<img src="https://discussion.policharcha.in/1592998045821" alt="Centre aims to reform power sector, but why are some states opposing?" style="float:none;height: auto;width: auto"/>

The Ministry of Power (MoP) has released the draft of the Electricity Amendment Bill 2020 amid the Coronavirus pandemic. The proposed amended version of the Electricity Act is brought to address the systemic problems the power sector has been facing for a long time.
After failed attempts in 2014 and 2018 due to protests from employees and states, the Modi Government is trying again to implement sweeping structural reforms. The draft bill had emerged on 17th April, with the Central Government asking stakeholders to respond to the Draft Bill within 21 days, and this period was further increased till June 2nd.
Although according to the MoP, the new electricity act will address the “critical issues weakening the commercial and investment activities in the electricity sector”, there has been opposition from many states, experts, and working professionals from the sector.

<ins>Key amendments proposed in the draft electricity amendment bill 2020</ins>
<ins>Establishment of the Electricity Contract Enforcement Authority (ECEA)</ins>: While there are several provisions provided for the sell and purchase of electricity in the current Electricity act, there are no provisions dealing the with issues regarding power purchase agreements (PPAs), which are executed for sale and purchase of electricity, or contracts relating to transmission. The Centre, through this proposed amendment, sets to establish the ECEA, which will adjudicate on matters regarding specific performances of PPAs between a generating company and a licensee, or between licensees.
The ECEA shall have exclusive power and jurisdiction to adjudicate on the matters related to performance of obligations under a contract pertaining to sale, purchase, or transmission of electricity. However, the Enforcement Authority will have no jurisdiction on any dispute involving tariffs.
The Amendment seeks to avoid a situation that was created in Andhra Pradesh after the change in Government. The existing authorities that are the APTEL, CERC, and SERCs under the Electricity Act, 2003 do not have the judicial authority over the enforcement of contracts, unless the matter are related to tariffs, licencing, metering or other related matters. Considering the importance of a robust and supervised contractual obligation and the fear of implementing agencies not honouring contracts, a body, which keeps constant vigilance, is reassuring to all existing and future stakeholders.&nbsp;
<ins>Phasing out of Cross-subsidies</ins>: When a group or subgroup consumes power at a subsidised rate, due to various reason of economic inequality, and need etc., there are some losses that take place, and these losses are made up by charging the other group for power at a higher rate; this is essentially how cross-subsidisation works. In India, the farmers are generally charged at a lower rate, while Industries at a higher rate. The new bill, if passed, grants for fixing of tariffs at the cost of supply, which does not account for cross-subsidies. It also puts up direct benefit transfers to the farmers of India from the state, in order to support those who cannot afford power at the market cost.
Although, it reduces the cost of power for industries, and thus their cost of production, this provision has been heavily criticized by experts and state officials.
The first problem is that the cost of supply of power to the farmer is higher, because of the longer power lines and lack of infrastructure. Thus, after the amendment, the farmer needs to pay more from their own pockets until the direct benefit transfers arrive. The question, therefore is, in such a catastrophic economic condition, will a farmer of India be able to pay upfront when he barely manages to feed his family?
The other question that experts have asked is about the efficiency of the direct benefit transfers. The Indian administrative system has been proven to be inadequate and inefficient, especially in terms of direct benefit transfers. The Centre has also shoved the burden of such transfer to the State Governments, which have barely stayed afloat financially in dealing with the pandemic, and even in such situations, the Centre, in multiple cases, has failed to provide relief, or even payout GST debts to respective states. In such a dire financial condition, direct fund transfer instead of cross-subsidies seems to financially strangle not only the state governments, but also the poor farmers of India.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<ins>The Distribution sub-licensee and Franchisee:</ins> The draft amendment bill also drives through the idea of privatisation, especially in the distribution of electricity. It proposes that distribution licensees, with the permission of the relevant State Commission, can recognise and authorise a person as "distribution sub-licensee" for the purpose of distributing electricity on its behalf in a particular area in its area of supply. However, the original distribution licensee will remain the licensee, and will ultimately be responsible for ensuring the quality of the distribution of electricity in its area of supply. It is also proposed that such distribution sub-licensee is not required to obtain a separate license.&nbsp;
The New Amendment only eases the burden of distribution licensees, and promotes some form of demographic specialisation. According to the MoP, this is supposed to drive down the cost of power procurement and cost of operation. On the contrary, historically, similar moves of privatisation have failed, even when only urban agglomeration had been taken up by private companies. For example in Mumbai, where most of the urban areas have private electricity providers, the end cost for customers has not been reduced, and prices have only risen which attracted several protests. Odisha, which was the only state to include rural areas to have private distributors in the past, has failed massively, and the entire distribution is again back to the Government.&nbsp;
&nbsp;It is not the first time that privatisation of the power sector has been pushed for, even the 2003 Electricity Act called for privatisation in the generation and distribution of electricity. Although, there have been a lot of investments in the generation of power, there is a lack of such drive when it comes to the distribution of the generated electricity. The Bill, thus, does not seem to address certain basic problems before implementing such a frontline solution.&nbsp;
<ins>Push for Renewable Energy</ins>: There is a mention of a National Renewable Energy policy in the projected legislation itself which surely pushes for cleaner energy use. The Amendment, via an insertion, delegates the Central Government with the power to prepare and notify a National Renewable Energy Policy “for promotion of generation of electricity from renewable sources”, in consultation with State Governments. The policy also mandates the purchase of a certain percentage of power by DISCOMs from renewable sources. This also assures power generators and incentivises the use of renewable sources for power generation.&nbsp;

<ins>Centre - State controversy</ins>&nbsp;
States like West Bengal, Tamil Nadu, Telangana, Bihar, amongst others have publicly spoken up about the new Electricity Amendment Draft Bill 2020. The Bill has had mixed responses, being opposed by many state ministers and officials, while few independent power bodies have supported it. Chief Ministers, including YS Jagan Mohan Reddy, and Mamata Banerjee have publicly criticised the bill for dismantling the federal polity and increasing central control over the sector. With bodies like the ECEA, centralisation of state electricity regulatory commissions’ powers, and NLDC undermine the already existing state agencies.&nbsp;
YS Jagan Mohan Reddy also commented on the direct fund transfer being a progressive policy, but the practicality of this solution seems far-fetched with the current situation of the state treasuries.&nbsp;

<ins>Can the Centre make laws on issues regarding electricity?</ins>
Laws are made regarding various subjects by the Centre and the states. For an effective policy making, and to ensure robust Centre-State relations, the Constitution of India provides for a three-fold distribution of legislative subjects between the Centre and the states. The Schedule 7th of the Constitution pertains to the Union List (List-I), State List (List-II), and Concurrent List (List-III), which contain subjects on which the Centre, states, and both can make laws respectively.
While ‘Taxes on the consumption or sale of electricity’ is in the State List, ‘Electricity’ (as a whole) finds a place in the Concurrent List. If a subject belongs to the Concurrent List, the Centre shall consult the states to make any new law or to propose any amendment to the existing law regarding that particular subject.&nbsp;

The Power Sector of the Indian economy had deep-rooted problems right from the start, and to solve those problems, multiple acts which have been passed by various governments in the past, but none have solved some of the basic problems fully, and only have implemented half-hearted solutions, which made the problem more complex. This new bill, with some of its provision, seems to be a step towards the right direction but, a structured roadmap to bridge the gaps between the existing problems and proposed solutions is what is needed, to mend the Indian Power Sector.

Centre aims to reform power sector, but why are some states opposing?

<img src="https://discussion.policharcha.in/1588167673758" alt="RBI and other banks. Write-off of loans worth more than Rs 68,000 crore" style="float:none;height: auto;width: auto"/>

Replying to an RTI (Right to Information) query by social activist Mr. Saket Gokhale, RBI released the list of top fifty wilful defaulters, and maintained that banks have written off their loans worth more than Rs 68,000 crore. A mere misreporting of information by some news outlets led a section of civil society to believe that the RBI has waived off loans taken by absconding Mehul Choksi’s Gitanjali Gems Limited, <a href="https://policharcha.com/article/internationalrelations/dad8167e-ee83-4094-add6-2c496ac628a5/extradition-laws-in-india-vijay-mallyas-case" target="_blank">economic offender &amp; former liquor baron Vijay Mallya’s</a> Kingfisher Airlines Limited, among others.
Firstly, RBI lends to only banks and governmental bodies, therefore it was not the RBI, but the banks which wrote-off loans taken by the defaulters. Secondly, writing off loans does not mean that the banks have waived off the debt, and will not pursue the defaulters for recovery. The right to recovery by the banks stays intact in an event of a technical write-off.

<ins>Provisioning and Write-off</ins>
When a bank gives loan to a borrower, it keeps aside a percent of the amount to be used in the case of non-repayment of the said loan. This procedure is known as provisioning. In the case of non-performing assets (NPA), the banks have to keep 100 percent of the amount as provision.&nbsp;
Upon reporting an NPA to the RBI, a bank technically writes-off an equivalent amount as asset from its balance sheet. This is because the bank is no longer earning an income (interest) out of the said debt amount, and the debt has gone bad, so it will not be treated as an asset. Writing-off loans provides a clearer and truer picture about the bank’s money making assets to its customers, and help the bank to get a tax break in the losses incurred.
After a write-off when/if the banks make recovery of the concerned loan, the amount is treated as a profit for the banks and goes into their profit and loss accounts.

<ins>Non-performing assets</ins>
According to norms, a loan or advance is treated as an NPA when the borrower defaults the repayment by 90 days or more.
NPAs are further classified into three categories:-
Sub-standard asset – After defaulting for a period equal to or more than 90 days, if the debtor still does not pay back the interest or principal amount for 12 months, then the asset is considered as a sub-standard asset.
Doubtful asset – If the asset is remained in the category of sub-standard for another 12 months, it is considered as a doubtful asset, given that the loan is backed by a collateral of value more than the liability in the account.
Loss asset – When the sub-standard asset gets no recovery for 12 months, and is backed by a collateral the value of which is less than the liability in the account, the asset is considered as a loss asset.

<ins>Backdrop</ins>
The names of defaulters had been demanded months ago when Sandeep Singh Jadoun had asked through an RTI about this list, among other things, but the RBI and Finance Ministry did not comply, citing that the relation between a customer and a bank is a privileged one and not up for public scrutiny. Afterwards Dr. MS Acharyulu, former Information Commissioner, in November, had asked the RBI to release such list since it was not against any rules, plus “there is nothing wrong in telling the names of such people to the nation.” A month ago, Congress ex-president, Rahul Gandhi had also sought an answer about the same from the Government in the Lok Sabha, but neither Finance Minister Nirmala Sitharaman, nor Minister of State for Corporate Affairs, Anurag Thakur chose to reply to his <a href="https://policharcha.com/article/nation/00c8ea77-1a03-4b0d-a012-804001d95d16/question-hour-in-parliament-its-significance" target="_blank">starred question</a> . Although, after much contention, while answering to Saket Gokhale’s RTI, the RBI finally came out with the names.

A write-off is not a waiver – How are NPAs treated

<img src="https://discussion.policharcha.in/1587790673207" alt="Foreign currency" style="float:none;height: auto;width: auto"/>

The Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, has released <a href="https://dipp.gov.in/sites/default/files/pn3_2020.pdf" target="_blank">Press Note No. 3</a> (2020 series), reviewing the current FDI policy with the clear objective to ‘curb opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic’. The amendment is framed such that investment from all entities that are either residents or citizens of a country sharing a land border with India can come through the Government Route only.
The amendment also obstructs any citizen of Pakistan or an entity incorporated in Pakistan from investing in defence, space, atomic energy, and sectors/activities prohibited for foreign investment.
Foreign Direct Investment or FDI is an investment made by an individual or a firm into a business incorporated in a foreign country. It is identified as when an investor establishes business operations or acquires assets in a foreign business. In India, FDI is allowed in sectors under two routes - Automatic route, where the foreign entity does not have to seek permission from the Government of India to invest in Indian businesses, and Government route, where approval from the Government is essential to make the investment.&nbsp;
Investors from Pakistan and Bangladesh were already liable to seek Government approval for investment in the country prior to the amendment, and neighbouring countries other than China, namely Myanmar, Bhutan, Nepal and Sri Lanka are not a major investors in India. Therefore, it is safe to assume that the decision taken by GOI is aimed at investors from China.
Additionally, the policy decision was taken by the Government of India after the People’s Bank of China raised their stake in HDFC, the largest housing mortgage provider in India, to 1.01 percent, and it is likely that the decision was taken by the Government of India to counter the possibility of China buying undervalued shares of companies listed on the Indian Stock exchange.
In the wake of the economic slowdown due to the pandemic, China is taking proactive steps to <a href="https://www.youtube.com/watch?v=4Q8-CCeJpGs&t=20s" target="_blank">strengthen its hold</a> on the economies where firms are susceptible to hostile takeovers due to losses incurred due to the pandemic.&nbsp;
Spokesperson from the Chinese Embassy, Ji Rong, has cited that China’s accumulated investment in Indian economy is over 8 billion USD in multiple sectors ranging from infrastructure, electronics, and automobile, and is key for the development of Indian Industries.
The embassy has also included in their statement that the revision in the FDI policy is clearly discriminatory to Chinese investors, especially in time where governments of various countries should band together to ensure resumption of economic activity in economies negatively impacted by spread of coronavirus.
China has accused India of not adhering “to the consensus of G20 leaders and trade ministers to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open”.
The real question is - Is it really fair and transparent when a country seizes an opportunity to increase its presence in a foreign country when the whole world is fighting against a deadly virus which has already infected more than 28 lakh people, and claimed the lives of almost 2 lakh people worldwide?
The Indian Foreign Ministry has not addressed these allegations so far but the policy decision taken by India is similar to policies implemented by Australia, Japan, and United States of America, as well as some countries in Europe to avoid opportunistic takeovers and acquisition in such a time for their economy.
FDI equity inflows in India stood at $36.79 billion during April-December 2019.
Highest Equity FDI inflow was recorded in Service Sector at US$ 6.52 billion, followed by Computer Software and Hardware sector at US$ 6.34 billion at second, and Telecom sector at $4.29 billion at third.
Country wise, during FY20, maximum equity FDI inflow was noted from Singapore ($11.65 billion), followed by Mauritius ($7.45 billion), Netherlands ($3.53 billion), Japan ($2.80 billion), and USA ($2.79 billion).

India revises FDI policy, possibly to curb growing Chinese presence

<img src="https://discussion.policharcha.in/1582889168219" alt="Asian Development Bank" style="float:none;height: auto;width: auto"/>

Asian Development Bank (ADB) has listed 10-year Masala bonds, worth Rs 850 crores, on India INX and Luxembourg exchange. The proceeds from the issued bonds are to be used for supporting local currency lending and investment operations in India. Located at the International Financial Services Centre, GIFT City in Gujarat, India INX is the country’s first international exchange. ADB is the first supranational entity and foreign investor to do a primary listing with India INX.
Masala Bonds, also known as rupee denominated bonds (RDBs), are a debt instrument used by corporate entities to raise money through foreign markets by issuing bonds to overseas investors in Indian rupee denomination. These bonds aim to fund infrastructural development in India, and increase foreign investment in the country. The term ‘Masala’ was used by International Finance Corporation (IFC) while issuing the first RDBs, which were 10-year bonds worth Rs 10 billion, on London Stock exchange (LSE) in November, 2014.
Housing Development Finance Corporation Ltd. (HDFC) is the first Indian corporation to issue Masala Bonds. In July 2016, HDFC listed unsecured RDBs on LSE worth Rs 3,000 crores with a fixed semi-annual coupon of 7.875 per cent per annum and a tenor of 3 years and 1 month. The bonds were oversubscribed by 4.3 times.
Masala bonds transfer the risk from fluctuations in the foreign exchange rates from the issue to the investor. This is important for the issuers especially when domestic currency, i.e. rupee depreciates.
Typically, when a bond (not rupee denominated) is issued in foreign currency, say US dollar, and if the rate of rupee, with respect to dollar falls, the liability of the issuer increases while repaying the amount of the bond or paying the interest on the borrowing. Therefore, the issuer will have to pay more to compensate the fluctuations in exchange rate.
In the case of Masala Bonds, as they are issued in INR, the issuers are protected from the currency fluctuations as the repayment has to be done in INR only. Thus, if the rupee rates fall, investors bear the risk.
Masala bonds are helpful in mobilising foreign capital markets to invite foreign investment to overcome the shortage of capital for undertaking the development of infrastructural projects in the country.

Masala Bonds worth Rs 850 crore listed on India INX

<img src="https://discussion.policharcha.in/1580645436711" alt="Pump-priming at work as the government aims to boost economy through raising consumption by funding big infrastructure projects." style="float:none;height: auto;width: auto"/>

Development of physical infrastructure took a <a href="https://policharcha.com/article/economy/5dc74117-7154-401c-b9e3-df97dd4c0f72/union-budget-what-to-expect" target="_blank">centre stage</a> in the Parliament when Finance Minister Nirmala Sitharaman presented her maiden full-fledged budget. She has shed light on National Infrastructure Pipeline (NIP) worth Rs 103 lakh crore which will finance the infrastructure building. NIP will accommodate around 6500 projects across various sectors of the economy. NIP scheme aims to improve the ease of living for every citizen of the country and lead reforms in development, operations, and maintenance of infrastructure projects.
"In his Independence Day speech in 2019, the Prime Minister had highlighted that Rs 100 lakh crore would be invested on infrastructure over the next 5 years. As a follow-up measure, I have launched the NIP on December 31, 2019. It consists of more than 6500 projects across sectors and are classified as per their size and stage of development," she said.
She has assigned Rs 1.7 lakh crore in FY21 to better the transport infrastructure. Accelerated development of highways will be undertaken with 2,500 km access controlled highways and 9,000 km of economic corridor. There will be 2,000 km of strategic highway projects and port connectivity projects each. In addition, the minister said that Delhi-Mumbai Expressway and two other projects will be completed by 2023. 12 highway projects amounting to 6,000 kms will be monetised before 2021, she said.
Government aims to achieve electrification of 27,000 km of tracks. A proposal is under consideration for setting up a large solar powered capacity alongside rail tracks on land owned by railways. Railway transport infrastructure will be strengthened with 150 new passenger trains which will be acquired through Public Private Partnership (PPP) model. Government plans to introduce more Tejas type trains for popular tourist destinations. Four new station redevelopment projects were also envisaged.
A National Logistics Policy is to be released soon. Sighting the construction industry as an avenue for employment generation for the youth, the FM laid focus on National Skill Development Agency to give a boost to skill development opportunities in infrastructure related domain.
Setting up of a project preparation facility for infrastructure projects was also proposed. This programme would actively involve young engineers, management graduates, and economists from Indian universities and give a boost to the youth involved in the Start-up culture. The goal is to roll out value added services in quality public infrastructure.
The Government will consider corporatising at least one major port and plan its subsequent listing on the stock exchanges. There is a major focus on development of inland waterways under Jal Vikar Marg project. National Waterway 1, which runs from Haldia (West Bengal) to Prayagraj (Uttar Pradesh) across the Ganges, will be operational soon. Additionally, 890 km of Dhubri-Sadiya connectivity on River Brahmaputra in Assam will be done by 2022.
Furthermore, 100 more airports will be developed by 2024 to support the UDAN scheme and it is expected that the present air fleet number would get doubled, from 600 to 1200, in this time period.
While the objective was to boost the Indian economy on the back of infrastructure building, the Union Government has also covered <a href="https://policharcha.com/article/social/e219fc9c-8dc1-4968-bc5d-9ec9b5c05913/sociocultural-side-of-decades-first-budget" target="_blank">social, cultural, and environmental need of the country</a> comprehensively.

Government aims to revive economy on the back of infrastructure building

<img src="https://discussion.policharcha.in/1580421876238" alt="What to expect from the first Budget of the decade?" style="float:none;height: auto;width: auto"/>

With the country’s economy in shambles, every Indian has eyes on the upcoming Union Budget. This will be the first full-fledged budget of the government in Modi 2.0 era. While the last year’s budget has provided an impetus to the supply side of the economy, this year’s budget must focus on the demand side i.e. a rise in the consumption, both at micro and macro level.

<ins>A look at what is expected from the Union Budget 2020</ins>
Green light to infrastructure projects – The economy has come to a standstill and it must be the Union Government’s priority to increase demand, for which it will look to increase consumption through raising the autonomous investment – an economic phenomena which is known as Pump-priming. This would also generate employment. Similar to the strategy US adopted by following the Keynesian theory, and investing in infrastructure projects during the great depression of 1930. To tackle the major slowdown, US started building big projects like the Hoover Dam. Therefore, in the budget we can see the government giving green signal to various stalled infrastructure projects worth over ₹13 trillion as of the last December-ended quarter.
Income tax – Despite the expected loss in tax collection this year, going with the market expectations, the government might cut the personal income tax rate in the upcoming budget. A move that will leave working class with more disposable income, but the question arises that how the government will make up for a further cut in tax collection? Let’s see what government comes up with. An increase in capital gains tax maybe?
Policy shift – Keeping the Fiscal Deficit (FD) - difference between the total earning and total expenditure of the government, other than borrowing - under prescribed limit is of the utmost importance to the government. It is expected that the target of maintaining a FD at 3.3% of the GDP will not be met, and FD will be around 3.6%. The government can change its focus to Revenue Deficit (RD), which is the difference between the total revenue expenditure and total revenue receipts. Laying emphasis on RD will set a path towards economic rejuvenation. India should target RD like most of the emerging market economies as it will serve as an automatic counter cyclic stabilizer.
Foreign income – It has been a trend for foreign companies to invest in Indian stock market through Foreign Portfolio Investments (FPI). These investments are also called Hot Money as it comes fast and goes even faster. Through FPIs, a foreign investor realises a short term profit in the Indian market and then leaves it which makes us susceptible to fluctuation. Considering the openness of the economy when it comes to attract Foreign Direct Investment (FDIs), the government must focus on acquiring long term investment.
Sentiments and perception – Both the business and income class consumers are not very optimistic about the current state of economy as measures like demonetisation did not reap the desired results, and tax reforms like GST will prove to be fully beneficial in the long term only. The Finance Ministry might give a consumer centric budget revolving around the needs of the income class to revive their trust in the economy.

With a consumer base that is more than twice the population of the US, the dream of becoming a $5 trillion economy can surely come true if we make substantial structural changes backed by a few tweaks in our economic system!

Union Budget 2020 – What to expect?

Government can cut the income tax rate and can give green signal to various stalled infrastructure projects

The budget comes out tomorrow 

The finance minister proposed a new income tax regime, but it is optional for the tax payer to follow it. a tax payer can opt to stay in the old tax regime.
Will that lead to more hassle or simplification?

What are your views about the budget?

UP becomes the second state after MP to give more autonomy to existing and future enterprises when it comes to labour laws. Both the states have scrapped most of the existing labout laws for 1000 days in order to boost the manufacturing sector and give jobs to the labourers that have gone back to the state in the wake of Covid-19.&nbsp;
As talked about in a <a href="https://policharcha.com/discussion/nation/db5518b2-a8e7-444d-9124-a3824932c36e/is-india-prepar" target="_blank">previous descussion</a>, reforms in land and labour laws are needed for India to become a manufacturing hub.
How do you see these chages for the labourers and for the enterprises? Will they provide the desired results?&nbsp;

Most labour laws scrapped in UP for three years 

What's your take on PM Modi's latest message on Aatmanirbharta "Self-Reliance"?&nbsp;
Is this going to catapult Indian economy on top?

We know that we are in middle of a crisis but what is being done now, had it been done in the past few years, wouldn't it have been better?
Make in India, Startup India, Digitak India were all initiatives but then why did not they bore fruitful results.

It has always been said of Modi Government that their intention is always good but the implementation is not?