FDI inflows in the services sector rose by about 26% to $8.68 billion in 2016- 17 with the government taking steps to improve ease of doing business and attracting foreign investments.
The services sector, which includes banking, insurance, outsourcing, research and development, courier and technology testing, had received foreign direct investment (FDI) worth $6.89 billion in 2015-16, according to data of the Department of Industrial Policy and Promotion (DIPP).
The government has taken several measures such as fixing timeliness for approvals and streamlining procedures to improve ease of doing business in the country and attract foreign investments.
With FDI growth in key sectors like services and telecom, the overall foreign investment inflows in the country too increased by 9% to $43.5 billion last fiscal.
Increasing FDI inflows in the services sector assumes significance as it contributes over 60% to India’s gross domestic product. The sector accounts for about 18% of the total FDI India received between April 2000 and March 2017, followed by key sectors such as computer software & hardware, construction development and telecommunications.
To further boost FDI inflows in the sector, the government is considering relaxation of policy in areas like single brand retail, multi-brand retail, print media and construction. The government is also focusing on enhancing services exports. It is organizing global services exhibition besides the commerce and industry ministry is looking at relax norms in areas like higher education to attract foreign players.
Foreign investments are considered crucial for India, which needs around $1 trillion for overhauling its infrastructure sector such as ports, airports and highways to boost growth. A strong inflow of foreign investments helps improve the country’s balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.
Nina Vaskunlahti, Ambassador of Finland to India Paul Noronha
India is becoming one of the favorite destinations for investments in manufacturing, clean tech, infrastructure and hi-tech for Finnish companies.
Nina Vaskunlahti, Ambassador of Finland to India, in an interview with BusinessLine said, “There is increasing interest in economic cooperation, and Finnish companies are looking for new opportunities in India.”
Investment protection
According to Vaskunlahti, although India’s legislative framework can be a little complicated and the judicial system overworked and under-resourced leading to delays in solving disputes for foreign investors, overall the atmosphere is “welcoming and pretty open”.
However, according to the Ambassador, Finland is worried over India’s move to terminate investment protection agreement with 82 countries. “We are not quite sure what is the purpose of this,” Vaskunlahti said. While the treaty between India and Finland is still in force, according to Vaskunlahti, India and the European Union seem to be stuck over negotiating a new investment protection treaty after a year back India had sent request for renegotiation for the Bilateral Investment Treaty (BIT) to over 80 countries with whom it had earlier signed Bilateral Investment Promotion and Protection Agreements (BIPA).
“As a member of EU, we cannot negotiate on our own, because it’s the EU Commission that has a negotiating mandate,” Vaskunlahti said. “What we have now on the table is called a comprehensive negotiating mandate which covers both free trade agreement and the investment protection agreement. For the moment, nothing much is happening, but efforts and work are being done in background to push it forward.”
The new model of the BIT was cleared by the Union Cabinet in December 2015 and was seen to give more stability to foreign investors and prevent disputes with multinational companies by excluding matters such as government procurement, taxation, subsidies, compulsory licences and national security.
Arbitration mechanism
At the same time, the new model BIT brings in a provision obliging foreign investors to first exhaust the option of local judicial system at least for five years before going to international arbitration mechanism in case of disputes.
Some of the cases when foreign investors challenged India in international arbitrage, invoking clauses of earlier BIPAs include Devas Multimedia, Vodafone, Deutsche Telekom, Sistema and Cairn.
India’s foreign exchange reserves zoomed past their previous week’s record to touch a new high of $375.7 billion on May 5, data released by the central bank showed.
Foreign currency assets (FCAs), the largest component of the foreign exchange reserves, grew to $351.5 billion from $349.1 billion in the previous week, RBI data showed. Expressed in US dollar terms, FCAs include the effects of appreciation / depreciation of non-US currencies, such as the euro, pound and yen, held in the reserves.
India’s foreign exchange reserves zoomed past their previous week’s record to touch a new high of $375.7 billion on May 5, data released by the central bank on Friday showed. On April 28, the reserves were at $372.7 billion, the highest since September 9, 2016.
Dollar purchases by the Reserve Bank of India to ease volatility in the rupee exchange rate and increase in valuation of its assets has led to the jump in the forex reserves, traders said. The rupee has gained 5.3% against the dollar since the beginning of 2017. On April 26, it appreciated to 63.93 to a dollar, its highest level since August 10, 2015.
The central bank has always maintained that it does not want to influence the exchange rate for the rupee, but would take steps, including intervention in the spot market, to curb extreme volatility. According to the latest data available, the RBI bought $3.5 billion in the spot market on a net basis in March, while outstanding net forward sales stood at $10.8 billion during the month. The RBI publishes data on the sale and purchase of dollar with a lag of two months.
Companies will be given a chance to amend and re-submit proposals, says DIPP
In what could be a morale booster for start-ups, the government has decided to do away with the practice of rejecting applications for tax sops.
Instead, start-ups will get an opportunity to apply again after making changes to the proposal based on the explanation given to them on the initial one.
Supportive policy
The Department of Industrial Policy and Promotion is also reworking the qualification criteria for start-ups for non-tax benefits, a government official told Business Line.
“Instead of dismissing proposals that do not meet the mark for tax-sops with a simple ‘rejected’, the inter-ministerial group examining it will give details of where they fell short. This will give the start-ups an opportunity to rework their proposals, and apply again for tax benefits,” the official said. “There has been no change in the criteria of judging whether a start-up qualifies for tax benefits. It still depends on how innovative the idea is.”
In the last meeting of the Inter Ministerial Group (IMG) on startups which met on May 1, about a dozen applications were approved.
The change in the Central government’s stance has been triggered by a general sense of dissatisfaction among start-ups with the new policy, as only about 10 proposals had qualified for tax sops till last month out of the 140 proposals vetted by the inter-ministerial group since the policy was announced last year. “The DIPP has decided to be a bit more empathetic while dealing with start-ups. After all, what good are tax sops if very few are able to benefit from it,” the official said. The 130 applicants for tax apps, who were rejected over the past year, will also get a detailed note on why their cases did not pass the test. As per the existing rules, start-ups (companies and Limited Liability Partnerships or LLPs) can get income tax exemption for three years in a block of seven years, if they are incorporated between April 1, 2016, and March 31, 2019.
Expanding definition
An IMG, including officials from the Department of Bio-technology, Department of Science and Technology and the DIPP, examine the proposals on the basis of innovation and use, and determine whether they qualify for tax sops or not.
“An official from the Ministry of Electronics, IT and Technology has been added to the IMG from May 1,” the official said.
The DIPP will come up with a new set of rules over the next few weeks, tweaking the definition of a start-up that will result in more companies and LLPs coming under in the category.
RBI gives more powers to tackle NPAs: Arun Jaitley
The Reserve Bank of India sprang into action as soon as the government notified the ordinance on bad loans, with the regulator offering more teeth to groups of lenders to deal with recovery proceedings and telling banks to stick to majority-agreed plans or face a penalty.
Any resolution plan agreed to by 60% of members in a joint lenders’ forum is binding on everyone in the group and no bank board will have the power to overrule the decision, the central bank said. Banks will have to implement the plan agreed upon without any additional conditions and there would be a monetary penalty on those who veer away from the decision.
“Delays have been observed in finalising and implementation of the CAP (corrective action plan), leading to delays in resolution of stressed assets in the banking system,” RBI said in a notification.
“It is reiterated that lenders must scrupulously adhere to the timelines prescribed in the framework for finalising and implementing the CAP.”
RBI’s strong measures come on a day when the regulator was empowered by law to direct banks to take action against bad loans which have been plaguing the sector for the better part of the last decade. Banks, because of differences between them over the recovery procedures, had often failed to resolve the problem.
In new timelines released on Friday, the RBI said henceforth decisions agreed to by a minimum of 60% creditors by value and 50% by number in the forum would be enough to approve a restructuring plan for the loans. The earlier rule required approval of 75% creditors by value and 60% by number.
The new corrective action plan covers restructuring of project loans, change in ownership under strategic debt restructuring and the scheme for sustainable structuring of stressed assets.
The RBI will embark on its biggest banking clean-up exercise after President Pranab Mukherjee promulgated an ordinance authorising it to issue directions to banks to initiate insolvency resolution process in the case of loan default.
The tweak in the rules will help the Modi government tackle toxic loans that have crossed the Rs 6 lakh crore mark.
So, what does this mean?
1) The ordinance promulgated by the government on bad loans has now empowered the RBI to issue directions to banks for resolution of stressed assets. This basically implies the central bank can issue directions to any banking company or banking firms to initiate insolvency resolution process with respect to a default under the provisions of the Insolvency and Bankruptcy Code, 2016.
2) It has also empowered RBI to issue directions to banks for resolution of stressed assets.
3) The law will also empower RBI to set up sector related oversight panels that will shield bankers from later action by probe agencies looking into loan recasts.
4) RBI will be able to give specific solutions with regard to hair cut for specific cases and also, if required, look at providing relaxation in terms of current guidelines.
What is RBI’s target?
The central bank wants to resolve 60 largest delinquent-loan cases in nine months, a person familiar with the matter told Bloomberg.
Why is it being done now?
Ridding bank balance sheets of stressed assets is key to reviving credit growth and furthering Prime Minister Narendra Modi’s goal of creating more jobs in the $2 trillion economy.Various schemes proposed by RBI to resolve the problem have been unsuccessful, with lenders reluctant to write down assets sufficiently and company owners unwilling to negotiate repayment plans.
Stressed assets — bad loans, restructured debt and advances to companies that can’t meet servicing requirements — have risen to about 17 percent of total loans, the highest level among major economies, data compiled by the government shows.
A Universal Robots employee demonstrates how a model of their industrial robot arms works in Singapore March 3, 2017.
Foreign precision engineering firms are investing more in Singapore, drawn by strong semiconductor demand and government incentives aimed at re-tooling an economy short of skilled labor.
The city-state is running programs worth billions of dollars to support productivity, automation and research, attracting global chipmakers including U.S.-based Micron Technology Inc and Germany’s Infineon Technologies.
This investment rush into electronics helped the technology sector log 57 percent output growth on average in October-February from a year ago, and kept Singapore from recession late last year.
“I’ve lived in Europe, I’ve lived in Japan, I’ve spent a lot of time in Taiwan and other countries. From a proactive standpoint, Singapore is about as good as it gets,” said Wayne Allan, vice president of global manufacturing at Micron, adding the Singapore government’s long-term vision was key to Micron expanding its investment.
Taking advantage of government grants, Micron is investing $4 billion to make more flash-memory chips in Singapore. It increased output by a third in the second half of last year and expects similar growth in the first half of this year.
Linear Technology Corp, a maker of analog integrated circuits, has opened a third chip testing facility in Singapore, and will produce 90 percent of its global test equipment in the city-state.
All this has created something of a virtuous circle in the semiconductor supply chain, with chip testing equipment supplier Applied Materials reporting record shipments to Singapore last year, said its regional chief, Russell Tham.
It’s unclear how much of this revival in Singapore’s $40 billion chip industry is due to a so-called ultra-super-cycle in the global memory chip sector, and Singapore remains a smaller player than South Korea and Taiwan.
“It is vulnerable to a pull-back,” said Nomura economist Brian Tan. “If there’s a turnaround in the semiconductor industry … it becomes a lot more apparent that the underlying growth momentum is not great.”
MOVING UP
However, there are real signs that the targeted government incentives are helping firms move up the value chain.
One of the larger programs is the Productivity and Innovation Credit, where Singapore has budgeted S$3.6 billion ($2.6 billion) for 2016-18. Another S$400 million automation support package is aimed at small firms, and a S$500 million Future of Manufacturing plan encourages testing new technologies.
The Ministry of Trade and Industry says it encourages manufacturers to “embrace disruptive technologies” such as robotics. “These measures will help ensure the manufacturing sector in Singapore remains globally competitive,” it said, attributing the strong semiconductors performance partly to demand from China’s smartphone market and improved global semiconductor demand.
For Feinmetall Singapore, whose products are used for testing semiconductor wafers, grants covered about two thirds of the $100,000 cost of a needle-bending machine it needed to help overcome an island-wide labor shortage.
“If we use the same methods as before … I don’t think we can expect any growth,” said Sam Chee Wah, the company’s general manager, noting Feinmetall Singapore struggled to retain some workers for much longer than a year, even after nine months of training.
GlobalFoundries Singapore, a wafer maker, has spent $50 million on 77 robots, each able to perform the tasks of 3-4 workers. This has helped the company move up the value chain into parts for self-driving cars and security-related chips for credit cards and mobile payments, says general manager KC Ang.
Singapore now has about 400 robots per 10,000 workers, the world’s second-highest density after South Korea. Most robots are used in electronics, according to the International Federation of Robots.
And further developments are in the pipeline.
AUTOS, IOT
At its Singapore manufacturing hub, Infineon is developing productivity tools such as robotics and automated guided vehicles which it hopes to deploy to other production sites. Dutch chipmaker NXP Semiconductors is also developing vehicle-to-everything technology, enabling vehicles to communicate with each other and roadside infrastructure.
Instead of trying to compete with high-volume producers such as China or Malaysia, Singapore has shifted to higher-end products, said Jagadish C.V., head of Systems on Silicon Manufacturing, another firm making semiconductor wafers.
“So you do the products which others can’t do so easily,” he said, adding his firm had shifted most of its output to specialized products, such as chips used in smartphones.
CK Tan, President of the Singapore Semiconductor Industry Association, noted the global chip industry is automating faster than other sectors because of cost pressure, a need to eliminate or reduce error, and have a consistent process control.
“In Singapore, it’s even more important for us to … look at how to speed up or increase the level of automation because of the lack of skilled resources,” he said. “The industry has recognized it has to move upscale. The government incentives play a part to allow the manufacturing side to be relevant, to be at least cost competitive.”
The Ministry of Trade and Industry said first-quarter growth in manufacturing – up 6.6 percent year-on-year, while overall GDP was up 2.5 percent – was due mainly to output expansion in electronics and precision engineering.
Integrated circuits were Singapore’s biggest export product among non-oil domestic exports in January-March, topping S$6 billion ($4.29 billion), according to trade agency IE Singapore.
FDI inflows in the services sector rose by about 26% to $8.68 billion in 2016- 17 with the government taking steps to improve ease of doing business and attracting foreign investments.
