Banks Board Bureau to recommend for selection of heads of banks and help them in developing strategies and capital raising plans.

• Formalization of the Monetary Policy Committee and instituting inflation targeting: The Government, in the Budget for 2016-17, proposed to amend the Reserve Bank of India (RBI) Act, 1934 for giving a statutory backing to the Monetary Policy Framework Agreement and for setting up a Monetary Policy Committee (MPC).

• The RBI has accepted many of the recommendations of the Khan Committee to boost investor participation and market liquidity in the corporate bond market. The new measures as announced by the RBI can be summarised as below:

a) Commercial banks are now permitted to issue rupee-denominated bonds overseas (masala bonds) for their capital requirements and for financing infrastructure and affordable housing.

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Currently, masala bonds can be issued only by corporates and non-banking lenders like, HFCs and large NBFCs.

b) It has now been decided to permit brokers registered with the Securities and Exchange Board of India (SEBI) and authorised as market makers in corporate bond market to undertake repo / reverse repo contracts in corporate debt securities. Thus, registered brokers, who will be authorized as market makers, will also be allowed to access the repo market through corporate bonds in addition to banks, primary dealers, insurance companies that are currently allowed. This move will make corporate bonds fungible and thus boost turnover in the secondary market.

c) The regulator has now allowed banks to increase the partial credit enhancement they provide for corporate bonds to 50% from 20% now.

This move will help lower-rated corporates to access the bond market, as a partial credit enhancement could raise their rating to AAA, the highest for bonds.

d) It has also been decided to allow primary dealers to act as market makers for government bonds.

This move will give further boost to government securities by making them more accessible to retail investors.

e) In order to ease access to the foreign exchange market for hedging in over the counter (OTC) and exchange-traded currency derivatives, the RBI has allowed entities exposed to exchange rate risk, both resident and non-resident, to undertake hedge transactions with simplified procedures, up to a limit of $30 million at any given time.

• In addition to these changes, the RBI is also considering accepting corporate bonds as collateral at its liquidity adjustment facility (LAF) operations. Currently, only bilateral repurchases of corporate bonds are allowed by RBI, limiting the interest in such bonds and making them illiquid.

External Sector • In 2016-17 (April-August), growth of exports declined by 3.0 per cent (US$ 108.5 billion vis-

à-vis US$ 111.9 billion in the corresponding period of previous year). Imports declined by 15.1 per cent to US$ 380.4 billion in 2015-16. Imports for 2015-16 (April- August) were at US$ 143.2 billion which is lower by 15.9 per cent as compared to US$ 170.2 billion in the corresponding period of previous year. Petroleum, Oil and Lubricants (POL) imports declined by 22.1 per cent in 2016-17 (April-August) to US$ 32.4 billion as compared to US$ 41.6 billion in the corresponding period of previous year, mainly due to fall in international crude oil prices. Non-POL imports for 2016-17 (April- August) declined by 13.9 per cent to US$ 110.8 billion compared to US$ 128.6 billion in the corresponding period of the previous year. Gold and silver imports decreased by 60.0 per cent to US$ 6.8 billion in 2016-17 (April-August) as against US$ 17.0 billion in the corresponding period of previous year.

• In 2015-16, trade deficit declined to US$ 118.4 billion which was lower than the level of US$ 135.8 billion in 2014-15. However, during 2016-17 (April- August), trade deficit decreased to US$ 34.7 billion as against US$ 58.4 billion in the corresponding period of previous year.

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Balance of Payments (BoP) Developments during 2016-17

• After high and near unsustainable level of Current Account Deficit (CAD) from 2011-12 to 2013-14 Q1, India’s balance of payments situation since has been benign and comfortable. The recent weakness in external demand has adversely affected exports. Nevertheless, current account deficit (CAD) as a proportion of GDP has remained at comfortable levels in 2014-15 & 2015-16.

• During, 2016-17 (April-June), merchandise exports (on BOP basis) decreased by 2.1 per cent to US$ 66.1 billion from a level of US$ 68.0 billion in 2015-16 (April-June). Imports fell by 11.5 per cent to US$ 90.5 billion in 2016-17 (April-June) as compared to US$ 102.2 billion in the corresponding period of previous year. Both exports and imports declined due to subdued demand in the global market and steep fall in international crude oil prices, respectively. This led to lower trade deficit to US$ 23.8 billion in 2016-17 (April-June).

• Net invisibles’ earnings was at US$ 107.9 billion in 2015-16 as against US$ 118.1 billion in 2014-15. During 2016-17 (April-June), net invisibles’ earnings was at US$ 23.5 billion as against US$ 28.0 billion over corresponding period of the previous year. Current account deficit (CAD) narrowed to US$ 0.3 billion (0.1 per cent of GDP) in 2015-16 (April-June) from US$ 6.1 billion (1.2 per cent of GDP) in corresponding period of the previous year.

• Net capital inflows, declined to US$ 40.1 billion (1.9 per cent of GDP) in 2015-16 from US$ 88.3 billion (4.3 per cent of GDP) in 2014-15 due to lower FIIs inflows. It declined to US$ 7.3 billion (1.4 per cent of GDP) in the first quarter of 2016-17 from US$ 17.6 billion (3.5 per cent of GDP) in the first quarter of 2015-16. On a BoP basis, there was a net accretion to India’s foreign exchange reserves by US$ 17.9 billion and US$ 7.0 billion respectively in 2015-16 (full year) and 2016-17 (April-June).

Foreign Exchange Reserves

• Capital flows in excess of CAD has led to relative stability in exchange rates in India, even in volatile global capital movements in June 23rd 2016 as a result of Brexit. India’s foreign exchange reserves stood at US$ 370.8 billion on 23 September 2016 as against US$ 360.2 billion at end-March 2016 Exchange Rate of Rupee

• During 2015-16 (April-September), the average monthly exchange rate of rupee (RBI’s reference rate) was in the range of Rs. 66 – 67 per US dollar. Even though the rupee depreciated by 0.9 per cent on 24th June 2016 temporarily against the US dollar after the Brexit Referendum it recovered thereafter. In the month of September 2016, the average monthly exchange rate of the rupee appreciated by 0.3 per cent to Rs. 67.73 over previous month.

Inflation

• Headline inflation based on Consumer Price Index (Combined), which remained sticky around 9-10 per cent during 2012–2014, moderated significantly to 5.9 per cent in 2014-15 and further to 4.9 per cent in 2015-16. It averaged 5.6 per cent in 2016-17 (Apr-Aug) and stood at 5.0 percent in August 2016. Headline inflation measured in terms of Wholesale Price Index (WPI) which remained persistently high at around 6-9 per cent during 2011-14 moderated to 2 per cent in 2014-15 and further to (-) 2.5 per cent in 2015-16. It averaged 2.3 per cent in 2016-17 (Apr-Aug) and stood at 3.7 percent in August 2016.

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• Food inflation based on Consumer Food Price Index (CFPI) declined from 6.4 per cent in 2014-15 to 4.9 per cent in 2015-16. It averaged 7.2 per cent during the current financial year 2016-17 (Apr-Aug) and stood at 5.9 per cent in August 2016.

Agriculture and Food Management • The report of the Commitee on "Incentivising Pulses Production Through Minimum Support

Price (MSP) and Related Policies" set up under the Chairmanship of Dr. Arvind Subramanian, Chief Economic Adviser, Government of India, Ministry of Finance, Department of Economic Affairs was submitted on 16th September, 2016.

• A summary of the recommendations of this report are detailed in the table below. Incentivizing Pulses Production: Summary of Recommendations

Policy Timing

1. MSP and Procurement

a. Government procurement machinery should be on high gear to ensure the procurement of kharif pulses at this season’s announced MSP

Immediate

b. To ensure effective procurement, a High Level Committee comprising Ministers of Finance, Agriculture, and Consumer Affairs and Principal Secretary to PM should be constituted. There should be weekly reporting by procurement agencies on the ground with physical verification of procurement

Immediate

c. Build up 2 million tons of pulses stock with targets for individual pulses, especially tur (3.5 lakh tonnes) and urad (2 lakh tonnes). These should be built up gradually but opportunistically, buying when prices are low as in the current year

Immediate

d. Announce MSP of Rs. 40/kg for gram for rabi 2016 and MSP of Rs. 60/kg for both urad and tur for kharif 2017 (adjusted for inflation between 2016-17). Minimum Support Prices for other pulses should be increased by the same percent as calculated in this report for tur, urad, and gram

Immediate

e. MSP to be increased to Rs. 70/kg in 2018 when short duration kharif tur is ready for commercialization. Efforts to be made to give production subsidies to farmers for growing pulses in irrigated areas of about Rs. 10-15 per kg to be given via DBT

Kharif 2018 but planning to begin soon

2. Other Price Management Policies

a. Eliminate export ban on pulses and stock limits; at the very least limits on wholesalers should be eliminated.

Immediate

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Policy Timing

The greater the limits on procurement by the government, the greater the urgency to take these actions to ensure that market prices stabilize above the MSP. The worst case scenario for farmers is weak procurement and stock limits which force farmers to sell most of their output at market prices that are well below MSP.

More generally, the use of trade policy to control domestic prices, which induces policy volatility, should be avoided.

b. Encourage states to delist pulses from their APMCs Immediate

c. Review Essential Commodities Act, 1955 and futures trading of agricultural commodities with a view to preserving objectives but finding more effective and less costly instruments for achieving them

As appropriate

3. Institutions for procurement-stocking-disposal

a. Create a new institution as a Public Private Partnership (PPP) to compete with and complement existing institutions to procure, stock and dispose pulses.

Preparation to start immediately with aim of implementation by rabi 2016. Cabinet note to be ready within 4 weeks.

b. Announce clear rules for disposal of stocks

4. Minimizing Adverse Impacts

a. Encourage development of GM technologies. Grant expeditious approval to indigenously developed new varieties of pulses

As appropriate

(2.) INITIATIVES ON INFRASTRUCTURE SECTOR IN INDIA

India has emerged among the few large economies with a promising economic outlook. Evidence based on the new series of National Accounts (with 2011-12 base) suggests that the positive growth signals that had unravelled in 2013-14 got strengthened in 2014-15, particularly in the industrial and services sectors. Factors like the steep decline in oil prices, plentiful flow of funds from the rest of the world and potential impact of the reform initiatives of the government at the centre along with its commitment to calibrated fiscal management and consolidation bode well for the growth prospects and the overall macroeconomic situation.

The International Monetary Fund has hailed India as a ‘bright spot’ amidst a slowing global economy. The World Economic Forum has said that India’s growth is ‘extraordinarily high’. Infrastructure Development – Priorities for the Government

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Growth of the Indian economy in the recent years has placed an increasing stress on the physical infrastructure, which already faces substantial deficit both in terms of capacities and efficiencies. As per the White Paper on Infrastructure Financing brought out by CRSIL Ratings and ASSOCHAM INDIA in December, 2015, it is estimated that the country would need Rs 31 lakh crores (about half a trillion USD) investment in infrastructure during 2015-20. The Paper estimates that about 70 percent of this will be required in the power, roads and urban infrastructure sectors. The Paper further estimates that over two-thirds of the investment (seventy per cent) would need to be funded through debt and thirty per cent would be through equity. Within the next 3-4 years, the country plans to attain a growth rate of 7-8 percent through enhanced investments in infrastructure, focus on the creation of an investor-friendly environment, fostering social inclusion and fiscal consolidation. Budget 16-17 incorporate measures aimed at reviving the economy and accelerating growth, particularly the manufacturing sector, through renewed focus on infrastructure development.

Initiatives on Infrastructure Financing in India

i. Infrastructure Debt Funds (IDFs): Government has conceptualized the idea of IDF, which is an innovative attempt, for addressing the issue of sourcing long term debt for infrastructure projects. Potential investors under IDFs may include off-shore institutional investors, off-shore High Net Worth Individuals, & other institutional investors (Insurance Funds, Pension Funds, Sovereign Wealth Funds, etc.). IDFs can be set up either as a Trust or as a NBFC. The income of Infrastructure Debt Funds has been exempted from income tax. So far, 3 IDF-NBFCs and 3 IDF –MFs have been operationalized. Model Tripartite Agreements for Roads & Highways and Ports Sector already notified.

ii. Real Estate Investment Trusts (REITs)/Infrastructure Investment Trust (InVITs) - The REITs and InvITs have been announced as instruments for pooling of investments in Budget Speech 2014-15. The asset value will be unlocked by creating smaller units of the asset value, which thereafter will be subscribed by the investor of the Trust. Structured along the lines of Business Trusts models, the entities are expected to attract long-term investment by large foreign funds. This will provide opportunities for the private sector to explore means of raising funds from sources outside the traditional public sector financial institutions. These entities have been allowed a tax pass through status to avoid double taxation. This will allow original equity investor to exit their investments which is expected to give a fillip to both, cash strapped real estate projects and infrastructure projects. Budget 2016-17 provides that any distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax.

iii. Tax Free Bonds: In pursuance of Budget 2015-16, Government of India has allowed the issuance of Tax-free bonds of Rs 43500 crore (USD 6500 million) during the Financial Year 2015-16, by Central Public Sector Enterprise (CPSE) such as National Highways Authority of India (NHAI), Indian Railways Finance Corporation (IRFC), Housing and Urban Development Corporation (HUDCO), Indian Renewable Energy Development Agency (IREDA), Power Finance Corporation Limited (PFC), Rural Electrification Corporation Limited (REC), National Thermal Power Corporation Limited (NTPC) and National Bank for Agriculture and Rural Development (NABARD).

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iv. New Credit Rating System for Infrastructure Projects: Budget 2016-17 announced that a new credit rating system for infrastructure projects which gives emphasis to various in-built credit enhancement structures will be developed, instead of relying upon a standard perception of risk which often result in mispriced loans. Existing system does not factor some unique features associated with infra projects. New Credit Rating System as per best global practices for Infra projects to emphasize to various in-built credit enhancement structures. New Credit Rating System would be based on “Expected Loss given default” rather than based on default of “One rupee one day”.

v. Special Purpose Vehicle for Credit Enhancement: Budget 2016-17 announced that LIC of India will set up a dedicated fund to provide credit enhancement to infrastructure projects. The fund will help in raising the credit rating of bonds floated by infrastructure companies and facilitate investment from long term investors.

This Credit enhancement Fund/ SPV to infrastructure projects would be promoted by Public Sector FIs and Banks. This fund would help in raising the credit rating of bonds floated by infrastructure companies which would facilitate investment from long term investors.

vi. Speedy project implementation-Facilitation/debottlenecking of stalled projects: With a view to putting in place an institutional mechanism to track stalled investment projects, both in the public and private sectors and to remove implementation bottlenecks in these projects, a Cell in the nature of Project Monitoring Group (PMG) has been set up in the Cabinet Secretariat for all large projects, both public and private. Central e-PMS, a web enabled information system has also been put in place where in an entrepreneur can provide the details of his project having investments above Rs.1000 crore (USD 167 million) along with issues that are inhibiting its smooth implementation. As on 15.09.2016, PMG has resolved all issues uploaded on PMG portal pertaining to 433 projects worth Rs. 15,72,851 crore (USD 234.75 bn).

Public Private Partnership in India

Availability of quality infrastructure is a pre-requisite to achieve broad based and inclusive growth on a sustained basis. Infrastructure is also critical for enhancing productivity and export competitiveness. Given the enormity of the investment requirements and the limited availability of public resources for investment in physical infrastructure, the projected infrastructure investments made it imperative to explore avenues for increasing investments in infrastructure through a combination of public investment and Public Private Partnerships (PPPs). PPPs bridge the deficit in financing of infrastructure projects, and also bring in cost effective new technology for operation and maintenance of created asset, thus, extracting long term value for proposition.

India has systematically rolled out a PPP program for the delivery of high-priority public utilities

and infrastructure and, over the last decade or so, developed what is perhaps one of the largest PPP Programs in the world. With close to 1300 PPP projects in various stages of implementation, according to the World Bank, India is one of the leading countries in terms of readiness for PPPs. As per the 2015 Infrascope Report of the Economist Intelligence Unit, “Evaluating the environment for PPPs in Asia-Pacific 2014”, India ranks first in the world in “Operational Maturity” for PPP projects, third for sub-national PPP activity and fifth overall in terms of having an ideal environment for PPP projects.

The central coordination of PPPs is provided by the PPP Cell within the Department of Economic

Affairs (DEA), under the Ministry of Finance. The PPP Cell is responsible for all matters relating to PPPs, including policies, guidelines, schemes, and capacity building initiatives. The PPP Cell also acts as the Secretariat for Private Partnership Appraisal Committee and Empowered Institution (EI) /

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Empowered Committee (EC) for the projects posed for financial support through DEA’s Scheme for financial support to PPPs in infrastructure -Viability Grant Fund (VGF). Initiatives by Government of India for promoting PPPs Institutional Mechanisms

a. Institutional arrangement for appraisal and approval of PPP Projects

Public Private Partnership Appraisal Committee

A major difficulty in building infrastructure through PPPs is the absence of expertise to create and evaluate project proposals. Thus, in order to streamline the appraisal process for PPP projects, the Cabinet Committee on Economic Affairs (CCEA) in its meeting of 27th October, 2005 approved the procedure for approval of PPP projects. For details, please refer to Annex I. Pursuant to this decision, in 2006, the Government of India (GOI) notified the appraisal mechanism by setting up of the Public Private Partnership Appraisal Committee (PPPAC) responsible for the appraisal of PPP projects in the Central Sector. The appraisal mechanism for the PPP projects was streamlined to ensure speedy appraisal of projects, eliminate delays, adopt international best practices and have uniformity in appraisal mechanisms and guidelines. The PPPAC is chaired by Secretary, Economic Affairs with Secretaries of Department of Expenditure, Department of Legal Affairs, Niti Aayog and the Sponsoring Ministry/Department as members to consider and approve the proposals of Central Sector PPP Projects. The details of the projects recommended and approved by PPPAC are as below:

Number of

Projects TPC

Since inception 301 INR 349800 crore (USD 53 billion1)

Current FY (2016-17) 1st of April 2016 – till date.

2 INR. 3075 crore INR (0.5 bn USD Approx)

b. Standardized Bidding Documents

The Ministry of Finance also published standardized bidding documents which include Model Request for Qualification (RFQ) for Pre-Qualification of Bidders for PPP Projects, Model Request for Proposal (RFP) for invitation of Financial Bids for PPP Projects and also a Model RFP for engaging financial consultants and technical advisers for PPP Projects. Standardized contractual documents such as sector specific Model Concession Agreements, which lay down the standard terms relating to allocation of risks, contingent liabilities and guarantees as well as service quality and performance standards have also been developed by various Central Ministries such as Ministry of Road Transport and Highways, Ministry of Shipping etc. These standardized bidding and contractual documents are being adopted by project implementation agencies for developing PPP infrastructure projects in sectors such as ports, roads, airports, food storage (silos), water supply, etc. This has been a defining feature of India’s PPP program.

c. Financial support to Public Private Partnership in Infrastructure (Viability Gap Funding

Scheme)

                                                            1 Assumption: 1 USD equivalent INR 66 

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A scheme to provide financial support (Viability Gap Fund) to PPP projects in Infrastructure in the form of grants with a view to make them commercially viable has also been formulated. Infrastructure projects are often not commercially viable on account of having substantial sunk investment and low returns,however, they continue to be economically essential. Accordingly, the Scheme for Financial support to Public Private Partnership in Infrastructure (Viability Gap Funding Scheme) was formulated to provide financial support in the form of grants, one time or deferred, to infrastructure projects undertaken through PPPs with a view to make them commercially viable. The Scheme provides Viability Gap Funding up to twenty percent of the Total Project Cost (TPC). The Government or statutory entity that owns the project may, if it so decides may provide additional grants out of its budget up to further twenty percent of the TPC. Viability Gap Funding under the Scheme is normally in the form of a capital grant at the stage of project construction. The projects which have been granted final approval of VGF support under the Scheme are as in the table below:

Number

of Projects

TPC VGF (Approved Final)

Since inception 58 INR 32687 crore (USD 4.9 billion)

INR 5797 crore (USD 878 million)

Current FY (2016-17) 1st of April 2016 – till date

2 INR 450 crore (USD 67 mn Approx)

INR 33.39 crore (USD 4.97 mn Approx)

d. India Infrastructure Project Development Fund (IIPDF)

While quality advisory services are fundamental to developing well-structured, value-for-money PPPs, the costs of procuring PPPs, and particularly the costs of transaction advisors, are significant. Development of robust projects with a sound financial structure and optimal risk allocation is critical for evincing a market response in respect of the projects. The scheme for 'India Infrastructure Project Development Fund' (IIPDF) has been launched to finance the cost incurred towards development of PPP projects. The IIPDF supports up to 75 % of the project development expenses.

Recent Initiatives in PPP

a. Report of the Committee on Revisiting and Revitalising PPP model of Infrastructure

As a part of the Government's efforts to revitalize private investment, a detailed review of risks in PPPs was considered essential to rebalance the allocation of risks, while in no way diluting the essence of a PPP structure. Building upon the strengths of the mature PPP landscape in the country, which has been acknowledged internationally, the government constituted a Committee under the chairmanship of Dr. Vijay Kelkar, ex-Finance Secretary, to review and revitalize the PPP mode of infrastructure development. The aim was to: (i) rekindle private sector interest and investment to augment public investment; (ii) address all issues and identify key takeaways, including global best practices; and (iii) review and reorient the PPP model, keeping in mind the interests of all stakeholders. The Report includes, inter alia, steps to be taken by all stakeholders including public authorities, state and regulatory authorities, corporate sector, private developers, development contractors and financial institutions. These include also constant capacity building by each group of stakeholders. While government has taken measures on its

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part, steps need to be taken by the other parties. The Report of the Committee is available of DEA’s PPP Cell website, www.ppinindia.gov.in.

b. Framework for Renegotiation of Contracts

PPP concessions are usually long term arrangements spanning over decades and contracting parties are required to manage the uncertainties and complexities that arise over the long-term concession periods. These challenges are in the form of risks that cannot be foreseen and allocated ex-ante. A study was commissioned by DEA in April 2014 to identify factors and events that are not envisaged and / or provisioned under the extant concession agreements of projects but whose occurrence impact the financial viability and the performance of the project. The report on Developing a Framework for Renegotiation of PPP contracts is available at DEA’s website, www.pppinindia.gov.in.

c. Post-Award Contract Management Guidelines

Post-Award Contract Management Guidance Material for Highways, Ports and School sectors which includes Guidelines, Manuals and Online Toolkits has been developed to guide Project Authorities during the Post-Award implementation phase of the PPP project. The Guidelines / Manual have been designed to deal with the changing contexts over the concession period, uncertainties and effectively handle disputes which are critical for the overall success of the PPP projects. While the Guidelines provide key principles of Contract Management during the Post-Award phase, these have been further adapted to sector specific Manuals based on the contractual obligations enshrined in the Concession Agreements. These are further supported by an interactive web-based toolkit, easily accessible through DEA’s PPP Cell website, i.e. pppinindia.gov.in, and have been designed to provide practical application-oriented assistance to Project Authorities in undertaking project management.

d. PPP Structuring Toolkits

As a part of the PPP Capacity Building Program, PPP Toolkit has been designed to assist the PPP practitioners to strengthen decision-making at all key stages of the PPP project cycle and also improve the quality of the PPPs that are being developed. It is a web-based on-line Toolkit that facilitates identification, assessment, development, procurement and monitoring of PPP projects. The Toolkit is structured to cover the full life cycle of PPP projects. While the general structure has incorporated international best practices, the Toolkit has built on specific approaches for project procurement; approval etc. currently in place in India to ensure that it forms a relevant resource for practitioners in India. The on-line nature of the Toolkit ensures updating of resource quickly over time as the approaches in place develop and change. The toolkit covers four sectors, viz. highways, ports, solid waste management and urban transport. The toolkit is available to practitioners through DEA PPP Cell’s website, www.pppinindia.gov.in.

e. PPP Practitioners Guide

During the past five years, the Government has taken a number of initiatives to promote PPPs in the country and improve the PPP ecosystem in the country. This has resulted in PPPs being implemented in several sectors including, highways, ports and airports. Legislative changes and institutional arrangements have been made to facilitate public Authorities to implement PPPs. Financing mechanisms to support PPP have been introduced, including viability gap funding mechanisms. Procurement practices have matured and there are standardized bidding practices.

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Contract frameworks have been standardized through model concession agreements. Many State Governments have set up infrastructure development agencies. Several guidance documents have also been provided to stakeholders to develop capacity and knowledge. The Department of Economic Affairs (DEA) of Government of India has developed a comprehensive guidance for practitioners engaged in the PPP development process titled “PPP Guide for Practitioners” intended to provide step-by-step guidance on various processes in the PPP project life cycle including on the pre- award phase It highlights best practices that could be adopted by practitioners, to ensure transparency, fairness and accountability in the implementation of PPPs. The Guide, available on DEA’s PPP Cell website, i.e. pppinindia.gov.in, is divided into 17 modules which discusses a certain stage or concept in the PPP project development process. The Guide is interspersed with examples, key takeaways, web links and case studies.

f. Information Dissemination

i. www.pppinindia.gov.in DEA PPP Cell maintains a website dedicated to PPPs, www.pppinindia.gov.in, to provide information related to PPP initiatives in India. The website serves as a hub of information on PPP initiatives in India and contains related policy documents, government guidelines issued for mainstreaming PPPs. These include information on the institutional mechanisms for speedy appraisal of PPP infrastructure projects and the schemes for financial support to PPP projects. The website also contains various knowledge products developed in the PPP cell, sharing PPP best to enhance the ability of the public officials as well as private developers to implement PPP projects. ii. www.infrastructureindia.gov.in www.infrastructureindia.gov.in is a database of infrastructure projects including PPPs being implemented across the sectors in India. It provides key information on the status of infrastructure projects being executed by government as well as the private sector.

g. Municipal Borrowing Government has initiated a pilot project for developing a framework to build capacities of Urban Local Bodies ( ULBs) to raise financing through the Capital Markets for financing infrastructure projects (normally PPPs). The pilot initiative aims to develop a replicable model and related documents and demonstration of the model through a successful pilot transaction for an ULB. Guidelines for issuance of Municipal Bonds in India have been notified by SEBI.The objective of this exercise is to shortlist four Urban Local Bodies (ULBs) and support them in undertaking a readiness assessment and model development to build preparedness in the ULBs for tapping capital market financing through Municipal Bond issuances, preferably through Corporate Municipal Entity (CME) structures created by the shortlisted ULBs.

h. BRICS Seminar

The Government of India (GOI) organized a day long Knowledge Exchange Seminar on “Best Practices in Long-term Infrastructure Financing and PPPs” on Thursday, 22 September, 2016 in New Delhi, India. The Seminar was inaugurated by Mr Arun Jaitley, Finance Minister, Government of India who delivered the key note address. Regulatory Issues and Financing of Infrastructure, Innovative Investment Vehicles for Long Term Infrastructure Investment, PPP Project Delivery and Post Award Contract management were the key discussions during the Seminar. The Seminar brought together senior government officials and practitioners from

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BRICS countries in the field of infrastructure development and financing and Public Private Partnerships (PPPs) to learn about the different initiatives possible to improve the investment environment for infrastructure development.

(3.) Financial Market

(A) Major Reforms in the Secondary Market

1. Passing of Amendments to Section 20 of Indian Trust Act, 1882 The Indian Trusts (Amendment) Act, 2016 has been passed in Lok Sabha as well as Rajya Sabha. Pursuant to the Bill being passed in Parliament, it received the assent of the Hon’ble President on 26th July, 2016, and was published in the Gazette on 27th July, 2016.

The said amendment provides trustees greater autonomy and flexibility to take decisions on investment of money held by private trusts. It removed certain outdated provisions in Section 20 of the Act of 1882 and also empowered the Central Government to notify the securities or class of securities eligible for investment by a private trust. Government is in the process of notifying such eligible securities. 2. Creating one account for all financial asset holdings In the Union Budget 2014-15 in (July 2014), the Hon’ble Finance Minister announced the Government’s intention to “introduce one single operating demat account so that Indian financial sector consumers can access and transact all financial assets through this one account”.

This proposal was examined by the Inter-Regulatory Technical Group (IRTG) of Financial Stability and Development Council (FSDC), which recommended to facilitate an account aggregation facility, which provides a single view of the outstanding investments held by an investor across all financial assets.

In the FSDC-SC meeting held on 11th December 2014, it was agreed that RBI would be the designated regulator for account aggregation (AA). RBI has now issued the Non-Banking Financial Company – Account Aggregator (Reserve Bank) Directions, 2016 on 2nd September, 2016. 3. Increasing foreign investment limit in stock exchanges from 5% to 15% Budget 2016-17 proposed to increase the limit for foreign investment in stock exchanges from 5% to 15% for specific categories of foreign entities. In July 2016, Cabinet has approved the decision to increase foreign shareholding limit from 5% to 15% in Indian Stock Exchanges for a foreign stock exchange, depository, banking company, insurance company, and commodity derivative exchange, on par with domestic institutions. Consequent amendments to SEBI Regulations and DIPP Consolidated FDI circular are being carried out.

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This proposal will help enhance global competitiveness of Indian stock exchanges by accelerating/facilitating the adoption of latest technology and global best practices leading to overall growth and development of the Indian capital market. 4. Measures for curbing mis-selling and rationalising the incentive structure for various

financial products A Committee chaired by Shri Sumit Bose, former Union Finance Secretary and Member, Expenditure Commission, was constituted in November, 2014 to recommend measures for curbing mis-selling and rationalising the incentive structure for various financial products. The said Committee submitted its Report in August, 2015.

The recommendations of the Committee are currently under examination for timely implementation. 5. Merger of SEBI and FMC – Budget Announcement 2015-16 Steps were taken to ensure smooth and timely implementation of the said Budget Announcement with a Committee set up under the Chairmanship of Additional Secretary (Investment) for the purpose. The said merger was made effective from September, 2015. 6. Bringing clarity to Succession Rules in respect of securities held in demat account

SEBI Circular dated 28th October 2013 imposed restrictive conditions for the transmission of securities including the requirement of a No Objection Certificate from all legal heirs even in cases where clear directions are given in the Wills of the parents.

This matter was taken up with SEBI following which necessary modifications for simplifying the process of transmission of shares have been brought about vide SEBI’s Circular dated 15th September 2016.

(B) Major Initiatives in External Markets

Simplifying the procedures and documentation for registration of FPIs

The new Foreign Portfolio Investment (FPI) Regulations notified by SEBI following has come into effect from 1st June, 2014 enabling rationalization/harmonization of various foreign portfolio investment routes and establishment of a unified, simple regulatory framework. As part of Risk based approach towards customer identity verification (KYC), FPIs have been categorized into three major categories, viz. Category I (Low Risk) which would include Government and entities like Foreign Central banks, Sovereign Wealth Funds, Multilateral Organizations, etc; Category II (Moderate Risk) which would include Regulated entities such as banks, Pension Funds, Insurance Companies, Mutual Funds, Investment Trusts, Asset Management Companies, University related endowments (already registered with SEBI); and Category III (High Risk) which would include all other FPIs not eligible to be included in the above two categories. The documentary requirements are simplest for Category I and most stringent for Category III. Investment by Foreign Portfolio Investors (FPI) in Government Securities

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With the objective of having a more predictable regime for investment by the foreign portfolio

investors (FPI), the medium term framework (MTF) for FPI limits in debt securities has been set out. The limits for FPI investment in debt securities will henceforth be announced/ fixed in rupee terms. The limits for FPI investment in the central government securities will be increased in phases to 5 per cent of the outstanding stock by March 2018. Additionally there will be a separate limit for investment by FPIs in the State Development Loans (SDLs). INR offshore bonds

In order to facilitate Rupee denominated borrowing from overseas, it has been decided to put

in place a framework for issuance of Rupee denominated bonds overseas within the overarching ECB policy. Any corporate body, including REITS and InvITs, are eligible to issue Rupee denominated bonds overseas and any investor from a FATF compliant jurisdiction is eligible to invest. Withholding tax of 5% will be applicable on interest income from these INR off-shore bonds in the case of non-resident investors just as in the case of off-shore dollar denominated bonds. Further, Capital gains, arising in case of appreciation of rupee between the date of issue and the date of redemption against the foreign currency in which the investment is made, would be exempted from capital gains tax. Approval of GoI has also been granted to Government of British Columbia to issue Rupee denominated offshore bonds. IFSC GIFT City regulations by RBI, SEBI and IRDA on FEMA, Banking, capital markets and insurance

Gujarat International Finance Tec-City (GIFT) has been envisaged as an international financial

services center which will offer global firms world-class financial services from India. Post Budget 2015, the regulations/Guidelines were issued by RBI, SEBI, IRDA and DFS to pave way for the operationalization of GIFT. These, inter alia aim at treatment of GIFT institutions as a person resident outside India, conduct of business in foreign currency, terms and conditions for stock exchanges within GIFT, exempt companies carrying on the business of insurance from certain provisions of the of the Insurance Act, 1938 etc. New External Commercial Borrowings Framework

RBI in consultation with Ministry of Finance has reviewed and finally released a new, liberal

and revised External Commercial Borrowing (ECB) Framework on November 30, 2015. The new ECB framework is more attuned to the current economic and business environment. From regulatory perspective three main clear-cut categories/buckets have been created which include Medium term foreign currency denominated ECB, Long-term foreign currency denominated ECB (with minimum average maturity of 10 years) and Indian Rupee denominated ECB. Taking into consideration the prevailing external funding sources, particularly for long term lending and the critical needs of infrastructure sector of the country, Government of India with the objective to promote investments in infrastructure projects, has further reviewed the extant ECB guidelines in consultation with the Reserve Bank of India in March 2016. It has been decided to allow companies in infrastructure sector,

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Non-Banking Financial Companies-Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core Investment Companies (CICs) to raise foreign currency denominated External Commercial Borrowings (ECB) with minimum average maturity period of 5 years subject to 100 per cent hedging. Liberalization of Withholding Tax

The benefits of lower Withholding Tax rate of 5% in respect of interest income of foreign investors (FIIs and QFIs) from corporate bonds and government securities has been provided in the IT Act by insertion of Section 194LD in the Act vide Finance Act 2013. The Finance Act, 2015 has further provided for amendments to be made in section 194LD of the IT Act so as to extend the period of applicability of reduced rate of tax at 5% from 31.5.2015 to 30.06.2017. Simplified procedure for establishment of Branch Office (BO)/Liaison Office (LO)/ Project Offices (PO) in India by Foreign Entities

The establishment of BO/LO/PO in India by foreign entities is regulated in terms of FEMA Regulations. As a measure towards improving the ease of doing business, it has now been decided that except for a few sectors viz Defence, Telecom, Private Security, Information and Broadcasting and Government & Non-government organizations, the power to grant LO/BO/PO approvals would be delegated to the Authorised Dealers Category-I Banks. Further, anyone who has been awarded a contract for a project by a Government authority/PSU should be automatically given approval to open a bank account. RBI on May 12, 2016 has issued detailed guidelines in this regard.

(C) SEBI

Important Recent Measures Taken by SEBI in 2016 (till September)

• Dividend Distribution Policy

The top 500 listed entities by market capitalization have been mandated to formulate a dividend distribution policy to be disclosed in their annual reports and on their websites. This will help an investor make an informed investment decision and aids investors in identifying stocks that match with their investment objectives.

• Restriction on fund raising by wilful defaulters

On May 25, 2016 SEBI amended the SEBI NCRPS and the SEBI ILDS regulations to impose restrictions on Wilful defaulters in the following manner:

It is stated that no issuer shall make any public issue of NCRPS/debt securities, if as on the date of filing of draft offer document or final offer document, the issuer or any of its promoters or directors is a wilful defaulter or it is in default of payment of interest or repayment of principal amount in respect of non-convertible redeemable preference shares issued by it to the public, if any, for a period of more than six months.

• Review of prudential limits on investments by Mutual Funds

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The Board deliberated the proposals relating to review of prudential limits at issuer and sector level and the need to introduce such limits for group level exposure. It considered that review of single issuer, sector level exposure limit and introduction of group level exposure limits for investment in debt instruments would:

i. Mitigate risks arising on account of high levels of exposure in the wake of events pertaining to credit downgrades.

ii. Put mutual funds in a better position to handle adverse credit events. iii. Provide mutual fund investors with enhanced diversification benefits.

In light of the above, the Board decided as follows:

i. Amend SEBI (Mutual Funds) Regulations, 1996 to merge credit exposure limits for single issuer of money market instruments and non-money market instruments at the scheme-level.

ii. Amend SEBI (Mutual Funds) Regulations, 1996 so that single issuer limit is reduced to 10% of NAV extendable to 12% of NAV after trustee approval.

iii. Reduce exposure limit to a single sector from the current 30% of NAV to 25% of NAV. iv. Reduce additional exposure limit provided for Housing Finance Companies (HFCs) in finance

sector from 10% of NAV to 5% of NAV. v. Introduce group level limits for debt schemes through issuance of appropriate circular and the

ceiling be fixed at 20% of NAV extendable to 25% of NAV after trustee approval. A group, for this purpose, refers to group as defined under section 2 (mm) of SEBI (Mutual Funds) Regulations, 1996 and includes an entity, its subsidiaries, fellow subsidiaries, its holding company and its associates. All Government owned PSU entities, PFI & PSU banks will be excluded from group level limits.

vi. Trustees to review exposure of a mutual fund, across all its schemes, towards individual issuers, group companies and sectors. Trustee should satisfy themselves on the levels of exposure and confirm the same to SEBI in the half-yearly trustee report.

vii. Applicability

a. The aforesaid investment restriction shall be applicable to all fresh investments by a new scheme or an existing scheme.

b. Appropriate time shall be given for AMC to confirm that such mutual fund schemes confirm to the aforesaid investment restrictions.

• Norms for restriction on redemption by MFs The provisions on restriction of redemption were general in nature and did not specifically spelled out the circumstances in which restriction on redemption may be applied; leading to discretionary disclosures and practices in the industry. Therefore, in order to bring more clarity and to protect the interest of the investors, SEBI vide its circular dated May 18, 2016, has required that the following should be observed before imposing restriction on redemptions: a. Restriction may be imposed when there are circumstances leading to a systemic crisis or event

that severely constricts market liquidity or the efficient functioning of markets such as:

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i. Liquidity issues - when market at large becomes illiquid affecting almost all securities rather than any issuer specific security. Further, restriction on redemption due to illiquidity of a specific security in the portfolio of a scheme due to a poor investment decision, is not allowed.

ii. Market failures, exchange closures - when markets are affected by unexpected events which impact the functioning of exchanges or the regular course of transactions.

iii. Operational issues – when exceptional circumstances are caused by force majeure, unpredictable operational problems and technical failures (e.g. a black out).

b. Restriction on redemption can be imposed for a specified period of time not exceeding 10 working days in any 90 days period.

c. Any imposition of restriction would require specific approval of Board of AMCs and Trustees and the same should be informed to SEBI immediately.

d. When restriction on redemption is imposed, the following procedure shall be applied: i. All redemptions requests upto INR 2 lakh shall not be subject to such restriction.

ii. Where redemption requests are above INR 2 lakh, AMCs shall redeem the first INR 2 lakh without such restriction and remaining part over and above INR 2 lakh shall be subject to such restriction.

This information should be disclosed prominently and extensively in the scheme related documents.

• Electronic book building mechanism for private placement of debts

On April 21, 2016, SEBI has issued a circular on Electronic book mechanism for issuance of debt securities on private placement basis. The said circular lays down a framework for issuance of debt securities on private placement basis through an electronic book mechanism, in order to streamline procedures for issuance of debt securities on private placement basis and enhance transparency to discover prices.

The aforesaid mechanism has been made operational since July 01, 2016. Further, BSE and NSE have been approved to act as Electronic Book Providers (EBPs).

• Access of FPIs (Cat. I & II) to corporate bond market without brokers

Category I and Category II FPIs will have an option to directly access corporate bond market without brokers as has been allowed to domestic institutions such as Banks, Insurance Companies, Pension Funds etc. Access to Over-the -Counter (OTC), Request for Quote (RFQ) and Electronic Book Provider (EBP) platforms of RSE will be provided to FPIs only for proprietary trading and participation of FPIs will help in deepening the Corporate Bond market. • Disclosure requirements for issuance and listing of Green Bonds

The financing needs of renewable energy space in the country require new channels to be explored which can provide not only the requisite financing, but may also help in reducing the cost of the capital. Further, India’s Intended Nationally Determined Contribution (INDC) document puts forth the stated targets for India's contribution towards climate improvement and following a low carbon path

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to progress. The document also impresses upon the need of financing needs for achieving the stated goals.

The Board considered and approved the proposal for disclosure requirements for issuance and listing of Green Bonds, which have been formalized after consultation with the public. Some of the salient features are as under:

• The issuance and listing of Green Bonds will be governed under SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and such issuer of Green Bond shall have to make incremental disclosures/follow procedures.

• The definition of green bonds may be as specified by SEBI from time to time. • Requirement of independent third party reviewer/certifier/validator, for

reviewing/certifying/validating the pre-issuance and post-issuance process including project evaluation and selection criteria. However, this is kept optional.

• Escrow account is not mandatory, however issuer shall provide the details of the system/procedures to be employed for tracking the proceeds of the issue including the investments made and/or investments earmarked for eligible projects and the same shall be verified by the external auditors.

• Issuer to make disclosures including use of proceeds, list of projects to which Green Bond proceeds have been allocated etc. in the annual report/periodical filings made to the Stock Exchanges.

It is expected that these measures by SEBI will facilitate in taking investment decisions by investors who have a mandate to focus on green investments and will also provide uniformity in disclosure standards.

• Increase in limit of foreign investment in Indian stock exchanges

To Increase in limit of foreign investment in Indian stock exchanges the following amendments are made:

i. Regulation 17 (3) of SECC Regulation has been amended to increase the limit of shareholding of foreign institutional investors mentioned therein in Indian Stock Exchanges from 5% to 15%.

ii. Regulation 17 (4) of SECC Regulations has been amended to allow a foreign portfolio investor to acquire shares of unlisted stock exchanges through transactions outside of recognized stock exchange including the initial allotment.

• Revised risk management norms for commodity exchanges

SEBI announced a series of measures for strengthening and upgrading of risk management in commodity derivatives markets. Some new concepts were also introduced to deal with liquidity problems in stressed situations. For instance, up to two days of risk coverage by initial margin, concentration margin, tools to regain matched book and 'default waterfall'. An exchange's accountability in a default has also been increased, to match those at equity exchanges. Apart from this, the minimum base capital for clearing members which clear and settle only non-algorithmic trades for other trading members has been prescribed at Rs 25 lakh. margin benefit on spread positions

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— which was resulting in higher leverage — shall be entirely withdrawn latest by the start of tender period or expiry-sixth day, whichever is earlier. In the event of a member/client failing to honour pay-in/margin obligations, the Sebi has prescribed alternative tools to be used to liquidate the positions and regain a matched book, based on the conditions of market liquidity, volatility, size of position to be liquidated, etc.

• Introduction of Options by Commodities Derivatives Exchanges

At present the only instrument available in the Commodity Derivatives market is futures on individual commodities. Introduction of new commodity derivatives products has been a subject of deliberation as it is considered to be conducive for the overall development of the commodity derivatives market, attracting broad base participation, enhancing liquidity, facilitating hedging and bringing in more depth to the commodity derivatives market.

In his Union Budget Speech for the year 2016-17, the Hon’ble Finance Minister announced that “new derivative products will be developed by SEBI in the Commodity Derivatives market”.

SEBI has constituted a committee of experts known as Commodity Derivatives Advisory Committee (CDAC) to advise SEBI on matters concerning effective regulation and development of the commodity derivatives market. The recommendations made by the CDAC inter alia, on the subject of introduction of new products have been considered and it has been decided that Commodity Derivatives Exchanges shall be permitted to introduce trading in 'options'.

The Commodity derivatives exchanges willing to start trading in options contracts shall take prior approval of SEBI for which detailed guidelines will be issued in due course.

• Revised Warehousing Norms in the Commodity Derivatives Market

The norms, inter alia, includes aspects like Accreditation of Warehouse Service Providers (WSP), Eligibility and Experience of WSP/Promoters/Promoter Group of WSP, Financial Norms for the WSP, Fit and Proper Criteria, Corporate Governance norms for WSP, Know Your Depositor, PAN requirement, Facilities & Infrastructure Requirement for WSP, Accreditation of assayers, Warehouses at delivery centres, Insurance, Monitoring/Inspection/Audit of warehouses by WSPs and Exchanges, Code of conduct, Grievance Cell, Surrender/Cancellation of accreditation, Business Continuity Plan, Actions against WSPs, Cold Storages, etc. • Increase in arbitration centers

There were 14 arbitration centres across India with about 250-plus arbitrators. Recently SEBI has increased the arbitration centres in 9 more locations having the local offices of SEBI. Most arbitration proceedings are completed within four months and can extend up to six months. Investors do not have to pay any arbitration fees if the claim amount is less than Rs 10 lakh. The party against whom the award has been passed has to bear the costs of arbitration. Exchanges give full refund of deposit to the party in whose favour the award has been passed.

Important Initiatives by SEBI in last 4-5 years

1. Measures to enhance ease of doing business in securities market

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• E-IPO mechanism

o Obviates the need to issue cheques o E-IPO will use secondary market infrastructure for public issue. o This initiative will reduce the time taken for listing from 12 days to 6 days from

the date of closure of public issues o RTAs and DPs have also been enabled to accept application forms from

investors o This measure will broad base the reach of retail investors and reduce cost involved in public issue of equity shares and convertibles • Introduction of System-Driven Disclosures o SEBI has taken a major initiative in easing the compliance burden regarding disclosures to be made by the individuals and companies under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and SEBI (Prohibition of Insider Trading) Regulations, 2015 in respect of acquisition/holding and disposal of shares. o Circular dated December 01, 2015 was issued by SEBI regarding system-driven disclosure wherein the onus of disclosures will shift from the individuals/companies to the securities market infrastructure through integration amongst Depositories, Exchanges, and Registrar and Transfer Agents (RTAs). o Initially, the system will operate on a test basis, parallel to the manual disclosures and once it is fully implemented, it would replace the manual disclosure obligations up to the extent possible. o Such a system would aid in eliminating the possibility of inadvertent violations and focus on cases which attempt to manipulate the markets or mislead investors. • Capital raising and listing in India by tech start-ups o New guidelines for Capital Raising and Listing on Institutional Trading Platform (ITP) by Technological Start-ups put in place making it easier for tech start-ups to raise capital from the securities market • Single Registration to Depository Participants for operating in both the depositories • Single registration to Stock Brokers and Clearing Members for operating in all stock exchanges / clearing corporations • KRA System o Simplification and rationalization of Trading Account Opening and Know Your Client (KYC) Process and Uniform KYC norms across the securities markets o Centralized KYC Registration Agency (KRA). There are more than 2 crore KYC accounts registered with KRAs so far. 2. FII regime replaced by FPI regime o Has simplified and streamlined the entire regulatory framework (including KYC norms) for foreign portfolio investors

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o Has enhanced the ease of registration and operations for FPIs o SEBI Board in its meeting held on May 19, 2016 decided to further tighten ODI norms relating to issuance and transfer. 3. Reenergizing mutual funds industry o Incentives to go to smaller locations o rationalizes incentive structure for distributors o permitted limited amount of MF transactions in cash (initially 20, 000/- subsequently increased to Rs. 50, 000/-) o started product labeling, enhanced disclosures and working in the direction of the proposed long-term policy for mutual funds 4. Governance and Enforcement • Listing Regulations o Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) came into effect from December 1, 2015. o Provisions for listed entities have been aligned with those of the Companies Act, 2013. o The regulations have been structured to provide ease of reference by consolidating into one single document across various types of securities listed on stock exchanges. o The transition from listing guidelines into listing regulations would have more force of law. o Under the mechanism, the initial penal action would be a minimum fine of Rs 1,000-5,000 per day depending on the violation, while repeated offences would lead to actions like transfer to restricted-trade category, freezing of promoter shares and overall suspension on trading in company shares. • Corporate Governance o Enhances governance standards for listed companies to a higher level o Comparable to the best in the world o Will go a long way in further strengthening the confidence of both domestic and foreign investors in financial markets o World Bank Ease of Doing Business Report 2015 has ranked India 7 for the year 2014 in terms of protection of minority shareholders ( Ranking of India in 2012 : 49, in 2013 : 34) • Minimum Public Shareholding Norms o Implementation of minimum public shareholding norms – for private sector listed companies over, for PSUs dateline is 2017. • New Insider Trading Regulations Existing insider trading regulations proposed to be replaced by new, more effective regulations – will further strengthen enforcement framework • Restriction on Wilful Defaulters

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With the objective of restricting access to capital markets by the ‘wilful defaulters’, prohibition on such entities from raising capital through public issue, from taking over other listed companies and from becoming market intermediaries has been put in place. • Dividend Distribution Policy The top 500 listed entities by market capitalization have been mandated to formulate a dividend distribution policy to be disclosed in their annual reports and on their websites. This will help an investor make an informed investment decision and aids investors in identifying stocks that match with their investment objectives. 5. Framework for New Products/ Platforms • Regulation for issuance of Municipal Bonds o Puts in place a framework for public issue of debt securities by municipalities, listing and trading of such securities and matters incidental thereto. • REITs / InVITs o Expected to give a boost to financing of infrastructure and real estate project o Tax issues were perceived as a major barrier for take-off which have been addressed to a significant extent in the recent union budget for 2015-16. o SEBI vide circular No. CIR/IMD/FPIC/39/2016 dated March 15, 2016 permitted FPIs to invest in units of REITs, InvIts and Category III AIFs. Further, vide aforesaid circular, FPIs have also been permitted to acquire NCDs / bonds, which are under default, either fully or partly, in the repayment of principal on maturity or principal installment in the case of an amortising bond • Framework for alternative investment funds (AIFs) o Facilitate structured development of alternative investment funds like private equity funds, angel funds, hedge funds, etc. o Encouraging financing of new generation enterprises, particularly in their early stages • SME Platform o Financing of SMEs through securities market is high on SEBI’s agenda o Less onerous compliance standards o BSE and NSE commenced trading in this segment on March 13, 2012. o SMEs meets were successfully held by SEBI along with SIDBI, NSE and BSE at Coimbatore, Rajkot, Ahmedabad, Bhubaneswar, Patna, Pune, Faridabad, Kanpur, Vijaywada, Patna, Raipur to promote awareness among SMEs and to motivate them to get listed o There are 135 (after 18 migrated to main board) companies listed on BSE and 21 (after 1 migrated to main board) companies listed on NSE. • Electronic book mechanism for issuance of debt securities on private placement basis

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On April 21, 2016, SEBI has issued a circular on Electronic book mechanism for issuance of debt securities on private placement basis. The said circular lays down a framework for issuance of debt securities on private placement basis through an electronic book mechanism, in order to streamline procedures for issuance of debt securities on private placement basis and enhance transparency to discover prices.

The aforesaid mechanism has been made operational since July 01, 2016. Further, BSE and NSE have been approved to act as Electronic Book Providers (EBPs). • Currency Options

In consultation with Reserve Bank of India RBI, permitted recognised stock exchanges to offer cross-currency futures and option contracts in the EUR-USD, GBP-USD and USD-JPY currency pairs along with currency option contracts in EUR-INR, GBP-INR and JPY-INR currency pairs, in addition to the existing USD-INR pair. 6. Risk Management o Comprehensive Risk Management Framework for National and Regional Commodity Derivatives Exchanges o Review of Index based circuit breakers mechanism o Policy for annulment of trades undertaken on stock exchanges o Review of minimum contract size in Equity Derivatives Segment o Cyber Security and Cyber Resilience framework of Stock Exchanges, Clearing Corporation and Depositories o Risk Management Policy at Depositories o Stress Testing of Liquid Fund and Money Market Mutual Fund Schemes 7. Exit of regional Stock Exchanges o No. of RSEs existed – 17 o No. of RSEs in the process of exit – 4 8. Commodity Derivatives Market

• SEBI took over the regulation of commodity derivatives market 1 year back • Since then SEBI, inter alia, has overhauled risk management system, aligned major norms with securities markets, revised warehousing norms and is in the process of facilitating the introduction of commodity options.

9. On-line Complaints Redressal by SEBI-SCORES o Of the more than 2 lakh complaints received since launch of SCORES, more than 87% of those complaints have been resolved. o As per NIC, no. of days taken for redressal of grievances has reduced from 155 in 2011-2012 (launch of SCORES) to 38 in 2014-2015. o SEBI recently has increased the arbitration centers. An internal committee is examining the further necessary steps required to overhaul the arbitration mechanism.

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Major Current Challenges in Indian Securities Market

i. Managing Global Shocks -Volatility due to huge Capital Inflows/Outflows ii. Newer challenges from technological advancements / commodity business

o Further upgrading the surveillance systems and capabilities. o Risk Management in the context of Evolving Technology – HFT, Algo & Co-location. o Cyber Security o Efficient price discovery, risk management, increased participation and healthy growth

in commodity derivatives iii. Tackling Illegal Fund Raising Activities iv. Ensuring wider penetration of Mutual Funds across the country v. Expanding Financial Literacy and Investor Awareness

vi. Deepening Corporate Bonds Market vii. Independence of Auditors

(4.) Financial Stability and Development Council (FSDC) Secretariat The FSDC set up since December 2010 functions under the Chairmanship of Finance Minister and its members include the heads of Financial Sector Regulators (RBI, SEBI, PFRDA and IRDAI) Finance Secretary and /or Secretary, Department of Economic Affairs, Secretary Department of Financial Services and Chief Economic Adviser. The last meeting of the FSDC i.e., 15th Meeting was held on 5.7.2016 in New Delhi. In FSDC meetings, apart from assessment of macro-economic financial stability related issues, it has discussed issues such as External Sector Vulnerabilities and review of recent macro-economic developments, development of Corporate Bond market, Implementation of recommendations of the Financial Sector Legislative Reforms Commission (FSLRC), Asset Quality, Capital Adequacy of Banks, Management & Governance issues of public Sector Banks, Impact of the Tapering off of the Quantitative Easing in the US, Fraud in Banks, Building Effective Deterrence through Expeditious Action, rising bank NPAs, developing a robust regulatory framework for various credit guarantee schemes of the Government, comprehensive scheme for identification of SIFIs across all sub-sectors of financial sector & possible stress in the financial markets on account of maturity of concessional swaps in 2013 against FCNR deposits etc. FSDC had also held meeting to have budget consultations with the financial sector regulators. The FSDC Sub-Committee: The Sub Committee is set up under the Chairmanship of Governor, RBI. The Sub-Committee has met 18 times in total. The last meeting was held on 29th August, 2016 which reviewed the major developments on the global and domestic fronts that impinge on the financial stability of the country. Reports of the FSB Peer Review of India and the Working Group on Development of Corporate Bond Market in India, issues regarding the proposed Bill on setting up of a statutory Financial Data management Centre (FDMC), Minimum Assured Return Scheme under the National Pension System (NPS) and regulation of spot exchanges were the other topics discussed during the meeting. The meeting also reviewed the functioning of the State Level Co-ordination Committees (LSCCs) in various States/Union Territories, the activities of the various Technical Groups of the Sub-Committee and the progress achieved on the decisions/recommendations emanating from the earlier meetings of the Sub-Committee. Working Groups/Technical Groups under FSDC Sub Committee:

• Inter regulatory Technical group (IR_TG): IRTG has held 20 meetings so far. The last meeting was held on January 5, 2016.

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• Technical Group on Financial Inclusion and Financial Literacy (TGFIL): 13 meetings has been held so far. The last meeting was held on May 23, 2016.

• Inter Regulatory Forum on Financial Conglomerates (FCs): IRF-FC has held 19 meetings so far. The last meetings was held on April 25, 2016.

• The Early Warning Group (EWG): 6 meetings held so far. The 6th meeting was held on September 2, 2015.

• The Working Group on Financial Resolution: The Group has submitted its report. It is proposed to enact a comprehensive Code on resolution of Financial Firms which will be introduced as a Bill in the Parliament during 2016-17 as announced in the Budget 2016-17.

Crisis Prevention and Monitoring Framework (CPMF): A Macro Financial Monitoring Group (MFMG), Chaired by the Chief Economic Adviser, has been set up which meets to keep track of the macroeconomic and financial developments, identify vulnerabilities and provide early warning signals. The Group has held 18 meetings so far. The last meeting was held on 20.9.2016. Financial Stability Board (FSB): India is an active Member of the Financial Stability Board (FSB) constituted under the aegis of G20 having three seats in its Plenary represented by Secretary (EA), Deputy Governor-RBI and Chairman-SEBI. Regular interaction with FSB takes place through periodic conference calls and meetings. Information is exchanged with FSB member Jurisdictions frequently as per international requirements and norms. The FSDC Secretariat in the Department of Economic Affairs Coordinates with the various financial sector regulators and other relevant agencies to represent India’s views with the FSB. DEA actively participates in Plenary meetings, SCSI meetings and RCG Asia meetings. The FSB activities/priorities are as under: FSB activities/ priorities

Full and consistent implementation of agreed reforms

FSB identifies areas of attention, effects market liquidity and spillover on EMDEs from the implementation of reforms in home jurisdiction of global Financial Institutions. FSB also endeavors to maintain open and integrated financial system works towards framework for post implementation evaluation policy reforms and discusses finding in areas of relevance to the FSB.

Finalizing the remaining post-crisis reforms

Building resilient financial institutions

The Basel III risk-bases capital rules and Liquidity Coverage Ratio is now in force in all 24 FSB jurisdictions. Fundamental review of the trading book was published in early 2016 and will come into effect in 2019. Policy reforms to be finalized by end 2016 will not significantly increasing overall capital requirements. Work is under progress to review the treatment of sovereign exposures.

Ending too-big-to-fail

By end- 2016, FSB resolution working on guidance on CCP resolution planning, Strategies and tools will be in place. Resolution resolvability in the Insurance sector, final guidance on resolution Strategies for systematic insurance and stock-take on key attribute implementation, draft guidance on internal TLAC and BCBS disclosure and deduction requirements to be done in 2016. Works towards funding in resolution and operational continuity and cross border effectiveness of resolution actions will be covered.

Making OTC derivatives markets safer

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Phase- in of margin requirements for non-centrally cleared derivatives will begin in September 2016. More granular guidance on resilience, recovery and resolution of CCP in 2016 under coordinated FSB/BCBS/CPMI/IOSCO work plan, introduction of comprehensive trade reporting and Cross border is issues is underway.

Addressing involving the risk and vulnerabilities

Asset Management activities and market liquidity risk.

Intended to address growth in market based finance and Asset Management at a time when market making capacity is shrinking. This involves policy recommendations to address structural vulnerabilities arising from Asset Management activities discussed at FSB Plenary. A consultative document with recommendations to be published in June and finalize in late 2016. Further, IOSCO will develop details to operationalize the recommendations.

Macro prudential policy

Effective macro-prudential policies and frameworks include joint IMF-FSB-BIS exercise and to report to G 20 Summit covering stocktaking and lessons from International experience. The work will cover definition, objective and scope of macro-prudential policy framework, operational considerations and international consistency and collaboration in macro-prudential policy

Misconduct risks:

Assessing effectiveness of reforms to incentives in reducing misconduct and reforming benchmarks.

Correspondent banking

As a part of Financial Stability Vulnerabilities in EMDEs, issue of decline in correspondence banking relationships has been highlighted. World Bank survey indicates significant decline in CBRs for few large international banks leading to financial exclusion. FSB has taken up examination for timely identification of acceleration or reversal of the decline in correspondent banking and understanding of the causes of the decline. In this regard, Correspondent Banking Coordination Group comprising FSB, BCBS, FATF, CPMI, IMF, World Bank, LEI ROC was established which will look into improving data collection and analysis, clarifying regulatory expectations and strengthening the tolls for due diligence by correspondent banks.

Technological innovation

Framework to identify, determine the drivers and examine innovations through lenses of the different regulatory authorities. Work program with other Basel based bodies to monitor and asses industry development and to identify the margin regulatory issues

Climate change and the financial sector

Industry-led Task Force on climate related Financial Disclosures established in December 2015

FSB Peer Review of India:

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As part of our commitment to FSB, India volunteered to undergo a peer review in 2015-16. The topics covered for the peer review were (i) macro-prudential policy Framework and (ii) regulation and supervision of NBFCs and Housing Finance Companies.

Financial Sector Assessment Programme

The recommendations given by FSAP and IMF World Bank programme, was followed up for compliance, with all financial sector regulators. Preparatory steps have been taken for the next FSAP exercise due in 2016-17

Setting up of Financial Data Management Centre:

In the budget speech 2016-17, Hon’ble FM has announce setting up of Financial Data management Centre under the aegis of the FSDC to facilitate integrated data aggregation and analysis in the financial sector. It has been decided to setup a statutory FDMC, for which a draft bill is ebing formulated by a Committee with representation from all regulators, D/o Financial Services and D/o Legal Affairs. The fourth meeting was held recently.

(5.) Financial Sector Legislative Reforms Commission

The Financial Sector Legislative Reforms Commission set up on 23.3.2011 for rewriting the financial sector laws to bring them in harmony with current requirements, submitted its report to the government on 22.3.2013. The report is into parts volume I- titled “Analysis and recommendations” and volume II - titled “the draft law of the Indian financial code”.

The recommendations of the Commission can broadly be divided into two parts, legislative aspects and non-legislative aspects. The legislative aspects of the recommendations relate to revamping the legislative framework of the financial sector regulatory architecture by a non-sectoral principle-based approach and by restructuring existing regulatory agencies creating new agencies wherever needed.

To this effect the commission has recommended a seven agency regulatory architecture, namely, Reserve Bank of India, Unified Financial Agency, Financial Sector Appellate Tribunal, Resolution Corporation, Financial Redress agency, Public Debt Management Agency and Financial Stability and Development Council in the draft law -Indian Financial Code to replace a number of existing laws. The non -legislative aspects of the FSLRC recommendations are broadly in the nature of government enhancing principles for enhanced consumer protection, greater transparency in the functioning of financial sector regulators.

The following actions have been taken on the FSLRC recommendations:

I. On the basis of decision taken in the Financial Stability and Development Council Chaird by the FM, the existing financial sector regulatory Agencies are implementing the governance enhancing recommendation that can be adopted without legislative changes on voluntary basis.

II. The Forward Market Commission has been merged with the Securities and Exchange Board of India with effect from 28 September 2015 to achieve convergence of regulation of securities market and commodity derivatives market.

III. A ‘Financial Sector Regulatory Appointment Search Committee’ has been constituted on 24th November 2015 for recommending names of suitable person for appointment to board level position of financial sector regulatory bodies

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IV. The Government set up four task forces upgrading the existing securities appellate Tribunal to Financial Sector Appellate Tribunal and for establishing new agencies namely, the Resolution Corporation, Public Debt Management Agency and the Financial Data Management Centre on 30th September 2014. The Task Forces submitted their reports in June 2015. The Task Force set up on 5.6.2015 for creating a sector neutral Financial Literacy Agency. The report is under examination.

V. Apart from inviting comments on the FSLRC Report and the Draft IFC, the D/o Economic Affairs in collaboration with Institute of Company Secretaries of India organized a number of small intense workshops and seminars on specific areas of the IFC for building consensus on the Draft. Work on fine tuning the Draft IFC with comments of stakeholders suitably incorporated to make it legally flawless was initiated and the Revised Draft IFC was revised in the light of the comments received and hosted on the website of the Ministry of Finance on 27.3.2015, inviting comments of stakeholders by 8th August 2015. The comments so received are under examination.

VI. The status and next steps on the FSLRC report have been examined and the following action are under discussion:

a) Since moving the IFC proposals in totality – after due consideration- is a time consuming process, key aspects of the IFC may be fast –tracked.

b) Since SAT is at present statutorily mandated to hear appeals not only against orders of SEBI, but also against those of IRDA and PFRDA through amendments in respective legislations, there is an urgent need to upgrade/enhance capacity of the SAT by amending the SEBI Act, 1992 in consultations with the Presiding Officer of SAT.

c) Setting up RC as recommended by FSLRC by taking relevant section from the DRAFT IFC, and in consultation with all the financial sector regulators and the DFS. Following the Budget announcements of 2016-17 for framing a comprehensive Code on Resolution of Financial Firms and introducing it as a Bill in the Parliament during 2016-17, a Committee for framing a Draft Code on Resolution of Financial Firms was set up on 15.3.2016 with representatives from the financial sector regulators, the Deposit Insurance and Credit Guarantee Corporation and the D/o Financial Resolution and Deposit Insurance Bill, 2016’ on 21.9.2016. A copy each of the Report of the Committee, the Draft Bill and an explanatory note explaining the key legal provisions of the Bill is hosted on the website of the M/o Finance on 28.9.2016. Technical assistance for the organizational design, IT requirements, manuals and work processes of the Financial Resolution and Deposit Insurance Corporation, to be established after the legislation is proposed to be gather from established juri9stictionh, including the US, OTA.

d) Setting up a centralized data centre named as Financial Data management Centre under the aegis of the Financial Stability and Development Council that will be used for analysis of financial stability and related issues.

e) Setting up an independent Public Debt Management Agency for managing government’s debt and cash balance etc.

f) Setting up a sector-neutral Financial Redressal Agency that will address grievances against all financial service providers as announced in the Budget Speech 2015-16.

g) Enacting the Indian Financial Code recommended by the FSLRC. The IFC will consolidate all financial sector laws in India.

(6.) Monetary Policy Framework

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A monetary Policy Framework Agreement between the Government and the Reserve bank of

India was signed on 20.2.2015, providing for flexible inflation targeting. With a view to maintaining price stability, while keeping in mind the objective of growth, the Reserve Bank of India Act, 1934 (RBI Act) has been amended by the Finance Act, 2016, to provide for a statutory and institutionalized framework for a Monetary Policy Committee (MPC).

The provisions of the RBI Act relating to the chapter on Monetary Policy have been brought

into force through a Notification in the Gazette of India Extraordinary on 27.6.2016. The Rules governing the Procedure for Selection of Members of Monetary Policy Committee and Terms and Conditions of their Appointment and factors constituting failure to meet inflation target under the MPC Framework have also been notified in the Gazette on 27.6.2016. The government, in consultation with the RBI, has notified the inflation target in the Gazette of India Extraordinary dated 5.8.2016, for the five year period beginning from the date of publication of this notification and ending on the March 31, 20121, as under:

Inflation Target: 4% Upper tolerance level: 6% Lower tolerance level: 2%

The Monetary Policy Committee has been constituted and published in the Official Gazette on

29.9.2016.

The Insolvency and Bankruptcy Code, 2016 A Bankruptcy Law Reforms Committee was set up on 22.8.2014 for providing an entrepreneur

friendly legal bankruptcy framework for India meeting global standards for improving the ease of doing business with necessary judicial capacity. The Committee submitted its Report and draft Bill on 4.11.2015. Based on this, as well as public/stakeholder consultation, a Bill relating ‘The Insolvency and Bankruptcy Code, 2015’ was introduced in the Lok Sabha on 21st December, 2015. The Bill was referred to a Joint Committee of Parliament. The Joint Committee of Parliament submitted its report on 28.4.2016. The Insolvency and Bankruptcy Code, 2016 was passed by Parliament on 11.5.2016 and published in the Official Gazette on 28.5.2016.

The Code aims to promote entrepreneurship, availability of credit and balance the interest of

all the stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner and for maximization of value of the assets of such persons and matters connected therewith or incidental thereto. It proposes a framework to ensure:

• Early detection of stress in a business. • Initiation of the insolvency resolution process by debtor, financial creditor or

operational creditor; • Timely revival of viable businesses; • Liquidation of unviable businesses; • Minimization of losses to all stakeholders; and • Avoiding destruction of value of failed business

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The administration of the Insolvency and Bankruptcy Code, 2016 has been transferred to the Ministry of Corporate Affairs w.e.f. 29.7.2016. The Ministry of Corporate Affairs is taking necessary steps for implementation of the Code.

(7.) FDI policy The FDI policy, which is presently published by Department of Industrial Policy & promotion (DIPP), has been liberalized progressively through review of the policy on an ongoing basis and allowing FDI in more industries under the automatic route. As per the extant policy, FDI up to 100% is allowed, under the automatic route, in most of the sectors/activities. FDI under the automatic route does not require prior approval either by the Government of India or the Reserve Bank of India (RBI). Investors are only required to notify and file documents the Regional office concerned of RBI. Under the Government approval route, applications for FDI proposals are considered and approved by the Foreign Investment Promotion Board (FIPB). Department of Industrial Policy & Promotion brings out a Consolidated Foreign Direct Investment Policy Document. The latest one has been issued on June 7, 2016.It is available at http://dipp.nic.in. Sectoral guidelines and caps:

(a) The following sectors are prohibited for FDI:- (i) Lottery Business (ii) Gambling and Betting (iii) Business of chit fund (iv) Nidhi company (v) Trading in Transferable Development Rights (TDRs) (vi) Real Estate Business or Construction of Farm Houses ‘Real estate business’ shall not include development of townships, construction of residential

/commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014.

(vii) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

(viii) Activity/sector not opened to private sector investment e.g: (I) Atomic Energy and (II) Railway operations (other than permitted activities as notified vide PN 8/2014 dated 26th August, 2014).

(b) Sectors having caps and conditionalities can be seen in Consolidated FDI policy 2016 (available on the website of DIPP www.dipp.gov.in.). In other sectors which is not specified in CFPC-2016, FDI is permitted up to 100% on the automatic route, subject to applicable laws/regulations, security and other conditionalities. Major changes in the recent times Year 2015 (i). NIC Code : Mapping of the sector specific FDI Policy in Consolidated FDI Policy 2014 in terms of National Industrial Classification (NIC)-2008 has been done with the objective of improving ease of doing of business in India and published vide Press Note 1 of 2015 dated 5th January, 2015. (ii). Pharma Sector: In view of difficulties of investors, the Govt. vide Press Note 2 of 2015 dated 5th January, 2015 has allowed FDI up to 100% under the automatic route for manufacturing of medical devices, which was earlier placed in the Govt. approval route. (iii). Relaxation of norms for Investment by Non Resident Indian on Non-repatriation basis: Vide Press Note 7/ 2015 dated 3rd June, 2015, the Government has amended the definition of NRI under FEMA-20 and stated that the investment by NRI on Non-repatriation basis would be treated at par with

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investment made by residents. This will facilitate / attract investment from NRIs as Sectoral caps and conditionalities will not be applicable henceforth. (iv). Introduction of Composite Caps for simplification of FDI policy to attract foreign investments: Earlier, caps for FDI, FPIs /FIIs for each activity sectors were indicated separately. However, to simplify and rationalise these and to make the FDI policy in consistent with RBI regulations, the Govt. has introduced Composite caps vide Press Note 8/2015 dated 30 July, 2015. Sectoral cap i.e. the maximum amount which can be invested by foreign investors in an entity, unless provided otherwise, is composite and includes all types of foreign investments, direct and indirect, regardless of whether the said investments have been made under Schedule 1 (FDI), 2 (FII), 2A (FPI), 3 (NRI), 6 (FVCI), 8 (OF I), 9 (LLPs) and 10 (DRs) of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations. In addition to the above, it is stipulated that investment by FPIs /FIIs up to 49% in all sectors except Defence does not require FIPB approval. This makes the policy more lucid, clear, and facilitates investment through FPIs route. (v). FDI by Partly paid Shares and Warrants: Vide Press Note 9/2015 dated 15.09.2015 Partly Paid Shares and Warrants are treated as eligible financial instruments for foreign investment under FDI Policy (vi). FDI in White Label ATM Operations: Vide Press Note 11/2015 dated 1.10.2015, the Government has allowed 100% FDI in White Label ATM Operations under automatic route subject to fulfilment of guidelines of RBI. (vii). Foreign Investment in Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs) and Alternative Investment Funds (AIF) all regulated and registered under SEBI regulations : RBI’s vide Notification No. 355/RB 2015 and 345/RB-2015 dated November, 16, 2015 amended the Foreign Exchange Management ( Transfer or Issue of Security by a person Resident Outside India) thereby allowing foreign investment in the units of REITs, InvITs and AIF, all regulated by SEBI. It is also specified that “real estate business” shall not include development of townships, construction of residential / commercial premises, roads or bridges and investment in Real Estate Investment Trusts (REITs). Now, foreign investor can invest through units of REITs, in the completed real estate projects. Foreign investors, through units of InvITs, can invest in the infrastructure sector. Further, foreign investors, through units of AIF which is akin to investment in venture activities, start-ups, infrastructure sector, MSMEs, social sector and various other segment of the market which are Private Equity or Debt fund or Hedge fund can make investment in India. All these will induce economic development through the availability of cheaper capital and have positive spillover effects for the economy. (viii) Enabling provision for investment by NRI in National Pension Funds (NPFs): Vide Notification No. 353/2015 dated October 6, 2015, RBI has enabled NRI contribution in NPFs. Non- Resident Indian may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act. The annuity/ accumulated saving will be repatriable. It shows commitment of the Government towards welfare of NRI.

Major changes through Press Note 12 dated November 24, 2015, Through PN 12/2015, a number of changes were made in FDI policy to simplify and rationalize it in many sectors by enhancing the limit of foreign investment and placing some activities / sectors on automatic route instead of earlier regulations of seeking Govt. approval for such investment. The salient measures are: (i) Agriculture and Animal Husbandry v. Plantation: Earlier, FDI in only tea plantations were

allowed. Through PN 12/2015, 100% FDI is allowed on automatic route in Coffee, Rubber, Cardamom, Palm oil tree and Olive Oil tree Plantations. Further, the term “under controlled

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conditions” mentioned under Agriculture Sector has been defined / specified for floriculture, horticulture, Animal Husbandry, Rearing of animals under intensive farming systems, poultry breeding farms, pisciculture, apiculture.

(ii) Defence:, 49% FDI is allowed on automatic route in Defence Sector instead of under Government route. FDI beyond 49% is placed on the approval route provided there is a likelihood of the foreign investment proposal resulting in access to modern and ‘state-of-art’ technology in the country.

(iii)Information & Broadcasting Sector: (a) Teleports, Direct to Home, Cable Networks (Multi System Operators (MSOs), Mobile TV, Head

end-in-the Sky Broadcasting Services(HITS): FDI raised from 74% to 100% out of which up to 49% on automatic route and beyond it on approval route.

(b) Terrestrial Broadcasting FM (FM Radio), Up-linking of ‘News & Current Affairs’ TV Channels : FDI raised from 26% to 49% under the approval route.

(c) Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels: 100% FDI is now allowed under the automatic route.

(iv) Civil Aviation Sector: FDI in non-Scheduled Air Transport Service and General Handling Service has been enhanced from 74% to 100% under the automatic route bringing it at par with Helicopter services/seaplane services requiring DGCA approval, subject to Sectoral regulations and security clearance

(v) Satellites- establishment and operation, FDI has been enhanced from 74% to 100% under approval route subject to the Sectoral guidelines of Department of Space/ISRO.

(vi) Credit Information Companies: FDI enhanced from 74% to 100% under the automatic route.

(vii) Construction & Development Sector: Conditions of minimum floor area and minimum FDI amount have been done away with. The exit norms of foreign investor have been simplified. Now the Non-resident investors can transfer their stake, without repatriation of investment, to the other Non-resident Investors and this will not be subject to either lock-in-period or Govt. approval. Further, Non-resident investors can exit after lock-in-period of three years without Government approval.

(viii) Retail Sectors: Norms are simplified as follows: (a) An Indian manufacturer is permitted to sell its own branded products in any manner i.e.

wholesale, retail, including through e-commerce platforms. (b) Government may relax sourcing norms for entities undertaking single brand retail trading of

products having 'state-of-art’ and 'cutting-edge' technology and where local sourcing is not possible.

(c) Single brand retail trading entity operating through brick and mortar stores, is permitted to undertake retail trading through e-commerce.

(ix) Manufacturing sector: Manufacture is defined under FDI policy: "Manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.

Further, it is stated that “Subject to the provisions of the FDI policy, foreign investment in 'manufacturing' sector is under automatic route. Further, a manufacturer is permitted to sell its products manufactured in India through wholesale and/or retail, including through e-commerce without Government approval.” This will facilitates foreign investment in manufacturing sector.

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(x) Wholesale Cash & Carry sector: A wholesale/cash & carry trader is also allowed to undertake single brand retail trading.

(xi) Duty Free Shops: 100% FDI is allowed on automatic route.

(xii) Limited Liability Partnerships (LLPs), downstream investment and approval conditions:

Following relaxations in norms have been made in case of foreign investment through LLP:

(a) FDI is now permitted under the automatic route in LLPs operating in sectors/activities where100%FDIis allowed, through the automatic route and there are no FDI- linked performance conditions.

(b) An Indian company or an LLP, having foreign investment, will be permitted to make downstream investment in another company or LLP in sectors in which 100%FDI is allowed under the automatic route and there are no FDI-linked performance conditions.

(c) Control and ownership in respect of LLP are defined as below:

• 'control' will mean right to appoint majority of the designated partners, where such designated partners, with specific exclusion to others ,have control over all the policies of the LLP.

• Ownership: A LLP will be considered be owned by resident Indian citizensifmorethan50% of the investment in such an LLP is contributed by resident Indian citizens and/or entities which are ultimately' owned and controlled by resident Indian citizens' and such resident Indian citizens and entities have majority of the profit share.

(xiii) Investment by companies owned and controlled by NRIs: A company, trust and partnership firm incorporated, outside India and owned and controlled by non-resident Indians can invest in India with the special dispensation as available to Non-Resident Indians under the FDI policy. A company, trust and partnership firm incorporated, outside India and owned and controlled by non-resident Indians can invest in India with the special dispensation as available to Non-Resident Indians under the FDI policy. (xiv) Other relaxation / simplification in the FDI policy: (a) Enhancing the Threshold Limit for Approval by Foreign Investment Promotion Board: The Minister of Finance who i s in-charge of FIPB would consider and can approve the recommendations of FIPB on proposals w i th total foreign equi ty inf low of and below Rs. 5000 crore, which was earlier Rs. 3000 Crore. This will facilitates for deciding the foreign investment proposal more quickly. (b) Full Fungibility of Foreign investment in Banking – Private Sector: Foreign Investment by way of FIIs/FPIs/QFIs can be increased to 74% of the total paid-up capital subject to resolution by the Board of Directors of the concerned bank followed by a special resolution to that effect by its General body. This is subject to following the guidelines of RBI on ownership and control of the private bank. (c) Swap of Shares: No approval o f the Government is required for investment in automatic route sectors by way of swap of shares. (d) Downstream Investment: In the case of Downstream investment, term Internal Accrual has been defined as Internal accruals means as profits transferred to reserve e account after payment of taxes. It will facilitate in making downstream investment. Year 2016

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(i). Insurance Sector: Vide Press Note 1/2016 dated 23 March 2016, the Government has placed FDI limit of 49% under automatic route instead of earlier up to 26% on automatic route and beyond 26% to 49% under approval route in respect of Insurance Company, Insurance Brokers, Third Party Administrators, Surveyors and Loss Assessors and Other Insurance Intermediaries appointed under the provisions of Insurance Regulatory and Development Authority Act, 1999 subject to compliance of Insurance Act and necessary license from IRDA for undertaking insurance activities. Further, ownership and control of Indian Insurance Company should remain in the hands of resident Indian entities at all times as defined under IRDA regulation. (ii). Pension Sector: Vide Press Note 2/2016 dated 23 March, 2016, the Government has placed foreign investment upto 49% under automatic route instead of earlier provision which stipulates up to 26% FDI on automatic route and beyond 26% to 49% FDI under approval route in respect of pension Sector. (iii) E-commerce Sector: Vide PN 3/2016 dated 29.3.2016, the Govt. has inter-alia brought clarity in E-commerce Sector by defining E-commerce, E-commerce entity, Inventory based model of e-commerce and marketplace based model of e-commerce. It is clarified that 100% FDI is allowed under automatic route in marketplace model whereas FDI in inventory based model e-commerce is not allowed. The policy stipulates that E-commerce companies will have to indicate name of sellers and their details for customer services. It also stipulates that E-commerce entities will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. These steps may improve regulatory aspects and attract higher FDI on account of clarity of policy and condition of level playing. (iv) Relaxation for investment by Foreign Venture Capital Investor and investment in start-up: The Government vide Notification No. 363/RB-2016 dated April 28, 2016 has simplified and relaxed the norms for investment through FVCI registered under the SEBI (FVCI) Regulations, 2000. It stipulates that such FVCI can make investment without any prior approval of RBI in Equity or equity linked instruments or debt instruments, issued by an Indian company engaged in any sector mentioned therein and whose shares are not listed on a recognised stock exchange at the time of issue of the said securities / instruments, Equity or equity linked instruments or debt instruments issued by the Start-up, irrespective of the sector in which it is engaged, Units of a Venture Capital Fund (VCF) of a category I Alternative Investment Fund (Cat-I AIF) or units of a scheme or of a fund set up a VCF or by a Cat-I AIF. This will help Start-up, AIF Category-I and Indian Companies in venture capital activities to garner capital for their activities which will generate employment for Indian. Earlier, FVCI has to take prior approval of RBI on the proposed activities, which should be covered under the venture capital activities as notified by RBI. This process has now dispensed with. (v) Enabling deferred payment as a steps towards “Ease of doing business in India”: Through FEMA Notification No. 368 dated 20.5.2016: As per the extant FEMA regulation price of equity is determined upfront between foreign investors and Indian investee companies. Therefore, earlier foreign investor hesitated to invest in those Indian companies where their valuation may not be well known especially e.g. start-up and other emerging sector companies. To avoid all this, the Government has allowed to pay 25% of equity value on deferred basis which can be recovered by the foreign investors in case the Indian companies did not satisfy conditionalities as per Memorandum of Understanding between foreign investor and Indian companies and subject to compliance of the usual Indian rules and regulations including FEMA-20. This may help Indian companies to raise capital from the foreign investors and at the same time, foreign investors may find this regulation beneficial for getting more value on their investment. (vi) Relaxation on investment for Asset Reconstruction Companies (ARCs): Department of Industrial Policy & Promotion vide Press Note No. 4 /2016 dated May 6, 2016 has enhanced the FDI limit to 100% under automatic route for ARCs. This will help ARCs to attract capital in their companies which will pave ways for tackling Non-performing Assets in Banking Sector.

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(vii) Allowing FDI under automatic route in ‘other financial services activity’ i.e., beyond the hitherto 18 specified NBFC activities provided these activities are regulated by any one of the financial sector regulators. Final Cabinet Note has been approved and the FEMA 20 was amended vide FEMA notification 375 issued on 09.09.2016. This would remove the ambiguity due to the usage of the word NBFC in the FDI policy. It will expand the list of financial services activities presently restricted to 18 NBFC activities. It would include all financial services activities which are presently within the regulatory ambit of any of the Financial Regulator including the NBFC activities regulated by RBI. The stipulation of minimum capitalisation under the FDI policy has been done away with. It will bring clarity to foreign investors investing in financial services activities and enhance FDI inflow in the sector. Steps for Ease of doing business in India: The extant FDI policy and FDI statistics are available on the web-site of DIPP (http://dipp.nic.in). For the ease of the investors, the process of applying for Industrial License & Industrial Entrepreneur Memorandum has been made online on 24×7 basis through eBiz portal (https://www.ebiz.gov.in/home/). Process of obtaining environmental clearances has also been made online (http://envfor.nic.in/). Investors can visit http://www.investindia.gov.in/ to know detailed procedure including for investment in India. They can get reply of their query as well through the web-site. Further, The Foreign Investment Policy Board (FIPB) is the Single Window clearance mechanism for the Foreign Investment Proposals in compliance with the FDI Policy. The procedure for FIPB approval has been simplified and made investors friendly as investors can file their application through the new web-site :http://www.fipb.gov.in , which was launched in 2015. This saves their time and money as they do not require to file multiple hard copies. Processing of application too become more fast, reliable and transparent as FIPB can seek comments from other Departments on online basis. FDI Reforms in Several Sectors:

The Government has made FDI reforms in many sectors through PN 5/2016 dated 24 June 2016. These are: (i) Food products manufactured and produced in India: 100% FDI is allowed on approval route including through E-commerce. (ii) Defence Sector: FDI limit is enhanced to 100%; Up to 49% on automatic route and beyond it on approval route for modern technology or for the other reasons to be recorded. (iii) Pharma Sector: Sectoral cap in brownfield Sector has been relaxed. Now, in brownfield Pharma sector, 74% FDI is allowed on automatic route and beyond it to 100% on approval route. (iv) Civil Aviation Sector: 100% FDI is allowed under automatic route in Brownfield Airport projects. In the Scheduled Air Transport Service / Domestic Scheduled Passenger Airline and regional Air transport sector, 100% FDI is allowed ; up to 49% on automatic route and beyond on approval route. (v) Private Security Agencies: 74% FDI is allowed; out of which up to 49% on automatic route and beyond it to 74% on approval route. (vi) Animal Husbandry: FDI norms is relaxed. Now FDI in Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture and Apiculture is allowed under 100% FDI even in uncontrolled conditions. (vii) Single Brand Retail Trading: Local sourcing norms has been relaxed for up to 3 years and a relaxed sourcing regime for another five years for entities undertaking SBRT of products having ‘state of art’ and ‘cutting edge’ technology.

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(viii) Broadcasting Carriage Services: In Cable Networks (with MSOs and other MSOs), Teleports, DTH, Mobile TV, HITS sectors, 100% FDI is allowed on automatic route provided that infusion of fresh foreign investment beyond 49% in a company not seeking license / permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require FIPB approval.

(ix) Establishment of branch office, liaison office or project office: For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, approval of Reserve Bank of India or separate security clearance would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted. FDI data 8. Total Foreign Investment (Equity inflows + ‘Re-invested earnings’ +‘Other Capital) since April, 2000 to March 2016 is US $ 424,167 Million.

Amt. Of FDI Equity inflows

Amt of FDI Flows (incl. Reinvested earnings and

other capital S. No.

Financial Year In US $

million

Growth on previous FY (%)

In US $ million

Growth on previous FY (%)

FII net inflows in

US$ million

2 2011-2012 35,121 (+) 64 % 46,556 (+) 34 % 16,812 3 2012-2013 22,423 (-) 36% 34,298 (-) 26% 27,582 4 * 2013-2014 24,299 (+) 8% 36,046 + (5%) 5,009 5 *2014-2015 30,931 (+) 27% 45,148 + (25%) 40,923 6 *2015-2016 40,001 (+) 29% 55,457 + (23%) -3,156

* Provisional data

(8.) National Investment and Infrastructure Fund (NIIF)

The Government of India has put investment in infrastructure as one of the core elements of its economic programme. India's average investment in infrastructure was 4.7% of GDP during 1992-2010. Moreover, there has been a slowdown in equity inflows into the infrastructure sectors over the past few years, constraining further investment. NIIF has been created with the aim to attract equity investments from both domestic and international sources for infrastructure development in commercially viable projects, both greenfield and brownfield, including stalled projects.

The establishment of the NIIF was announced vide para 47 of the Budget Speech, on 28th

February 2015 and approved by the Union Cabinet on 28.7.2015. It was envisaged that the NIIF will attract equity investments from both domestic and international sources for infrastructure development in commercially viable projects, both greenfield and brownfield, including stalled projects.

Since the above approval, all initial formalities of the NIIF have been completed including registration of the NIIF trust deed, incorporation of two companies namely National Investment and Infrastructure Fund Trustee Limited and National Investment and Infrastructure Fund Limited and registration of the NIIF as a Category II Alternate Investment Funds (AIF) under SEBI Regulations. The website of the NIIF has also been launched recently.

IDBI Capital Market Services Ltd has been engaged to handle compliance activities of the

NIIFTL. India Infrastructure Finance Company Ltd. (IIFCL) has been appointed to prepare a pipeline of projects and perform all Investment management duties and obligations for and on behalf of NIIF Ltd. An investment committee has also been set up by IIFCL in this regard. Structure of NIIF

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NIIF has been set up as a trust registered with Securities and Exchange Board of India

(“SEBI”) as a Category II Alternate Investment Fund (“AIF”) under the SEBI (Alternative Investments Funds) Regulations, 2012 (“AIF Regulations”). The proposed corpus of NIIF is Rs. 40,000 Crores (around USD 6 Billion). Government’s contribution to the Fund shall be 49% of the total commitment at any given point of time and shall neither be increased beyond nor allowed to fall below the threshold of 49%. The whole of 49% would be contributed by the Government of India as contributions to NIIF.

Pursuant to discussions held with several investors over the last one year, NIIF is proposed to have various sector-specific or investor-specific close ended Schemes (“Sub-funds”). Each Sub-fund may issue various classes of units. Sub-funds may be bilateral or multilateral. Government along with the Investors would subscribe to the units of various Sub-funds. Units of each Sub-fund shall be distinct from and independent of the other Sub-funds.

The Trustee of NIIF will have the discretion of floating multiple Sub-funds. It is obligated to keep and maintain distinct and separate accounts in respect of each Sub-fund and maintain assets of one Sub-fund distinct from and independent of another. The corpus of each Sub-fund shall be invested based on the investment strategy of the respective Sub-funds.

NIIF is envisaged as a fund of funds with the ability to make direct investments as required.

As a fund of fund it may invest in other SEBI registered funds. Sources of Funds for NIIF

NIIF would solicit equity participation from strategic anchor partners. The contribution of

Government of India to NIIF would enable it to be seen virtually as a sovereign fund and is expected to attract overseas sovereign/quasi-sovereign/multilateral/bilateral investors to co-invest in NIIF.

Government will provide funds to the Sub-Funds on a need basis as per the requirements set out in their annual plan. Central Public Sector Enterprises of India may contribute to NIIF which would be over and above Government’s share of 49%. Similarly, domestic pension and provident funds and National Small Savings Fund may also invest in NIIF. Governance

A Governing Council has been set up under the chairmanship of the Finance Minister of India. It will act as an advisory council to NIIF. It comprises of Government representatives, international finance experts, economists & infrastructure professionals and may include other investors.

National Investment and Infrastructure Fund Trustee Ltd. (“NIIF Trustee Ltd.”), which is a

Govt. company, is the Trustee of NIIF and National Investment and Infrastructure Fund Ltd. (“NIIF Ltd.”), the Investment Manager, is expected to have 51% as private shareholding in the future.

Major decisions with respect to NIIF would have to be approved by super majority of the unit

holders. Investment Manager of NIIF, NIIF Ltd. is expected to become a company in which majority of its shares would be held by the contributors other than Government of India. The board of the company shall comprise shareholder representatives or their nominees. It will have a management team comprising of one or more Chief Executive Officer and a small investment team, consisting of investment, finance, legal, technical, infrastructure and economics experts. Human Resources

Recently, Mr. Sujoy Bose, at present Director and Global Co-Head, Infrastructure and Natural

Resources, International Finance Corporation(IFC), Washington DC, has been appointed as the CEO

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of NIIF Ltd. Mr Sujoy Bose has extensive international experience in the infrastructure sector including experience in raising funds from international investors.

A small team of officials have been taken on deputation from SBI to handle day to day activities of the NIIF. An HR agency has been appointed to develop the organogram and the compensation structure of the NIIF. Investment Policy

NIIF aims to maximize risk-adjusted returns on the investments over a long term by making investments in infrastructure sector on a commercial basis. NIIF will invest primarily as a financial investor and may have an option to seek control, if necessary, of the entities in its portfolio. It will have the flexibility to take concentrated positions with a long or short time horizon, and invest, divest or remain liquid when it is commercially viable.

NIIF would invest in projects where the revenue streams are clearly identified in an agreement between the project entity and approved government entity. It shall be the endeavor of NIIF to be treated on par with the most favored contributor of its class.

As a long term-term investor it will not be subject to market trends and have benefits of long term investments. It will endeavour to manage the risks through portfolio diversification and exercise proper flexibility to actively seize investment opportunities as they materialize.

Investment Manager would have an Investment Committee that shall comprise of professionals from the industry and may have representatives of the contributors.

Investments may be exited through private negotiated enterprise level divestments, asset sales, re-capitalizations or through the public market routes, redemptions from cash flows of underlying investments, disposition of underlying investments / assets and any other mechanism as may be available.

NIIF would at all times remain focused on its economic and financial objectives. It shall invest in:

a) units of funds engaged mainly in infrastructure sectors and provide equity/quasi-equity or debt funding to listed/unlisted companies;

b) equity/quasi-equity in NBFCs and Financial Institutions that are engaged mainly in infrastructure financing; and

c) equity/quasi-equity or debt to commercially viable projects, both greenfield and brownfield.

Co-investment would allow NIIF to deploy more capital at attractive returns while preserving the multiplier effect. NIIF would invest with co-investors such that their (co-investor) share of investment in portfolio entities is either equal to or more than NIIF’s share. NIIF would not co-invest with someone who has conflicting interest in the project. In state projects, NIIF would invest only when there are third party (non-government) professional investors investing in the project. Co-investment by NIIF along with other co-investors would be on a no fees basis.

NIIF would endeavor to ensure maximum returns and tax efficiency for NIIF and its contributors.

Investor Outreach and Fund Raising

• Several meetings have been held with investors since last year during visits of the Finance Minister to Singapore (September, 2015), UAE (November 15-17, 2015), Australia(March 29th - April 1st, 2016), New York (April 18th – 19th, 2016), Japan (May 30th – June 1st, 2016) and visits of Secretary(EA) to Qatar(22nd May, 2016) and Singapore (8th July, 2016) recently.

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• An India Investor Summit had been organized by Ministry of Finance along with Blackrock on 3rd February, 2015, which was followed by India Investment Summit on 4-5 February, 2016 in which all major global SWFs, PFs etc participated.

• In all these interactions, investors have been apprised of the economic reforms and other initiatives taken to attract investments into India and various opportunities available to them including through the NIIF.

• Several investors expressed their interest in investing in India including through the NIIF during such meetings. Concurrently, FDI inflows (including reinvested earnings and other capital) into the country have increased, by 23% over the previous year, to USD 55.47 billion during 2015-16.

• Moreover, consequent to feedback received from investors, the structure of the NIIF has been detailed further that provides for setting up various sector / investor specific sub-funds under the NIIF umbrella. Each of these sub-funds shall be distinct from the other from accounting and operational perspective.

• A few such investors have signed MoUs such as Government of UAE(11th February, 2016), RUSNANO( 2nd February, 2016), QIA( 5th June, 2016) and RDIF (15th October, 2016) that envisage both parties to explore setting up bilateral / joint fund under the NIIF.

• Three negotiation meetings have been held with RUSNANO to take the MoU forward and finalise the specific terms and conditions of the proposed joint fund.

• Similar MoUs with Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development (JOIN) is being taken for signing.

• In addition, DEA has signed terms for cooperation on the NIIF with the US Treasury and the UK Treasury (status discussed below). Interactions are being held with these organisations at the official’s level for developing the NIIF and encouraging investments. The terms with the UK Treasury also envisage setting up a joint fund in partnership with the UK Treasury to attract London based private investors.

Launch of two funds / schemes under the NIIF

• Apart from the establishment of bilateral / multilateral funds, described above, discussions are ongoing for the launch of two sector focussed funds:

o A Green energy fund that envisages providing equity and mezzanine capital to clean energy and other green projects including investments in transmission sector.

o A Road fund that envisages investing in a portfolio of projects that are already operational and have an established traffic history / profile.

Way forward

• The NIIF CEO joined on 18th October, 2016 which is expected to accelerate the pace of activity including fund raising further.

• Further, office space has been identified and steps are being taken to finalise the organogram and compensation structure of the NIIF Ltd.

• The recruitment for the next tier of personnel would also be initiated thereafter.

It is anticipated that at least two sub funds may be set up before the end of this year with equity participation from domestic / overseas investors

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Finalization of Model BIT Text :

• As per the recommendations of the Committee of Secretaries (CoS) in its meeting held on 16th July, 2012 a revision of the Indian Model text of BIPA orBilateral Investment Treaty (BITs) had been initiated. • The revised Model BIT text was approved by the Committee of Secretaries on 16th July, 2015 and subsequently by the Cabinet on 16th December 2015. • The revised Model Bilateral Investment Treaty (BIT) text has been uploaded on Ministry of Finance website and can be accessed by following the link given below: http://finmin.nic.in/the_ministry/dept_eco_affairs/investment_division/ModelBIT_Annex.pdf. • It has been decided to terminate all existing BIPAs whose initial validity has expired and renegotiate on the basis of the revised Model text, which shall supersede the existing Agreement from the date of its entry into force.

Joint Interpretative Statement

• The initial term of BITs signed by India with 26 countries has not expired and for these 26 countries it was decided to issue a Joint Interpretative statement. • The text of the Joint Interpretative Statement was approved by the Committee of Secretaries in its meeting dated 4th January, 2016.

(9.) INDIGENISATION OF CURRENCY PRODUCTS

CWBN Paper: Security Paper Mill, Hoshangabad has started producing 500-Rupee paper and Bank Note

Paper Mill India Private Limited has started commercial production. Ink:

Augmenting the current capacity of ink production from 800 MT per year to 1500 per year is underway

Approval has been given to BRBNMPL to set up ink factory of capacity of 1500 MT per year to meet their captive requirement.

Introduce several measures that will incentivize credit or debit card transactions and disincentivize cash transactions (Para 64 0f Budget Announcements 2015-16):-

• The Cabinet has approved 19 short term (to be implemented within 1 year) and 4 medium terms (to be implemented within 2 years). • Based on the approval of the cabinet, Guidelines have been issued. • A Task-Force has been constituted by the cabinet secretariat under the Secretary, D/o Investment and Public Asset Management. The Task Force has had 6 meetings and has framed an institution-wise timelines for implementation of short term measures. • A Committee has been constituted by DEA under the chairmanship of Sh. Rattan. P. Watal, Pr. Advisor, Niti Ayog and former Finance Secretary to review the framework related to digital payments.

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(10.) Gold Monetisation Scheme • The Scheme was introduced by Hon’ble Prime Minister on 5th November, 2015. • Objective to mobilize the idle gold held by households and institutions in the country and putting this gold into productive use and over the course of time to reduce the Country’s dependence on the import of the gold. • A total of 5713 Kilograms of gold so far have been mobilized under this scheme.

• At present there are 48 Collection and Purity Testing Centers, 10 Refineries and 01 Jeweler which have been certified / accredited by BIS under this Scheme.

(11.) Budgetary reforms The Union Cabinet has approved 21.09.2016 the proposal of Ministry of Finance on certain landmark budgetary reforms relating to (i) the merger of Railway budget with the General budget, (ii) the advancement of the date of the Budget presentation from the last day of February to the 1st of February and (iii) the merger of the Plan and the Non-plan classification in the Budget and accounts. All these changes will be put into effect simultaneously from the Budget 2017-18.

The presentation of separate Railway budget started in the year 1924, and has continued after independence as a conventation rather than under Constitutional provisions. The presentation of a unified budget will bring the affairs of Railways to Centre stage and present a holistic picture of the financial position of the Government, The merger is also expected to reduce the procedural requirements and instead bring into focus, the aspects of delivery and good governance. Consequent to the merger, the appropriations for Railway will form part of the main Appropriation Bill.

The arrangement for merger of Railway budget with the General budget have been approved by the Cabinet with the following administrative and financial arrangements- (i) The Railways will continue to maintain its distinct entity as a departmentally run commercial undertakings as at present; (ii) Railways will retain their functional autonomy and delegation of financial powers etc. As per the existing guidelines; (iii) The existing financial arrangements will continue wherein Railway will meet their revenue expenditure, including ordinary working expensed, pay and allowances and pensions etc. from their revenue receipts; (iv) The capital at charge of the Railway estimated at Rs. 2.27 lakh crore on which annual dividend is paid by the Railways will be wiped off. Consequently, there will be no dividend liability for Railways from 2017-18 and Ministry for Railways will get Gross Budgetary support. This will also save Railways from the liability of payment of approximately Rs. 9,700 crore annual dividends to the Government of India;

The Cabinet has also approved another reform relating to budgetary process, for advancement of the date of Budget presentation from the last day of February to 1st of February or any other suitable date as may be necessary. The advancement of budget presentation by a month and

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completion of Budget related legislative business before 31st March would pave the way for early completion of Budget Cycle and enable Ministries and Departments to ensure better planning and execution of scheme form the beginning of the financial year and utilization of the full working seasons including the first quarter. This will also preclude the need for seeking appropriation through ‘Vote on Accounts’ and enable implementation of the legislative changes in tax laws for new taxation measures from the beginning of the financial year.

The third proposal approved by the Cabinet related to the merger of Plan and Non Plan

classification in Budget and Accounts from 2017-18, with continuance of earmarking of funds for scheduled Castes Sub-Plan and Tribal Sub-Plan. Similarly, the allocations for North Eastern states will also continue. The Plan/Non-Plan bifurcation of expenditure has led to a fragmented view of resources allocation to various schemes, making it difficult not only to ascertain cost of delivering a service but also a link outlays to outcomes. The bias in favor of Plan expenditure by Centre as well as the State governments has led to a neglect of essential expenditures on maintenance of assets and other establishment related expenditures for providing essential social services. The merger of plan and non-plan in the budget is expected to provide appropriate budgetary framework having focus on the revenue and capital expenditure. (12.) BRICS Economic and Financial Co-operation2

In 2016, India chaired the BRICS forum and has mooted some new proposals for consideration under BRICS Economic & Financial Co-operation. Two most pertinent among them are:

a. BRICS Rating Agency b. An alternative arbitration mechanism under BRICS.

The Rating Agency mooted under BRICS is envisaged to provide an alternative credit rating

approach that can truly evaluate our growth fundamentals and provide ratings which appropriately reflect our economic strengths and ongoing efforts towards implementing structural reforms. In 2016 Goa Declaration of BRICS Summit, the Leaders have agreed to the proposal and has welcomed experts to explore the possibility of setting up an independent BRICS Rating Agency based on market-oriented principles, in order to further strengthen the global governance architecture.

On Arbitration, developing countries are faced with some major difficulties under the existing

arbitration system such as lack of adequate representation of developing countries in arbitration panels, limited options for appeal, issue related to forum shopping, and related economic liabilities and cost which can seriously undermine the financial stability of local governments. In the ‘Conference on International Arbitration Mechanism in BRICS’ organized by DEA in 2016 under India’s chairmanship of BRICS, one of the key outcomes was the general acceptance that there is a                                                             2 In 2016, under India’s BRICS Chairmanship, Department of Economic Affairs, MoF organized the following workshops/events under BRICS Economic & Financial Co‐operation: Workshop on Financial Inclusion; Seminar on long term infrastructure financing and PPP best practices, Workshop on Investment Flows, Conference on Challenges in Bond Market, Workshop on International Arbitration and BRICS Economic Forum. These events provided a good forum for domain experts from academia and policy making from BRICS countries to deliberate upon innovative policy instruments and also learn from mutual experiences.  

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need to examine and develop an alternative arbitration mechanism in BRICS countries which can be later extended to non-BRICS countries. DEA is currently pursuing this agenda with the BRICS counterparts in developing a way forward.

In today’s interconnected world, tax policy is a global public interest, having ramifications far

beyond national borders. Countries whose tax revenues are often more reliant on corporate tax, particularly from multinational enterprises in view of their lower per capita GDP, are intricately linked and dependent upon the international taxation rules and procedures adopted by the developed countries, in particular, the Organisation for Economic Co-operation and Development (OECD) member countries. For international taxation to be truly a universal agenda, India was of the view that all of us must have an equal seat at the table to legislate on global issues. In this regard, we suggested the incorporation of upgradation of the UN Committee of Experts on international cooperation on tax matters into a full-fledged intergovernmental body with full and equitable participation of developing countries in the 2016 BRICS Leaders Declaration.

Even though the language as suggested by India has not been incorporated, there has been a recognition of the need for increased participation of developing countries in the formulation of global norms on taxes. BRICS Goa Declaration notes the following:

“We note the ongoing discussions on international taxation matters. In this regard, we recall the Addis Ababa Action Agenda on Financing for Development including its emphasis on inclusive cooperation and dialogue among national tax authorities on international tax matters with increased participation of developing countries and reflecting adequate, equitable, geographical distribution, representing different tax systems.”

(13.) G20 Issues

1. One of the major working groups of G20 is the Framework Working Group co-chaired by India and Canada. The major tasks entrusted to the FWG in the beginning of the G20 Chinese Presidency was the formulation of an outcome paper on G20 Enhanced Structural Reform Agenda. As the co-chair of FWG, India played a vital role in ensuring that a consensus has been reached on this deliverable. Structural reforms assume significant importance in the present global scenario where despite ambitious policies and impressive efforts at implementation, the global economic recovery remains subdued. In this context, the G20 deliberations on enhanced structural reforms agenda are essential to provide a road map for the global economy to exit the current equilibrium of low global economic growth.

2. By mutual consensus, countries have agreed on 9 priority areas3 of structural reforms and also on the G20 guiding principles on structural reforms. These guiding principles are intended to be voluntary, non-binding and non-prescriptive on members. However, the most

                                                            3 The nine priority areas of structural reforms are as follows: Promoting Trade and Investment Openness; Advancing Labour Market Reform, Educational Attainment and Skills; Encouraging Innovation; Improving Infrastructure; Promoting Fiscal Reform; Promoting Competition and Enabling Environment; Improving and Strengthening the Financial System; Enhancing Environmental Sustainability; Promoting Inclusive Growth  

 

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important of all the achievements in the FWG on this agenda has been the consensus reached in the choice of indicators for the structural reforms. India is of the view that this is a major achievement given the initial reservations of countries against the indicator system.

3. It is important to note that this indicator system will be shown as a dashboard for each member, most likely in the form of time series and therefore, there will be no cross-country comparisons. The indicators will be discussed in a bi-annual report prepared by the OECD for the G20.

(14.) International Monetary Fund India is a founder member of the International Monetary Fund, which was established to

promote a cooperative and stable global monetary framework. At present, 188 nations are members of the IMF. Since the IMF was established, its purpose has remained unchanged but its operations - which involve surveillance, financial assistance and technical assistance - have developed to meet the changing needs of its member countries in an evolving world economy. The Board of Governors of the IMF consists of one Governor and one Alternate Governor from each member country. For India, the Finance Minister is the ex-officio Governor on the Board of Governors of the IMF. There are three other countries in India's constituency at the IMF, viz. Bangladesh, Bhutan and Sri Lanka. Governor, Reserve Bank of India (RBI) is India's Alternate Governor. Meetings of Board of Governors

The Board of Governors usually meets twice a year to discuss the work of the respective institutions, viz. the Spring meetings and the Annual meetings of the IMF and World Bank. At the heart of the gathering are meetings of the IMF's International Monetary and Financial Committee (India is represented by the Finance Minister in IMFC) and the joint World Bank-IMF Development Committee, which discuss progress on the work of the IMF and World Bank. The 2016 Spring Meeting of the International Monetary Fund and World Bank Group was held in Washington D.C from April 13-19, 2016. The last Annual Meeting of the IMF and World Bank was held during October 06-08, 2016 at Washington DC, USA. India's Quota and Ranking:

The 2010 IMF Quota and Governance Reforms (including the 14th General Reforms of Quotas) came into effect on January 26, 2016. Consequently, India’s quota in the IMF is SDR 13,114.40 million with a shareholding of 2.75%. India ranks 8th in terms of quota holding in IMF. Consequent to this Quota Increase in IMF, India has provided for the Quota increase of SDR 7292.9 million under the 14th General Review of Quotas as SDR 1,823,225,000 through India’s SDR holdings for Reserve Asset Portion (25% of quota increase) and SDR 5,469,675,000 for Local Currency Portion (75% of quota increase) through issuance of non-interest bearing, non-negotiable Government of India Rupee Securities. India's contribution to borrowing arrangements of the IMF

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In April 2009, the G-20 agreed to increase the resources available to the IMF by up to $500

billion (which would triple the total pre-crisis lending resources of about $250 billion) to support growth in emerging market and developing countries, viz. through bilateral financing from IMF member countries; and by incorporating this financing into an expanded and more flexible New Arrangements to Borrow (NAB). As part of efforts to overcome the global financial crisis, in April 2009, G-20 economies agreed to increase the resources available to the IMF by up to $500 billion to support growth in emerging market and developing countries. The increase was made through (i) increase in bilateral financing from IMF members and (ii) by incorporation of this financing into an expanded and more flexible NAB. The amended NAB, which became effective on March 11, 2011 increased the maximum amount of resources available under NAB to SDR 370 billion from SDR 34 billion.

The NAB was rolled back from SDR 370 billion to SDR 182 billion, pursuant to the

effectiveness of the 14th Review quota increase resulting in a decline in the financing ratio (NAB: quota) from 3:1 to 1:1. However, the NAB continues as a standing facility and the rolled back NAB resources continue to be counted toward the Fund’s overall lending capacity. The current NAB decision will expire on November 16, 2017. Discussion on NAB renewal is scheduled for October 2016. The last lending under NAB was done by India on Dec, 22, 2015. Article IV Consultations

Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year, to review the economic status of the member countries. Article IV consultations are generally held in two phases. During this exercise the IMF mission holds discussions with the RBI and various line Ministries / Departments of Central Government. The Article IV Consultations are concluded with a meeting of IMF Executive Board at Washington DC which discusses the Article IV Report. The Annual Article IV Mission with International Monetary Fund concluded on December 15, 2015. The IMF Mission held discussions with the RBI and various other Ministries/Departments of the Central Government under the Mid-Year consultation during June 27-28, 2016. International Finance Corporation (IFC)

International Finance Corporation (IFC), a member of the World Bank Group, focuses exclusively on investing in the private sector in developing countries. Established in 1956, IFC has 184 members. India is founding member of IFC. IFC is an important development partner for India with its operations of financing and advising the private sector in the country. India represents IFC’s single-largest country exposure globally. IFC has committed over US$15 billion in India since 1958. The IFC’s investments in India are spread across important sectors like infrastructure, manufacturing, financial markets, agribusiness, SMEs and renewable energy. Keeping in alignment with the Country Partnership Strategy (CPS) of the World Bank Group in India, IFC focuses on low-income States in India.

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BRICS New Development Bank (NDB)

The New Development Bank (NDB) has been instituted with a vision to support and foster infrastructure and sustainable development initiatives in emerging economies. The founding members of the NDB - Brazil, Russia, India, China and South Africa (BRICS) - have brought in capital of USD 1 billion as initial contribution. Mr. K.V. Kamath, is the first President of the Bank. The New Development Bank (NDB) has completed one year since its establishment in 2015. Most of the policies and procedures for all functional areas of the Bank were approved at the Board of Directors meeting in January, 2016. So far, six meetings of the Board of Directors (BoD) have been held and most of the operational, HR and finance and control policies of the Bank have been finalized and approved by the BoD. Since commencement of operations, Board of Directors of the NDB have approved its first set of loans for all member countries amounting to USD 911 million and has completed its first bond issuance of RMB 3 billion (approximately USD 450 million). 2. The first Annual Meeting of the Board of Governors of the BRICS New Development Bank was held on July 20, 2016 at Shanghai, China. During the meeting of the Board of Governors of the NDB, it was decided that India will be the Chair of the Board of Governors of the Bank and the second Annual meetings of NDB will be held in India in 2017. Asian Infrastructure Investment Bank (AIIB)

Asian Infrastructure Investment Bank (AIIB) is a Multilateral Development Bank (MDB) set

up in January, 2016 to foster sustainable economic development, create productive assets and improve infrastructure in Asia through financing of infrastructure projects. India is one of the founding Members and the second largest shareholder. The Bank commenced its operation on 16.01.2016 with the inaugural meeting of its Board of Governors.

India along with 20 other countries signed the Inter-Governmental Memorandum of Understanding (MOU) for establishing the AIIB on 24.10.2014 in Beijing. Subsequently, 36 other countries endorsed the MOU and became prospective founding members (PFM). After the approval by the Union Cabinet on 24.6.2015, India signed the Articles of Agreement (AOA) establishing the Bank in Beijing on 29.6.2015. India signed the Instrument of Ratification on 18.12.2015 and the said instrument was registered in the Depository of Peoples Republic of China on 11.1.2016. India has the 2nd largest share in the AIIB (83,673 with a capital subscription of USD 8.37 billion). This has ensured that India has an independent and exclusive seat on the Board of Directors of AIIB. World Bank

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India has been borrowing from the World Bank through International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) for various development projects in the areas of poverty reduction, infrastructure, rural development, etc. IBRD fund are relatively costlier but cheaper than commercial external borrowings. The Government of India utilizes IBRD loans for social infrastructure projects. India has now graduated out of IDA & has declined transition support under IDA -18. India’s current portfolio of the World Bank projects consists of 96 projects with a commitment of US $ 28.227 billion. The debt disbursed and outstanding (DOD) as on 31 March, 2016 for IBRD was US $ 12.67 billion.

After the recent Capital Increase in IBRD India has been allocated additional 24,092

shares (through General Capital Increase and Selective Capital Increase). As a result India has become the 7th largest shareholder in IBRD with voting power of 2.91%. In 2015-16, India completed the subscription of the total allotted IBRD shares.

India has an Executive Director at the World Bank who is elected from the Indian

Constituency consisting of Bangladesh, Bhutan, India and Sri Lanka. The Finance Minister is India’s Governor to the World Bank Group, with Secretary in-charge of Department of Economic Affairs being the Alternate Governor. International Fund for Agricultural Development (IFAD)

International Fund for Agricultural Development (IFAD) was set up in 1977 as the 13th specialized agency of the United Nations. It is dedicated to eradicating poverty and hunger in rural areas of developing countries. IFAD provides low interest Loans and Grants to developing countries to finance innovative agricultural and rural development programmes and projects. 176 countries are members of the IFAD, and these are grouped into three lists: List – A: Developed Countries; List – B: Oil Producing Countries; and List – C: Developing Countries. India is in List – C.

Since 1979, IFAD has provided financial support to India through projects in the realm of

agriculture, rural development, tribal development etc. The fund has financed 28 projects with a total portfolio of US$926.91 million so far. The Global Environment facility (GEF)

The GEF operates as a mechanism for international cooperation for the purpose of providing

new and additional grant and concessional funding to meet the agreed incremental costs of measures to achieve agreed global environmental benefits. GEF provides grants to eligible countries in its five focal areas: Biodiversity, Climate change, Land Degradation, international waters, chemicals and waste. It also serves as financial mechanism for the Convention on Biological Diversity (CBD), United Nations Framework Convention on Climate Change (UNFCCC), Stockholm Convention on Persistent Organic Pollutants (POPs), UN Convention to Combat Desertification (UNCCD), Minamata Convention on Mercury and supports implementation of the Protocol in countries with economics in transition for the Montreal Protocol on Substances that Deplete the Ozone Layer (MP).

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India has been actively involved with GEF process right from its inception. It has been one of the donors to the GEF Trust Fund. The GEF Trust Fund is replenished every four years through a process in which countries that wish to contribute to GEF Trust Fund discuss and come to agreement on a set of policy reforms to be undertaken, the programming of resources and also pledge resources. The sixth cycle of the GEF will fund four years of GEF operations and activities from July 1, 2014 to June 30, 2018. An amount of US $ 3 Million has been paid by India in 2015-16 towards the payment of 2nd instalment of 6th Replenishment. Asian Development Bank (ADB)

India is a founding member of the Asian Development Bank (ADB) which was established 1966. ADB has 67 members (including 48 regional and 19 non-regional members), with its headquarters at Manila, Philippines. India currently holds 6.331% of shares, totaling 672,030 shares, in ADB as on 1st April, 2016, with 5.363% voting rights. Asian Development Bank has a Board of Governors, a Board of Directors, a President, six Vice Presidents and other necessary officers & staff. All the powers of the Bank are vested in the Board of Governors, which exercises its powers and functions with the assistance of the Board of Directors.

The Union Finance Minister is the designated Governor for India, and Secretary, Department of Economic Affairs is the designated Alternate Governor. India also holds the position of Executive Director on the Board of Directors of the Bank and its Constituency comprises Afghanistan, Bangladesh, Bhutan, India, Lao PDR, Tajikistan and Turkmenistan.

The Board of Governors meet annually to provide guidance on ADB administrative, financial, and operational directions. The meetings provide opportunities for member governments to interact with ADB staff, nongovernment organizations (NGOs), media, and representatives of observer countries, international organizations, academia and private sector. 49th Annual Meeting of ADB was during 2-5 May, 2016 in Fra.22kfurt, Germany.

India borrows from ADB within overall external debt management policy pursued by the Government which focuses on raising funds on concessional terms from less expensive sources with longer maturities. India started borrowing from ADB in 1986.

ADB’s India lending program has matured and expanded significantly under the Country

Partnership Strategy (CPS) which is aligned with the Five Year Plans of India. The indicative resource envelope of ADB for sovereign operations in India is around US$ 2 billion per annum. The TA program is for around $ 8 million a year.

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