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Current Affairs

Govt. plans to sell Air India, AI Express together

The central government is working to conclude the sale of national carrier Air India by June 2018 and is keen on selling its core airline operations, together with its low-cost international airline, Air India Express.

The decision was taken by the Air India-specific Alternative Mechanism — a group of Ministers led by Finance Minister to decide on the modalities of stake sale in the national carrier.

As per the decision, the Centre will look to sell AI’s regional airline Alliance Air to a separate universe of bidders while

Air India and Air India Express will likely go together.

The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, gave an in-principle nod for strategic disinvestment of Air India. The ministerial panel, led by Finance minister, is aiming to divest stake in Air India and its subsidiaries by June 2018.

The panel is also in favour of hiring off Air India’s properties and non-operational assets into a special purpose vehicle (SPV) to retire a portion of the national carrier’s debt.

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Crypto currencies, ICOs under SEBI

The rising popularity of crypto currencies and the increasing number of entities looking at raising funds through Initial Coin Offerings (ICO) has caught the attention of the capital market regulator, which is evaluating whether such instruments and offerings can be brought under its regulatory purview. According to persons familiar with the development, the Securities and Exchange Board of India (SEBI) is mulling whether an ICO can be regulated under the existing legal framework or certain amendments would be required in case the government wants the capital market watchdog to be the regulatory authority for such issuances. Incidentally, crypto currencies like bitcoin, ethereum and such offerings have been under government radar for long and discussions have been held between various bodies, including SEBI and the Reserve Bank of India (RBI), on the possible ways in which this segment can be regulated. The central bank is of the view that these instruments are securities and so SEBI should be the regulating body.

An ICO, like an equity initial public offer (IPO), is an issuance of digital tokens that can be converted into crypto currencies and are mostly used to raise funds by start-up firms dealing in blockchain technology and virtual currencies like bitcoins and ethereum. Unlike an IPO, which is governed by SEBI regulations, there is no regulatory body for ICOs in India. According to data from UK-based CoinDesk, nearly $2.7 billion has been raised globally through ICOs since 2014. Concerns related to ICOs can be gauged from the fact that China recently banned such offerings after its central bank said that ICOs are “illegal public finance” mechanism used for issue of securities and money laundering.

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Fiscal deficit rises to 91.3%

In the first six months of the current financial year, the country’s fiscal deficit touched 91.3 percent of the full-year budget estimate. During the same period in the previous fiscal year, this figure was 83.9 percent.

In addition to the annual deficit, the national debt – the accumulation of past deficits and interest due to lenders to the Treasury – now exceeds trillion. This will be due to lower-than-budgeted revenues, which are because of uncertainty related to the buoyancy of indirect taxes post-GST, revenues from telecom and disinvestment flows lower surplus transferred by the RBI disinvestment flows lower surplus transferred by the RBI.

A fiscal deficit occurs when a government’s total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits.

A fiscal deficit is regarded by some as a positive economic event. For example, economist John Maynard Keynes believed that deficits help countries climb out of economic recession. On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy.

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India’s rank rises to 100

The World Bank today released the Doing Business (DB) Report, 2018. The Department of Industrial Policy and Promotion (DIPP) is pleased to announce that India ranks 100 among 190 countries assessed by the Doing Business Team. India has leapt 30 ranks over its rank of 130 in the Doing Business Report 2017.

 The DB Report is an assessment of 190 economies and covers 10 indicators which span the lifecycle of a business. The table below provides a comparison of this year’s and last year’s report. India has improved its rank in 6 out of 10 indicators and has moved closer to international best practices (Distance to Frontier score). The credit for this significant improvement is credited to the mantra of “Reform, Perform, Transform” given by the Prime Minister, wherein a strong leadership has provided the political will to carry out comprehensive and complex reforms, supported by a committed to perform. The Government has undertaken an extensive exercise of stakeholder consultations, identification of user needs, government process re-engineering to match Government rules and procedures with user expectations and streamlined them to create a more conducive business environment. An extensive exercise is also undertaken to increase awareness among users about reforms to ensure extensive use of newly created systems.

This edition of the report acknowledges India as a top improver, with an improvement of 30 ranks compared to last year’s report, the highest jump in rank of any country in the DB Report, 2018. India is the only country in South Asia and BRICS economies to feature among most improved economies of the DB Report this year.

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Govt sets up Arun Jaitley-panel to oversee PSU bank mergers

In another significant move to revive PSU banks weighed down by bad loans, the government on Monday set up a ministerial panel, led by finance minister Arun Jaitley, to consider and oversee mergers among the country’s 21 state-run banks.

Members of the panel on PSU bank consolidation include railway and coal minister Piyush Goyal, and defence minister Nirmala Sitharaman, PTIreported.

“Govt walks the talk on banking reforms; constitutes Alternative Mechanism for PSBs consolidation; Finance Minister to head,” financial services secretary Rajiv Kumar said in a tweet on Monday.

The decision comes less than a week after the government announced a Rs2.11 trillion bank recapitalisation plan for public sector banks weighed down by bad loans, seeking to stimulate the flow of credit to spur private investment.

While announcing the capital infusion roadmap for public sector banks last week, Jaitley had said the move will be accompanied by a series of banking reforms over next few months. The constitution of an Alternative Mechanism is a move in that direction. The Union cabinet in August had decided to set up an Alternative Mechanism to fast-track PSU bank consolidation.

 

The consolidation of struggling state-run banks, which have a market share of about 70% and account for over 80% of bad loans in the Indian banking system, is aimed at building scale and bolstering their risk-taking ability.

The idea of bank mergers has been around since at least 1991, when former Reserve Bank of India (RBI) governor M. Narasimham recommended the government merge banks into a three-tiered structure, with three large banks with an international presence at the top.

In 2014, the P. J. Nayak panel suggested that the government either merge or privatize state-owned banks. The government hopes that state-owned banks will achieve economies of scale and operational efficiency, while managing risks in a better way after merging.

Consolidation is also likely to help them deal better with their credit portfolio, including stressed assets. Consolidation prevents multiplicity of resources being spent in the same area and strengthens banks to deal with shocks, Jaitley had said in August. According to experts, the consolidation plan along with measures such as capital infusions in weak banks will trigger a revival.

The State Bank of India merged operations of five of its associate banks and Bharatiya Mahila Bank with itself earlier this year, marking the first consolidation move in the sector following the bad loan crisis. The merger has reduced the number of state-controlled banks to 21 from 26.

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