[Economy] Current 2014 Feb Week 1: FDI, Regulatory Bodies, Infrastructure (Part 2 of 3)

SubscribeZ-Miscellaneous

  1. Prologue
  2. [Act III] FDI related current affairs [2014FebWeek1]
    1. [FDI] Multi brand Retail: “Gaddari” by Delhi & Rajasthan
    2. [FDI] Lobbying by Walmart and Amazon
    3. [FDI] Railways: FM, HM oppose Chinese FDI
    4. [FDI] Drugs Pharmaceuticals
    5. [FDI] Vodafone: fully foreign owned
    6. [FDI] Andhra favorite despite Telengana protests
    7. IFC Rupee bonds
    8. [FDI] Defense
    9. [FDI] Environment clearances
    10. [FDI] flows in last eight months (from highest to lowest)
  3. [Act IV] Regulatory bodies (Truckload of)
    1. #1: DGH: need statutory status
    2. #2: PNGRB- koi hum ko bhi puchho yaar
    3. #3: Civil Aviation Authority= no country for non-IAS
    4. #4: Rail fare regulator: I’m Useless without statutory status
    5. #5: Desi Drug regulator: I want Firangi powers despite staff shortage
    6. #6: 14th Finance Commission: homework abhi baaki hai
    7. #7: 7th Central Pay commission
    8. #8: EPFO- I want to stay in news everyday
    9. #9: IRDA- I also want to stay in news every day
  4. [Act V] Infrastructure related
    1. #1: Monorail @Mumbai
    2. #2: Metro @Mumbai BOT Problem
    3. #3: North East: hydro, manpower potential
    4. #4: [Summit] 101st Indian Science Congress
    5. #5: Exhibition upgrades
    6. #6: Infrastructure Misc./chillar topics

Prologue

Overview of Economy related Affairs during 1-7 Feb 2014. Total three parts

  1. Part 1 of 3: fiscal and monetary policy
  2. (you’re here) Part 2 of 3: FDI, regulatory bodies and infrastructure.
  3. Part 3 of 3: bilateral, poverty-hunger-HRD, Agriculture-food processing and Persons in News (PIN).

[Act III] FDI related current affairs [2014FebWeek1]

Important basics:

  • FDI matters are handled by Department of Industrial Policy and Promotion (DIPP), under Commerce Ministry.
  • They release the FDI policy notification. (and not under Finance ministry or home ministry or corporate affairs ministry or external affairs ministry)
  • There are two types of FDIs : automatic approval vs non-automatic (i.e. where government permission necessary).
  • Where government permission is necessary, two things can happen:
Investment upto Rs.1200 crore Investment above Rs.1200 crore
  • You need to get permission from FIPB
  • Foreign Investment Promotion Board.
  • Need permission from Cabinet Committee on Economic Affairs (CCEA).
  • FIPB headed by Secretary of Department of Economic Affairs. (=IAS working in finance ministry=> meaning, the real “Boss” behind the curtains is Finance minister.)
  • CCEA is headed by Prime Minister. (although we all know who is the “real boss” behind the curtains.)

Other bodies related FDI

CCI
  • Cabinet commission on Investment (Boss: PM)
  • Project worth Rs.1000 crore or more.
  • But cannot override decision of Environment ministry.
CCI (infra) Cabinet Committee on infrastructure. No longer exists. It is merged with Cabinet Committee on Economic Affairs (CCEA)
PMG
  • Project monitoring group. Attached with Cabinet Secretariat. (and not PMO)
  • For fast track clearance to the stalled investment projects.
  • Of 1000 crore or more.
  • Claimed to be India’s first completely “file-less government office”- works entirly via web-platform.
  • In news because: Has cleared 70000 MW worth coal projects in last few months.

[FDI] Multi brand Retail: “Gaddari” by Delhi & Rajasthan

FDI multibrand retail

2012 Government permits 51% FDI in Multibrand retail.
2013 Total 12 states/UT permit FDI in Multibrand retail.

Including Rajasthan and Delhi (Congi government in both states)

2013, Dec
  • Congi lost Rajasthan to BJP and Delhi to AAP
  • UK company “TESCO” becomes the first MNC to give 51% FDI in multi-brand retail. They tie up with TATA to open malls in India.
2014 New state governments of Delhi and Rajasthan, write letter to DIPP saying “we want to cancel the permission  given to FDI-multibrand, by the previous Congi governments.”

Union government is upset because

  • Delhi Rajasthan’s move will create negative impression among foreign investors- “India has an unpredictable policy environment”.
  • So far 12 state/UT has permitted. MINUS Delhi, Rajasthan = only 10 state/UT left where MNC can open multibrand shopping malls. = Market not “Big enough” to attract investors.
  • Therefore, Union asks Attorney-General “can state governments revoke such permission after change in political regime?”
  • Experts say “yes”. Besides even if Union gets some relief from Supreme court, still AAP/BJP state governments could refuse to give building permission etc. to those MNC to open shopping malls.

[FDI] Lobbying by Walmart and Amazon

  • Lobbying= when private companies try to influence the politicians, to make favourable policy/act for them.
  • American companies spend truckload of cash on lobbying- both within US and outside. But as per American laws, they’ve to submit report of their expenditure on lobbying (even if done in foreign countries.)
  • So, from such disclosure reports, it was found that
2012 Walmart spent crores to lobby for FDI-multibrand retail in India
2013 Government (Corporate affairs ministry) forms a commission to look into this allegation. (only one man army: retired Justice Mukul Mudgal)
2013 Amazon spent crores to lobby for FDI in E-commerce in India. (and simultenously government releases a “Whitepaper” on FDI in E-commerce. If you join the dots, then it’s obvious government is influence by Amazon lobbying.
2014 Justice Mukul Mudgal gives his report to Government (Corporate affairs ministry.)

Limitations:

  • Mukul Mudgal panel was not formed under “commission of Inquiry act” => he did not have the power to summon documents/witnesses.
  • Walmart executives did not cooperate with him, refused to give detailed  breakup of account/expenses in India.
  • Walmart maintains that company did not spend money to lobby in India. Only some individual executives of walmart spend money from their own salary. So we as a “Company” have not broken any Indian law.

[FDI] Railways: FM, HM oppose Chinese FDI

DIPP: Department of Industrial Policy & Promotion wants to liberalizing FDI in Railways.  here is their recommendation:

permit FDI in Don’t permit FDI in
  • high-speed tracks
  • Railway freight lines connecting ports, mines and power installations
  • Railway corridors in sub-urban areas.
  • existing passenger rail network
  • Existing freight network operations

DIPP gave this note to Cabinet for consideration. But Home Minister and finance minister say Chinese FDI shouldn’t be allowed in railway sector because:

  • China is India’s main rival on the economic and military fronts,
  • We have unresolved border disputes with China.
  • Recently Chinese company Huawei was accused of hacking into BSNL network.
  • Therefore, Chinese investment in core sectors such as Railways= Dangerous from National security POV. (Point of view).
  • Even if Non-Chinese players are allowed thru FDI window, all issues related to security, safety and quality control should vest with the Indian Railways.

[FDI] Drugs Pharmaceuticals

Present status What DIPP wants
  • FDI in New projects= 100% automatic route (don’t need permission from Government/FIPB/CCI)
This system is right.
  • FDI in existing pharma companies =100% but ned permission from  FIPB (Foreign Investment Promotion Board) approval.
Not good. FDI in existing Indian companies should be reduced to 49% (from 100%)**

**why? Why does DIPP want to reduce FDI in existing desi-pharma companies?

  • Because if desi pharma cos are 100% owned by Foreign MNC giants, it’ll impact the availability of affordable/cheap drugs in India.
  • And in the worst case scenario: Pfizer /Novartis may simply buy out desi companies and make them produce only the patented expensive drugs only (and not the cheap generic drugs.)

Latest clearance: US company Mylan to acquire desi drug company Agila.

 [FDI] Vodafone: fully foreign owned

  • Vodafone India’s parent company is located in Mauritius, owns >60% shares in Vodafone India.
  • The parent firm wanted to buy all shares from Indian shareholders, to have 100% ownership of shares.
Dec 2013 FIPB approves
Feb 2014 Cabinet also approves

Thus, Vodafone India=First telecom company in India that is 100% fully owned by Foreigners.

[FDI] Andhra favorite despite Telengana protests

  • Andhra CM says that despite the political turmoil (about Telengana), Andra pradesh is still favorite destination for foreign investors. – MNCs like  Johnson and Johnson, Proctor and Gamble are setting up plants worth crores of rupees.

Why?

  • John D Rockefeller (American oil tycoon)- he was richer than Bill Gates, Steve Job and Mark Zuckerburg.
  • His business mantra: “The way to make money is to buy when blood is running in the streets.” He used to buy firms, factories, land, shares and bonds – during riot/war/famine/depression like situation – because at that time businessmen in distress would sell their assets at throwaway prices.
  • Perhaps same is happening behind the curtains in Andhra. That’s why favorite destination for MNCs.

IFC Rupee bonds

  • IFC= International finance corporation, it’s a member of the World Bank Group.
  • They’ve released IFC Rupee bonds.
  • Foreign investors buy such bond (by paying dollars to IFC). Who are these clients? Asset companies, Private banks, insurance cos, even central banks of Asia, Europe and US.
  • IFC convert these dollars into rupees and invests in India- particularly  in the areas of low-growth states.
  • They earn money (in Rupees), covert it into dollars.
  • Then principle/interest paid to you in (dollars), and IFC keeps some part as commission.
  • IFC also doing same with Brazilian real, Chinese renminbi, the Nigeria naira, Russia ruble etc. They convert dollars into local currency and invest.

So, is this FDI or FII? If we go by the Chindu definition (less than 10% investment in a company=FII and >10%=FDI, then rupee bonds is mostly FII).

[FDI] Defense

Needs a separate article. Just a few point here:

DefExpo
  • 2014 Held in Noida (UP);
  • by Defense ministry
  • Biennial event. (Every second year)

At present FDI limit in Defense= 29%. Latest clearance….

Joint venture ownership
Thales (UK firm) 26%
BEL (Desi) 74%
Product Main focus= Radar production in India.

Defense procurement procedure 2013

  • Wants to boost Indian defense industry (Both public + private sector)
  • In Defense purchases, it gives preferences to  Buy (Indian), Buy and Make (Indian) category of products.
  • India wants to procure 70% of its defense requirement from domestic players (both public + private) – but difficult given the low limit in FDI.

Some tie-ups between Foreign and Desi brands:

Sensor
  • MicroObserver Unattended Ground Sensor (UGS) for securities agencies.
  • By Bharat electronics + an American company
UAV
  • SQ-4 Recon= new brand of Unmanned Aerial Vehicle (UAV).
  • India based OIS-AeroSpace + a UK  company.
Vehicle
  • Light armoured high mobility vehicle (LAMV)
  • By TATA and a UK  company.

Related topic

Rafael jets=purchase delayed (kyoki apni hesiyat nahi)

2012
  • We decide to buy 126 Rafael fighter jets from a French company Dassault.
  • Cost: ~60k crore rupees.
  • They’re MMRCA= medium multi-role combat aircraft
  • Negotiations start.
2014
  • Defense Minister says we don’t have enough ca$H at the moment for FY13 (ends @31st March 2014).
  • If we borrow money to buy these planes then fiscal deficit target will not be achieved (4.8% of GDP)
  • So, we Will have to postpone this purchase- perhaps to FY15.

[FDI] Environment clearances

  • Old story, Needs a separate elaborate article. Just an overview.
  • December 2013: Moily becomes Environment minister. But he simultaneously holding charge a petroleum minister.= one is pollution controlling ministry, one is pollution creating ministry. = incompatible jobs. Should be done by two separate ministers.
  • Moily giving fast clearances = to attract investors, improve IIP and show that he is also “pro-business” like Modi.
POSCO S.Korean company. Steel plant. $12bn USD. Odisha. cleared
Vedanta bauxite mining project in in the Niyamgiri hills of Odisha

Moily Says local gram sabhas are opposed to it, so I can’t approve.

Not cleared
Tawang Arunanchal Pradesh Cleared
Ennore Coal based powerplant, TN cleared
Chennai Petroleum pipeline cleared
Teesta Sikkim hydroelectricity project. (NHPC) cleared
Coal Mines Allowed some of them to increase output without requiring new permissions. Cleared.
Hinduja Coal power station @Vishakhapatnam, Andhra Cleared

[FDI] flows in last eight months (from highest to lowest)

sector From country
  • Service sector
  • Automobile
  • Construction
  • Chemical
  • Mauritius**
  • Singapore
  • UK
  • Netherlands

** it doesn’t mean Mauritian people are very rich. These investors are mostly American/European tycoons who setup post-office companies in Mauritius to get tax benefits. [Recall Vodafone/Hutch controversy.]

[FDI] declined in India: says UNCTAD

UN Conference on Trade and Development (UNCTAD) report.

FDI destinations:

Year India’s position
2012 15
2013 16 (meaning incoming FDI has declined.)

[Act IV] Regulatory bodies (Truckload of)

#1: DGH: need statutory status

Directorate General of Hydrocarbons (DGH).

Present status What Finance ministry wants
DGH falls under Oil Ministry. Should be given Statutory status. Because DGH implements New Exploraton Licensing Policy (NELP), matters related to Production Sharing Contracts for oil exploration fields etc. = it must have autonomous status.
funded by the Oil Industry Development Board (OIDB) Should get ca$h from consolidated fund of India  (from Budget).
Top officer from ONGC and Oil India, get posted here. No, should have independent staff.
Not under direct CAG audit. No. Once DGH starts getting funds from budget, then CAG will audit it.

By the way, what’s the situation in other bodies? Where do they arrange cash?

SEBI, IRDA, FMC Charge fees on the licensees.
TRAI Gets funding from government.

TRAI wants commission from the spectrum licensing, but government doesn’t agree to share the maal.

RBI It’s the central  bank. Central Banks earn money from “seigniorage”. We learned about it in Nachiket Committee article. Click me+ income through OMO, repo, MSF, license fees.

#2: PNGRB- koi hum ko bhi puchho yaar

It is a statutory body setup under Petroleum and Natural Gas Regulatory Board (PNGRB) Act 2006.

You need to get its permission before setting up city gas distribution network (cooking gas lines, CNG station).

2013
  • GAIL wants to setup its own CNG gas stations
  • Oil Ministry says, ok go ahead, you don’t need permission from PNGRB to setup CNG stations in cities.
2014 Oil Ministry makes a U-turn. Tells GAIL to get permission from PNGRB.

#3: Civil Aviation Authority= no country for non-IAS

  • Statutory body.
  • Problem: this boss (DG) is mostly a serving/retired IAS => CAA has become an inefficient bureaucratic organization. = lazy approach => USA  downgraded India’s aviation safety rating.
  • Now Ministry of Civil aviation proposing a bill, to ensure only professional person is appointed as DG. (and not some serving/retired IAS). And he must be given security of 3 years’ tenure.
  • Problem: cabinet not clearing  this bill.

#4: Rail fare regulator: I’m Useless without statutory status

  • Cross subsidization = railway sells passenger tickets cheap (=~25k crore loss per year), but recovers that loss by keeping freight charges high. (=”ticket” prices for transporting non-human things cements,coal etc.)
  • Result= not making optimum profits. Bogus food, bogus toilets, bogus security.
  • Government finally notified to setup a new Rail Tarrif authority. (Feb 2014)
  • It’ll suggest pricing in such way that railway generates healthy profit.
  • Problem=Executive body. Recommendations not binding to rail ministry.
  • If  you want to make it statutory body, then need to amend  Railway act ’89 = but that’s unlikely in the current budget session.

#5: Desi Drug regulator: I want Firangi powers despite staff shortage

  • USA has FDA (Food and drug administration)
  • Similarly India has CDSCO- Central Drugs Standard Control Organization
  • CDSCO’s boss is called “Drugs Controller General of India”. (DGCI)
  • CDSCO Falls under Ministry of Health (mind it: Drugs/Pharmaceutical falls under Chemical ministry)

Anyways, why in News?

  • USFDA even monitors the desi-plants of desi pharma companies (e.g  they banned Ranbaxy’s Toansa (Punjab) plant from manufacturing medical products for the US market.
  • So CDSCO feeling envy, “we also want similar powers” – to inspect the foreign plants of foreign companies- who supply drugs to India.
  • Problem: CDSCO doesn’t even have enough staff to supervise desi drug companies.  They asked Union government to increase budget – so we can hire 5000 more people. But no positive response. After all funding to drug supervision =not as important as MNREGA.

#6: 14th Finance Commission: homework abhi baaki hai

  • Constitutional body, setup in Jan 2013.
  • Boss = Ex RBI governor  Governor YV Reddy
  • His recommendations will be effective from 1/5/2015, for a period of five years
  • Apart from the usual terms of reference, 14th FC also has to make recommendations about:
  1. Pricing of public utilities such as electricity and water in an independent manner
  2.  issues like disinvestment, GST and subsidies.

Why in News

  • It was to submit report by 31/10/2014.
  • But things are moving slow, Finance commission will take long time to meet all state government and process the data and demands. + issue related to compensation to Seemandhra from mega Polavaram project from Telangana and so on.
  • Finance commission is seeking an extension of 3 months (i..e up to Jan 2015)
  • This is not the first time in history though. 13th FC (under Kelkar) they also submitted their report in December 2009 (instead of original deadline in Oct 2009)

#7: 7th Central Pay commission

  • Chief= Justice  Ashok Kumar Mathur
  • Member= Vivek Rae full time (IAS) + Rathin Roy part time (economist) + Meena Agarwal (Secretary, IRAS)
  • Target audience= 50 lakh Central government employees, including the Railways and Defense. +30 lakh pensioners.
  • Deadline= submit report in two years.
  • Implemented from January 1, 2016. [6th PC’s recommendations from January 1, 2006.]
  • Criticism:
    • 6th PC cost us more than 20k crore rupees= fiscal deficit + and blamed to be one of the factors for inflation (Because money increased in babu-log’s hands without subsequent increase in their productivity.)
    • Timing before the general election.

#8: EPFO- I want to stay in news everyday

  • From aspirant’s point of view, EPFO= most bogus of all public entities. Because they create new current affairs on almost daily basis – or just keep coming in news for no reason.
  • Anyways what did they do in Feb. 2014, first week?
  • For anyone earning upto Rs.15000 = EPF contribution is must. = this will enroll 50 lakh more employees in the EPFO game.
  • Minimum Rs.1000 pension to retired people.
  • (did not implement) minimum age to get pension: raise from 58 to 60 years.

#9: IRDA- I also want to stay in news every day

  • Just like EPFO, ye IRDA walla also keep doing something new every day to stay in the news. Anyways why in news?
  1. Broker model for Bancassurance (already covered in past article. click me)
  2. Allowed common service centres (CSCs) to sell life insurance products. CSC are setup under National e-governance plan.
  3. Norms/guidelines for Micro-insurance products (for rural/poor people).  Allowed RRB, Coop. Banks, SHG, Banking BCA etc to sell such micro-insurance products.
  4. Asked companies to general insurance companies should increase their focus on agricultural insurance, disaster  Management products.

[Act V] Infrastructure related

Important fact: that the 12th plan envisages $1 trillion for infra development

GS3 (Mains): Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
Let’s check

communication spectrum auction
Energy NELP, LPG, Electricity = given in part1
airport aviation safety sucks =given in part 3
Railways FDI given above, Monorail given below

#1: Monorail @Mumbai

Monorail runs on a single rail. This rail may be located either above or beneath the railway cars. Observe the photo

Monorail types

  • Mumbai Monorail was setup by Mumbai Metropolitan Region Development Authority (MMRDA) +  L&T Engineering.
  • None of our neighboring countries have Monorail (except China).
  • First phase: ~9km from shootout @Wadala to Chembur.
  • Minimum fare: Rs.5

When entire project is completed:

  • it’ll have ~19km length.
  • 7000 passengers per hour
  • Cost: Rs. 3000 crores
Ranking Monorail in
1 Osaka, Japan
2 Mumbai, India (when entire project completed)
3 Tama, (Tokyo), Japan
4 Kuala Lumpur

#2: Metro @Mumbai BOT Problem

  • Being developed by Anil Ambani’s Reliance infra
  • PPP Project under BOT model (build–operate–transfer).
  • But dispute with Maharashtra government about pricing of metro rail tickets.
  • CM asks union government to setup a dispute redressal mechanism at the national level to resolve disputes in such BOT projects.

Railway Misc.

Kolar New rail coach factory here. (will build passenger coaches)

Rail minister + Karnataka State government will share cost.

Delhi-Amritsar Bullet train Bids invited
Chennai Metro Under testing. manufactured in Brazil.

#3: North East: hydro, manpower potential

Truckload of schemes and issues, only listing new points happened in Feb2014 week#1, related to economy:

Planning commission says

  • North Eastern states can earn ~650 crores per year by hydroelectricity.
  • 12th FYP wants to add 88000 MW electricity generation. And out of them North East can generate ~3000MW
  • 5000 crore spent on developing airports @North East. Asks state governments to hasten the land acquisition

Modi says:

  1. Youngsters in the North Eastern states are generally tech-savvy with good command over English
  2. = Suitable for digital outsourcing/IT jobs. But at present they’ve to migrate to Bangalore and Hyderabad.
  3. Government should create such job opportunities within their own villages in North Eastern States.

Related issue: Arunanchal boy Nido Taniam murdered in Delhi in a racial hate-crime.

#4: [Summit] 101st Indian Science Congress

\Not an economy topic as such but Mohan said “we must spend atleast 2% GDP on science tech,” hence making a passing reference here (else separate discussion in S&T compilation later on)

  • Where? Jammu
  • Theme?  ‘Innovations in Science and Technology for Inclusive Development’.

Major Points/Achievements listed by Mohan

  •  Neutrino-based Observatory @TN
  • India joins CERN as associate member
  • ISRO’s missions to Mars and moon
  • Can issue Tsunami alert within 13 minutes
  • Setup new dept for Health Education and Research
  • A Rota Virus vaccine, a new drug for malaria, CSIR discovering new drug for TB
  • We should not succumb to unscientific prejudices against genetically modified (GM) crops.

#5: Exhibition upgrades

  • India Trade Promotion Organisation (ITPO)- government owned company. It has planned to spend crores of rupees to upgrade following venues
  1. Pragati Maidan, New Delhi.
  2. Vigyan Bhavan
  3. Kochi (for coffee, tea, spcies exhibition).
  4. Karnataka: wan to setup a venue for IT-related fares and exibitions.

Some notable expos in 2014:

Expo-2014 Venue
Auto Pragati Maidan, New Delhi
Defense Noida (UP); organized by Defense ministry.
Petro-Tech Noida (UP)

#6: Infrastructure Misc./chillar topics

Pharma

  • You’re aware of the mega food parks click me. – In mega food parks, the companies have ‘common facilities’ for packaging, weighing etc. = operation cost reduced.
  • Chemical ministry launching similar scheme for Pharma companies.
  • In SEZ/industrial locations, Government will give them financial assistance to setup common infrastructure for setting up effluent plants, R&D labs, training centers etc.


Toll Tax

  • Fall under State list (entry 59)
  • As per National Highway Authority of India (NHAI) — minimum distance between toll booths should be 80 km.
  • But in Maharashtra toll booths are setup even at distance of every 20-30 kms
  • The toll collection money is supposed to be used for road-repair, but it’s not done.
  • Traders allege bribery and irregularity by toll booth operators. Road contractors have ‘recovered’ their original investment, yet toll tax still collected.
  • Shiv Sena and MNS have ordered their troops to attack and vandalize toll-booths.

Steel industry: we ar unhappy

  • Goa used to be India’s top Iron-Ore exporter. But declined after SC ban on illegal mining. = less supply= input cost increased.
  • government imposed a 5% tax on the export of iron ore pellets
  • Jindal Steel says Karnataka-walla miners have formed a cartel = steel industries suffer.
  • Inflation = automobile sales declined, therefore demand of steel decline.

click me For the next part 3 of 3.

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