G-20 Agenda by India. Is it tug war..?

Dealing Effectively with Interrelated Issues of Global Imbalances, Financial Regulations , and the International Monetary System Central to Agenda of G - 20 : FM

Union Finance Minister Shri Pranab Mukherjee  has said that one of the central objectives of the G-20 has been to address the root causes of the global financial crisis, prevent a recurrence and, going forward, to take measures to achieve strong sustainable and balanced growth. Dealing effectively with the interrelated issues of global imbalances, financial regulation, and the international monetary system are central to this agenda,  he said. The Finance Minister was speaking at the international conference on ‘Global Cooperation on Sustainable Growth and Development, here today. He said that the conference had been organised around 5 broad thematic areas - global imbalances, financial regulation, international monetary system, development and commodity markets. He said that in each of these areas, the world is facing several immediate challenges and these issues are therefore the subject of ongoing discussions in the G 20.  He congratulated ICRIER and its partners for organizing this timely conference and bringing together eminent academics and policymakers from across 14 countries, to deliberate on these critical issues.                             Finance Minister said that the G 20 demonstrated its relevance to international policy making with the success of its coordinated response on the fall-out of the global financial crisis.  He said that the economic downturn was moderated and growth resumed in the second half of 2009 in most economies, although the pace of recovery remained uneven. The Finance Minister said that it appeared that policy makers had learnt theirs lessons from history by honing and harmonising the use of macro-economic policy and keeping markets open.  At the same time, countries in the developed and the developing world adopted revival strategies in keeping with the needs of their respective contexts, he said.                             Shri Mukherjee said that developments in recent months have been less encouraging and  there is widespread apprehension that even the tepid global economic recovery that we have seen so far is stalling. Growth in most advanced economies has declined in the second quarter of 2011 and emerging markets are witnessing a combination of moderation in growth and rising inflation, he said.                             The Finance Minister said that advanced economies, the Euro zone and the US, are seized with sovereign debt problems  which  is making financial markets nervous. He stated that elevated fiscal deficits and public debt have always followed deep recessions in the past, which could be overcome with stronger recovery in output and in the present instance,   the nominal output is yet to reach the pre-crisis levels. Shri Mukherjee said that there are structural constraints coming in the way of advanced economies returning to their trend growth path. As a result, their fiscal position looks increasingly unsustainable. He said that despite the aggressive fiscal and monetary policy, unemployment continues to be at its highest in many advanced countries. The question is what more can policy makers do to improve growth or to avoid another downturn, he said.             The Finance Minister said that emerging markets recovered quickly from global slowdown, but are facing elevated commodity prices, inflation, moderating growth and volatile capital flows all at once. Central banks have been forced to raise policy rates repeatedly, potentially compromising growth in the short-term. While raising rates may help stabilize growth, it may also invite more capital inflows. It is true that emerging economies are relatively better placed with regard to their public debt and fiscal deficit due to their stronger growth momentum and relatively robust banking systems. Their downside risks are on account of high oil and commodity prices and volatility in capital flows, partly due to the easy money policies in advanced countries, he said.             Shri Mukherjee said that unlike at the outset of the global financial crisis, when G 20 led policy coordination across economies could be achieved rapidly, it may be more difficult now. The advanced and developing countries are at different stages of the business cycle.  It is important, therefore, to       pause and think about what the G 20 agenda has been thus far and how it needs to evolve in future, he said.                           Shri Mukeherjee said that most observers believe that the proximate cause of the recent crisis lay in a small, sub-prime segment of the UShousing market. The ultimate reasons included the growing weaknesses in financial regulation and the build up of global imbalances. Since the international monetary system does not have an effective mechanism for preventing the build up of global imbalances, the G 20 took up the issue of its reform on a priority basis, he said. The Finance Minister stated that there is an understanding that the G 20 Framework for Strong, Sustainable and Balanced Growth may be the mechanism for adjusting these imbalances. This work-stream, in which India plays an important role as co-chair of the Framework Working Group, is vital for the success of the G 20, he said.               The Finance Minister said that strengthening domestic drivers of growth in developing and emerging economies is necessary for rebalancing of the global economy. As a result, the development agenda has become a central theme for the G 20 since the Seoul Summit. Moreover, as financial markets were seen to be destabilizing commodity markets, commodity price volatility and food security were also added to this agenda, he said.             Shri Mukherjee said that while welcoming these initiatives, we need to be cautious regarding the danger of working with a one-size-fit-all approach. Basel III is a good case in point.   He said that it is quite demanding on developing country banks. Different stages of economic development require different levels and quality of support from the financial sector. If capital adequacy standards become too high, there is a danger of inefficient dis-intermediation in markets. Emerging markets should use prudential regulation and close supervision rather than merely high capital standards, he said.             The Finance Minister Shri Mukherjee said that Global macroeconomic imbalances are at the heart of destabilizing sustainable economic growth at the international level.  He stated that    all imbalances are not bad as some of them reflect multi-paced growth, different savings-investment behaviour and productivity levels across economies and such differences may not be destabilizing per se. Shri Mukherjee said that at the same time, some imbalances reflect structural inefficiencies usually created by policy distortions relating to the external sector, trade, capital flows and exchange rate policies, financial markets, tax and subsidy regimes, which have to be addressed. The Finance Minister said that the reform of the International monetary system is high on the agenda of the G-20 and various issues including capital flows management, financial safety nets, measuring global liquidity, composition of the SDR basket are currently under discussion, he said.             The Finance Minister emphasised upon a few specific issues for the deliberations.  Firstly, he said that an issue of immediate concern for emerging economies is managing large capital flows. Large and volatile capital flows to  emerging markets can be destabilising as they lead to high exchange rate volatility and in some cases make it incumbent to maintain high levels of foreign exchange reserves as an insurance against sudden or large-scale flight of international capital, he added. Large and volatile inflows are also associated with asset price booms and encourage excessive risk taking by traders and investors and therefore threaten financial stability, said the Minister.             Secondly, the Finance Minister said that recent commodity and food price rise and their volatility have induced considerable threat to economic growth and food security in energy dependent emerging, as well as, developing economies. Factors behind recent price hikes are yet to be pin pointed. Even the G-20 is undecided on the role of speculation and global excessive liquidity on the international commodity prices. He said that though it does seem odd that commodity prices should be so buoyant even as the outlook for global growth is weak. He stated that we need more research and debate on whether speculation in currency and commodity markets has been playing a role in recent price rises.               Thirdly, the Finance Minister said that G 20 development agenda is understandably very vast and  covers areas that are also being handled by a number of developmental agencies. While we are committed to concerns of ‘development’ and of sharing the fruits of economic growth, it is imperative to prioritize among various development needs, he said. Shri Mukherjee said that one development issue that deserves priority is the recycling of global savings for infrastructure investment.Enhancing infrastructure investment in emerging economies and developing countries would have positive spin-off for rebalancing global demand. It would result in real investments with tangible growth. The G-20 is well placed to coordinate various stakeholders including governments, especially the ones that have large surpluses, the private sector, and multilateral development banks, for investment in developing economies, he said. He hoped that the conference can suggest innovative ways to recycle global savings and identify viable strategies to overcome the presumed hurdle of ‘lack of enabling environment’ for infrastructure investment in emerging and developing countries.             In his concluding remarks, the Finance Minister said that even though there are no simple answers or magic solutions to some of these issues,  he did not  see any reason for despair.  He hoped that the    deliberations would help in addressing global challenges at the current conjuncture and also the structural problems that confront us, in an innovative and cooperative framework.   He said that the need of the hour is global reforms with an eye on medium to long-term sustainability of economic growth. DSM/SS/GN (Release ID :75945)

INFRASTRUCTURE DEBT FUND SCHEMES by SEBI

“CHAPTER VI -B
INFRASTRUCTURE DEBT FUND SCHEMES
Definitions
49L. For the purposes of this Chapter, unless the context otherwise requires-
(1) “Infrastructure debt fund scheme” means a mutual fund scheme that invests primarily (minimum 90% of scheme assets) in the debt securities or securitized debt instrument of infrastructure companies or infrastructure capital companies or infrastructure projects or special purpose vehicles which are created for the purpose of facilitating or promoting investment in infrastructure, and other permissible assets in accordance with these regulations or bank loans in respect of completed and revenue generating projects of infrastructure companies or projects or special purpose vehicles.
(2) “Infrastructure” includes the sectors as specified by guidelines issued by the Board or as notified by Ministry of Finance, from time to time.
(3) ‘Strategic Investor’ means;
(i) an Infrastructure Finance Company registered with Reserve bank of India as Non Banking Financial Company;
(ii) a Scheduled Commercial Bank;
(iii) International Multilateral Financial Institution.
49M. Applicability
(1) The provisions of this chapter shall apply to infrastructure debt fund schemes launched by mutual funds.
(2) All other provisions of these regulations and the guidelines and circulars issued thereunder, unless the context otherwise require or repugnant to the provisions of this chapter, shall apply to infrastructure debt fund schemes, trustees and asset management companies in relation to such schemes.
49N. Eligibility criteria for launching infrastructure debt fund scheme
(1) An existing mutual fund may launch an infrastructure debt fund schemes if it has an adequate number of key personnel having adequate experience in infrastructure sector.
(2) A certificate of registration may be granted under regulation 9 to an applicant proposing to launch only infrastructure debt fund schemes if the sponsor or the parent company of the sponsor: -
(a) has been carrying on activities or business in infrastructure financing sector for a period of not less than five years;
(b) fulfills eligibility criteria provided in Regulation 7.
Explanation- For the purpose of this clause, ‘parent company of the sponsor’ shall mean a company which holds at least 75% of paid up equity share capital of the sponsor.
49O. Conditions for infrastructure debt fund schemes
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(1) An infrastructure debt fund scheme shall be launched either as close-ended scheme maturing after more than five years or interval scheme with lock-in of five years and interval period not longer than one month as may be specified in the scheme information document.
(2) Units of infrastructure debt fund schemes shall be listed on a recognized stock exchange, provided that such units shall be listed only after being fully paid up.
(3) Mutual Funds may disclose indicative portfolio of infrastructure debt fund scheme to its potential investors disclosing the type of assets the mutual fund will be investing.
(4) An infrastructure debt fund scheme shall have minimum five investors and no single investor shall hold more than fifty percent of net assets of the scheme.
(5) No infrastructure debt fund scheme shall accept any investment from any investor which is less than Rupees one crore.
(6) The minimum size of the unit shall be Rupees ten lakhs.
(7) Each scheme launched as infrastructure debt fund scheme shall have firm commitment from the strategic investors for contribution of an amount of at least Rupees twenty five crores before the allotment of units of the scheme are marketed to other potential investors.
(8) Mutual Funds launching infrastructure debt fund scheme may issue partly paid units to the investors, subject to following conditions:
(a) The asset management company shall call for the unpaid portions depending upon the deployment opportunities;
(b) The offer document of the scheme shall disclose the interest or penalty which may be deducted in case of non payment of call money by the investors within stipulated time; and
(c) The amount of interest or penalty shall be retained in the scheme.
49P. Permissible investments
(1) Every infrastructure debt fund scheme shall invest at least ninety percent of the net assets of the scheme in the debt securities or securitized debt instruments of infrastructure companies or projects or special purpose vehicles which are created for the purpose of facilitating or promoting investment in infrastructure or bank loans in respect of completed and revenue generating projects of infrastructure companies or special purpose vehicle.
(2) Subject to sub-regulation (1), every infrastructure debt fund scheme may invest the balance amount in equity shares, convertibles including mezzanine financing instruments of companies engaged in infrastructure, infrastructure development projects, whether listed on a recognized stock exchange in India or not; or money market instruments and bank deposits.
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(3) The investment restrictions shall be applicable on the life-cycle of the infrastructure debt fund scheme and shall be reckoned with reference to the total amount raised by the infrastructure debt fund scheme.
(4) No mutual fund shall, under all its infrastructure debt fund schemes, invest more than thirty per cent of its net assets in the debt securities or assets of any single infrastructure company or project or special purpose vehicles which are created for the purpose of facilitating or promoting investment in infrastructure or bank loans in respect of completed and revenue generating projects of any single infrastructure company or project or special purpose vehicle.
(5) An infrastructure debt scheme shall not invest more than 30% of the net assets of the scheme in debt instruments or assets of any single infrastructure company or project or special purpose vehicles which are created for the purpose of facilitating or promoting investment in infrastructure or bank loans in respect of completed and revenue generating projects of any single infrastructure company or project or special purpose vehicle, which are rated below investment grade or unrated:
Provided that such investment limit may be extended upto 50% of the net assets of the scheme with the prior approval of the board of trustees and the board of asset management company.
(6) No infrastructure debt fund scheme shall invest in –
(i) Any unlisted security of the sponsor or its associate or group company;
(ii) Any listed security issued by way of preferential allotment by the sponsor or its associate or group company;
(iii) Any listed security of the sponsor or its associate or group company or bank loan in respect of completed and revenue generating projects of infrastructure companies or special purpose vehicles of the sponsor or its associate or group companies, in excess of twenty five per cent of the net assets of the scheme, subject to approval of trustees and full disclosures to investors for investments made within the aforesaid limits; or
(iv)Any asset or securities owned by the sponsor or asset management company or its associates, in excess of 20% of the net assets of the scheme not below investment grade, subject to approval of trustees and full disclosures to investors for investments made within the aforesaid limits.
49Q. Valuation of assets and declaration of net asset value
(1) The assets held by an infrastructure debt fund scheme shall be valued “in good faith” by the asset management company on the basis of appropriate valuation methods based on principles approved by the trustees.
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(2) The valuation shall be documented and the supporting data in respect of each security so valued shall be preserved at least for a period of five years after the expiry of the scheme.
(3) The methods used to arrive at values ‘in good faith’ shall be periodically reviewed by the Trustees and by the statutory auditor of the mutual fund.
(4) The valuation policy approved by the board of asset management company shall be disclosed in the scheme information document.
(5) The net asset value of every infrastructure debt fund scheme shall be calculated and declared atleast once in each quarter.
49R. Duties of asset management company
(1) The asset management company shall lay down an adequate system of internal controls and risk management.
(2) The asset management company shall exercise due diligence in maintenance of the assets of an infrastructure debt fund scheme and shall ensure that there is no avoidable deterioration in their value.
(3) The asset management company shall record in writing, the details of its decision making process in buying or selling infrastructure companies’ assets together with the justifications for such decisions and forward the same periodically to trustees.
(4) The asset management company shall ensure that investment of funds of the Infrastructure Debt Fund schemes is not made contrary to provisions of this chapter and the trust deed.
(5) The asset management company shall obtain, wherever required under these regulations, prior in-principle approval from the recognized stock exchange(s) where units are proposed to be listed.
(6) The asset management company shall institute such mechanisms as to ensure that proper care is taken for collection, monitoring and supervision of the debt assets by appointing a service provider having extensive experience thereof, if required.
49S. Disclosures in offer document and other disclosures
(1) The offer documents of infrastructure debt fund schemes shall contain disclosures which are adequate for investors to make informed investment decisions and such further disclosures as may be specified by the Board.
(2) The portfolio disclosures and financial results in respect of an infrastructure debt fund schemes shall contain such further disclosures as may be specified by the Board.
(3) Advertisements in respect of infrastructure debt fund schemes shall conform to such guidelines as may be specified by the Board.
49T. Transactions by employees etc.
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(1) All transactions done by the trustees or the employees or directors of the asset management company or the trustee company in the investee companies shall be disclosed by them to the compliance officer within one month of the transaction.
(2) The compliance officer shall make a report thereon from the view point of possible conflict of interest and shall submit it to the trustees with his recommendations, if any.
(3) The persons covered in sub-regulation (1) may obtain the views of the trustees before entering into the transaction in investee companies, by making a suitable request to them.”
(vii) in regulation 56, -
a. in sub-regulation (1), the sign of full stop “.” shall be substituted with the sign of colon “:”;
b. after sub-regulation (1), the following proviso shall be inserted, namely: -
“Provided that the scheme wise annual report or abridged summary thereof may be sent to investors in electronic form on their registered e-mail address in the manner specified by the Board.”;
c. after sub-regulation (3), the following new sub-regulation shall be inserted, namely: -
“(4) The asset management company shall display the link of the full scheme wise annual reports prominently on their website.”

Indian Growth prospects lowered to 8.2%

Prime Minister's Office01-August, 2011 12:01 IST

Highlights of Economic Outlook 2011-12

The Chairman Economic Advisory Council to the Prime Minister, Dr. C. Rangarajan released the ‘Economic Outlook 2011-12’ in New Delhi today. Following are the highlights: Economy to grow at 8.2% in 2011-12 Agriculture grew at 6.6% in 2010-11. Projected to grow at 3.0% in 2011-12 Industry grew at 7.9% in 2010-11. Projected to grow at 7.1% in 2011-12 Services grew at 9.4% in 2009-10. Projected to grow at 10.0% in 2011-12 The projected growth rate of 8.2%, though lower than the previous year, must be treated as high and respectable, given the current world situation. Global economic and financial situation unlikely to improve To keep the economy growing at 9% it is important to increase fixed investment rate Investment rate projected at 36.4% in 2010-11 and 36.7% in 2011-12 Domestic savings rate as ratio of GDP projected at 33.8% in 2010-11 & 34.0% in 2011-12  The 2011 monsoon projected to be in the range of 90 to 96 per cent of Long Period Average. As a result farm sector output expected to grow at 3 % The revised series (2004/05) for Index of Industrial Production shows an output growth pattern that is fairly different from what the old series (1993/94) had indicated. The output growth was grossly underestimated by the old series in 2007-08 and overestimated in 2008-09 and 2009-10. The impact of the global crisis on industrial output was much stronger than had been indicated by the old series In 2010-11 the output growth was higher at 8.2% against 7.8% indicated by the old series Current Account deficit is $44.3 billion (2.6% of GDP) in 2010-11 and projected at $54.0 billion (2.7% of GDP) in 2011-12 Merchandise trade deficit is $ 130.5 billion or 7.59% of the GDP in 2010-11 and projected at $154.0 billion or 7.7% of GDP in 2011-12 Invisibles trade surplus is $ 86.2 billion or 5.0% of the GDP in 2010-11 and projected at $100.0 billion or 5.0% in 2011-12 Capital flows at $61.9 billion in 2010-11 and projected at $72.0 billion in 2011-12 FDI inflows projected at $35 billion in 2011/12 against the level of $23.4 billion in 2010-11 FII inflows projected to be $14 billion which is less than half that of the last year i.e $30.3 billion Accretion to reserves was $15.2 billion in 2010-11. Projected at $18.0 billion in 2011-12 Inflation rate projected at 6.5 % in March 2012. The headline inflation rate would continue to be at 9 per cent in the month of July-October 2011. There will be some relief starting from November and will decline to 6.5% in March 2012. Available food stocks to be liberally released Important role for fiscal policy to contain demand pressure. Need to ensure that fiscal deficit does not exceed the budgeted level RBI will have to continue to follow a tight monetary policy till inflation shows definite signs of decline Achieving fiscal targets set in 2011/12 budget estimates to present a significant challenge For 2011/12, budget estimates of fiscal deficit for Centre - 4.7%; States- 2.1% and consolidated fiscal deficit including off budget liabilities - 6.8% Government to redouble efforts to collect larger revenue, resolve cases to reduce tax arrears Minimize avoidable expenditures and initiate measures to increase revenues Resolve issues with states and introduce Goods and Services Tax Reforms in power sector distribution system to limit the liabilities of state governments Some key issues of concern: Convergence of growth rates of states An analysis of the recent data indicates that while most of the lower income states have shown stronger growth rates, several of the higher income states have also shown an increase Current Account Deficit Given our growth needs, a moderate trade deficit and CAD are inevitable. To finance the CAD, foreign investment flows need to be promoted. However CAD to be contained below 2.5% of the GDP Power Sector The India growth story inextricably linked to the power sector Immediate policy interventions required for ensuring coal availability for the power plants, land acquisition and environmental clearances and revision of power tariff by states to reduce high AT&C losses Increased focus on non conventional energy Food Security Need to grant the poor a legal entitlement to food through an appropriate legislative enactment Availability of grain to be kept in mind while deciding legal entitlements Reforms in PDS important to strengthen distribution. Computerization, introduction of smart cards and using unique identification numbers for the beneficiaries are important interventions Table 1: GDP Growth - Actual & Projected At constant 2004/05 prices Year-on-year rates of growth in per cent ANNUAL RATES 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 QE Rev Proj. 1 Agriculture & allied activities 5.1 4.2 5.8 -0.1 0.4 6.6 3.0 2 Mining & Quarrying 1.3 7.5 3.7 1.3 6.9 5.8 6.0 3 Manufacturing 10.1 14.3 10.3 4.2 8.8 8.3 7.0 4 Electricity, Gas & Water Supply 7.1 9.3 8.3 4.9 6.4 5.7 7.0 5 Construction 12.8 10.3 10.7 5.4 7.0 8.1 7.5 6 Trade, Hotels, Transport, Storage & Communication 12.2 11.6 11.0 7.5 9.7 10.3 10.8 7 Finance, insurance, real estate & business services 12.7 14.0 11.9 12.5 9.2 9.9 9.8 8 Community & personal services 7.0 2.9 6.9 12.7 11.8 7.0 8.5 9 Gross Domestic Product (factor cost) 9.5 9.6 9.3 6.8 8.0 8.5 8.2 10 Industry (2 + 3 + 4 + 5) 9.7 12.2 9.7 4.4 8.0 7.9 7.1 11 Services (6 + 7 + 8) 11.0 10.1 10.3 10.1 10.1 9.4 10.0 12 Non-agriculture (9 - 1) 10.5 10.8 10.1 8.2 9.4 8.9 9.0 14 GDP (factor cost) per capita 7.8 7.8 7.6 5.0 6.2 6.8 6.4 Some Magnitudes 15 GDP at factor cost - 2004/05 prices in Rslakh crore (or Trillion) 32.5 35.7 39.0 41.6 44.9 48.8 52.8 16 GDP market & current prices in Rs lakhcrore (or Trillion) 36.9 42.9 49.9 55.8 65.5 78.8 89.8 17 GDP market & current prices in US$ Billion 834 949 1,241 1,223 1,385 1,732 1,994 18 Population in Million 1,108 1,126 1,145 1,164 1,183 1,202 1,222 19 GDP market prices per capita current prices 33,317 38,117 43,554 47,975 55,384 65,517 73,460 20 GDP market prices per capita in current US$ 753 842 1,084 1,051 1,171 1,441 1,632