Will the announced reforms be implemented?

All eyes are on the mood and tone of the Winter Session of Parliament. A plethora of changes are on the table and if the Monsoon Session is anything to go by, reformists will have a tough time


The Winter Session of Parliament, which begins on Thursday, will be a very important gauge as to the extent to which the announced reforms are being implemented. The direction of reforms in the coming months will depend on whether the ruling UPA government becomes stronger or weaker out of this winter session. This is the assessment of Nomura in its Asia Insights report.


Nomura does not see the UPA government at risk as the Congress has both inside (DMK, NCP, others) and outside (SP, BSP) support to tide over a no-confidence vote, in case the motion is raised, which itself is uncertain. The SP and the BSP are opposed to FDI (foreign direct investment) in multi-brand retail, but otherwise continue to support the government from outside. In terms of the reforms, Nomura expects the Companies Bill, Competition Bill, Banking Law and Forwards Contract Bill to sail through smoothly, but Insurance, Pension and Land Bills may face much more opposition.


Nomura’s worry is that even a discussion on FDI in multi-brand retail will lead to heated debates and could lead to disruption in parliamentary proceedings. If the debate on FDI in multi-brand retail is put to rest soon, there is hope that other reforms will also be passed. However, the Monsoon Session of Parliament did not inspire much confidence as the stand-off between the government and the opposition parties on issues of graft and corruption led to a complete washout of the parliamentary session. There is a risk that the Winter Session could go down the same road.


Media reports suggest that the TMC chief has not been able to gain enough support for the no-confidence motion, so the likelihood of the government falling is small. Instead, the government may choose to debate the thorny issue of FDI in multi-brand retail in parliament, as it is an executive decision and does not require parliamentary approval.


Pending reforms


According to Nomura, some of the reforms announced by the government since September 2012 that will come up for approval during the Winter Session of Parliament include:

  • Insurance Laws (Amendment) Bill: Increase the cap on foreign equity in insurance sector to 49% from 26% and allow foreign reinsurers to operate in India
  • Pension Fund Regulatory and Development Authority Bill: Set up a stronger pension regulatory body, and increase the foreign investment ceiling to 26%, or the limit in the insurance sector, which ever is higher.
  • Companies Bill (Amendment), 2011: Improve the standards of corporate governance.
  • Banking Laws (Amendment) Bill: Pave the way for the RBI to give new banking licenses to private participants in the sector.
  • Land Acquisition Rehabilitation and Resettlement Bill: To make the process of land acquisition transparent.
  • Direct Tax Code Bill: Simplify and consolidate the direct tax regime for individuals and corporates.
  • Forwards Contract (Regulation) Amendment Bill: To set up an independent regulator of the forward commodity markets and allow institutional investors and derivative instruments.
  • Competition Act (Amendment), 2002: To bring all sectors under the purview of the Competition Commission of India, except stressed banks or insurers.


LIC, EPFO to pick up AI’s Rs7,400-crore bond issue at 9.08%

The NCD issue is part of the revival plan of the debt-laden national carrier, which was given a Rs30,000-crore bailout by the government in April

Mumbai: Life Insurance Corporation of India (LIC) and the Employees Provident Fund Organisation (EPFO) have agreed to fully subscribe to the Rs7,400 crore bond sale of national carrier Air India, reports PTI quoting a top SBI Caps official.
“Life Insurance Corporation and the EPFO have agreed to purchase the entire Rs7,400-crore non-convertible debentures (NCDs) being sold by Air India. However, the bond sale programme will continue to remain open till 18th December,” a senior official of SBI Caps, which is the sole arranger to the issue, told PTI, on condition of anonymity.
The 19-year-old issue has a coupon of 9.08% and will fetch 9.27% for LIC and the EPFO on maturity, he added.
According to an Air India official, LIC has subscribed to bonds worth Rs3,000 crore and the remaining by EPFO.
When contacted, Air India finance director S Venkat refused to talk, saying only the spokesperson could comment.
Calls to the Air India spokesperson did not elicit any response.
The NCD issue is part of the revival plan of the debt-laden national carrier, which was given a Rs30,000-crore bailout by the government in April.
Accordingly, Air India will have to use the NCD proceeds to retire a good part of short-term working capital loans taken from 19 different banks.
The bailout package also included an upfront equity infusion of Rs6,750 crore and an assured equity support of Rs23,481 crore until 2020-21.
As of last December, Air India had a debt of Rs43,777 crore on its books and an accumulated loss of Rs27,000 crore from the past five years.
The debt includes those taken for purchasing 27 Boeing Dreamliners, of which only three have been delivered so far, and nearly 60 other planes from Airbus.
The issue has an AAA rating from India Ratings, the domestic services of Fitch, reflecting the unconditional guarantee extended by the government to make timely repayment of principal and interest on the bonds.
India Ratings had said in a statement, “The proceeds of this NCD issue will be used to repay outstanding Rs73,91.67 crore short-term bank loans, interest thereon, as well as expenses in relation to the issue of the debentures and the government guarantee fee as may be applicable.”
The NCDs were issued early this month and have a tenor of 19 years, with principal redemption in five equal instalments starting from the 15th year and interest payments being made biannually, the rating agency said.
The NCD issue is a part of the government's restructuring plan for reviving the airline. The Cabinet Committee on Economic Affairs had on 12th April approved a financial restructuring plan for the airline, which included the issuance of the NCDs.
The bonds will be issued in three tranches—Series I of Rs3,000 crore, Series II of Rs1,000 crore, and Series III of Rs5 crore, according to India Rating.
In all three tranches the issuer has the option to retain additional subscription such that the total amount mobilised does not exceed Rs7,400 crore, the agency added.
The airline has to turn cash-positive by next fiscal and net profit by 2020, and SBI Caps is working on the revival plan for the airline.
Last week, the airline failed to sell four Boeing 777s as it did not find any takers. 


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