The Economic Times Daily Review | 29th October 2018

♠Economics times♠

♦Government readies loan, social security plan for MSMEs 

  • The government is set to announce a package of benefits for micro, small and medium enterprises (MSMEs) spread across 80 clusters that will cover credit flow, steps to improve market access and ensuring social security benefits for workers through a targeted approach like the one for aspirational districts. 
  • A detailed scheme is to be announced by PM Narendra Modi in what is seen as a pre-election push for a sector that employs over a 100 million people in 63 million units. 
  • The list of clusters range from food processing units in Vishakapatnam to steel ancillary in Bokaro (Jharkhand), large cardamom in Sikkim, sports goods in Meerut and leather goods in Agra with joint secretary and additional secretary-rank officers from the Centre designated as ‘prabharis’. They will work with officers from banks, EPFO, ECIS, SIDBI, state government and district administration to meet the targets. 
  • The government is following a similar approach for 117 aspirational or backward districts with prabharis working with the district and state authorities in meeting targets related to health, education, sanitation and farming. 

Essar to deleverage Rs 1.25 lakh crore debt if its offer for Essar Steel is accepted 

  • Ruia-family owned Essar Group would deleverage about Rs 1.25 lakh crore of debt – the largest by any corporate if its offer to repay lenders of Essar Steel in full is accepted, company sources said. 
  • Last week, the Committee of Essar Steel Creditors picked world’s largest steelmaker ArcelorMittal’s Rs 42,000 crore takeover offer over the company promoter’s Rs 54,389 crore proposal to pay off all of the lenders’ dues. 
  • Essar plans to legally challenge the decision as it believes its offer would ensure 100 per cent recovery for lenders while accepting ArcelorMittal’s offer would entail a haircut, sources said. 
  • Sources said Essar Group had so far used USD 650 million (about Rs 4,200 crore) from the sale of Aegis US operations, Rs 72,000 crore from sale of Essar Oil to Russia’s Rosneft and partners, Rs 2,000 crore from sale of Aegis and Rs 2,400 crore from sale of Equinox to deleverage group debt. 
  • If the offer for Essar Steel is accepted, the deleveraging would total to Rs 1.25 lakh crore, they said. This is over 85 per cent of total group liabilities. 
  • Essar invested Rs 1.2 lakh crore — the highest by any corporate in recent times — between 2010 and 2015 in building world-class assets in energy, infrastructure, metals and mining, and services sector. 

Supertech plans to monetise 1 mn sq ft retail space in Noida for Rs 12 bn

  • Realty firm Supertech plans to raise about Rs 12 billion by monetising its 1 million sq ft retail space in a mixed-use project at Noida, a top company official said.
  • The company is in advanced stages of talks with some private equity players to sell retail space in the Supernova project, its Chairman R K Arora said.
  • In the 17.5-acre premium project Supernova, Supertech is developing five towers at an investment of around Rs 55 billion.
  • “We are looking to monetise our commercial space to raise funds for our ongoing projects and reduce debt,” Arora told PTI.
  • “The discussions with private equity players and some other investors are in advanced stages,” he said, adding that he expects the deal to conclude shortly.
  • However, he did not disclose the names of parties with whom discussions were on.
  • Arora said the company has a debt of around Rs 25 billion, raised from banks and non-banking finance companies (NBFCs).
  • “We have not defaulted on our loans. Our all loans are regular,” he said, but agreed that there was some 15 days’ delay in interest payment to one bank.
  • Arora said there is a huge appetite for office and retail space among institutional investors because of good rental yields. The government’s decision to launch Real Estate Investment Trusts (REITs) has also boosted the commercial segment.

♦ Japanese PM Shinzo Abe vows to be a “friend of India for life” 

  • Japanese Prime Minister Shinzo Abe Sunday said he will be a “friend of India for life” as he and Prime Minister Narendra Modi began two days of summit talks to further deepen the Japan-India strategic partnership. 
  • In a message published in Indian newspapers on the day Abe hosted Modi at his holiday home in the picturesque Yamanashi prefecture, west of Tokyo, he recalled that the first Japanese prime minister to visit India was his grandfather Nobusuke Kishi in 1957. 
  • At the time when Japan was not so wealthy, Prime Minister (Jawaharlal) Nehru introduced Prime Minister Kishi in front of thousands of people as the Japanese Prime Minister whom he respects,” Abe noted. 
  • Following Prime Minister Kishi’s visit to India in 1957, yen loans to the country began in 1958. Abe, who was elected prime minister for the first time in 2006, comes from a politically prominent family. 

♦ Statsguru: GDP growth to fall from 8.2% in Q1FY19 to 6.9% in Q4FY19

  • The monetary Policy report 2018 released by the Reserve Bank of India (RBI) provides detailed insights into the state of the economy.
  • On inflation, it shows that professional forecasters expect the retail inflation rate to fall in the coming months, averaging 4.1 per cent in Q2 and Q3, but rising to 4.5 per cent in Q4FY19 (Chart 1). This projection is largely in line with the RBI’s projections. And while the food inflation rate has moderated recently, the RBI finds that the recent trajectory of food inflation has been shaped by vegetables, fruit and pulses rather than cereals (Chart 2).
  • On the impact of rising crude oil prices, the RBI estimates that a 10 per cent increase in crude oil prices pushes the headline inflation rate up by 13 bps, imparts a 15bps “cost push” inflation and leads to a deterioration in the trade deficit, which via the currency leads to an additional 10 bps increase in the inflation rate (Chart 3). The flip side, though, is that higher oil prices reduce household spending on non-oil items, thereby reducing demand. And as firms are unable to pass on higher prices fully, higher oil prices reduce profits and investments, which in turn reduces aggregate demand, thereby lowering the inflation rate by 5-10 bps.
  • On growth, the professional forecasters expect GDP growth to fall from 8.2 per cent in Q1FY19 to 6.9 per cent in Q4FY19, recovering thereafter to 7.4 per cent in Q2FY20 (Chart 4). The RBI expects real GDP to grow at 7.6 per cent in FY20 (Chart 5).
  • And while private consumption has expanded, notwithstanding the subdued growth in rural wages (Chart 6), the contribution of government consumption to growth fell in Q1FY19 (Chart 7). Investment activity remains robust as reflected in indicators such as the import of capital goods as well as strong growth in housing loans (Chart 8), notes the report.

♦ Banking on IBC, govt expects NPA recoveries to exceed Rs 1.80 trn in FY19

  • Enthused by the impact of the new insolvency and bankruptcy law, the government expects bad loan recoveries to exceed the Rs 1.80 trillion target for the current financial year, an official said.    
  • Some big accounts are in the process of getting resolved while some more are lined up for resolution under the Insolvency and Bankruptcy Code (IBC), a senior Finance Ministry official told PTI. 
  • “Going by the success rate, we hope that the recovery would exceed our own target of Rs 1.80 trillion through the IBC and other means,” the official said citing some of the ongoing resolutions of Essar Steel and Bhushan Power and Steel Ltd.  
  • Banks hope to write back more than Rs 1 trillion alone from the resolution of 12 NPA cases referred to insolvency proceedings by the RBI in its first list.
  • Banks recovered Rs 365.51 billion in the first quarter of 2018-19. During 2017-18, banks recovered Rs 745.62 billion.  
  • Satisfied with the progress of IBC, Finance Minister Arun Jaitley had said “now people have become broadly aware that the rules of the game in India have changed. The banks won’t chase you anymore, you will have to chase them.”

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