Price deregulation of natural gas key for success of unified tariff regime: ICRA
Price deregulation for the complete domestic natural gas sector would be key towards making a unified tariff regime successful and increasing the share of natural gas in the overall energy mix of the country, rating agency ICRA has said.
 
The rating agency said while moving towards a Unified Tariff Regime is a positive step towards increasing the share of natural gas in the overall energy mix of the country, several other steps will have to be implemented till we see a meaningful uptick in natural gas consumption in the country.
 
Some of the reforms that have been long pending include the pricing deregulation of natural gas in the country, inclusion of natural gas under the Goods and Services Tax (GST), development of integrated pipeline network and development of an integrated gas trading hub/exchange are some of the reforms government will have to undertake to make any meaningful impact on natural gas offtake in the country, it said.
 
Some of the other steps that have also remained under consideration include unbundling of the marketing and transmission business of GAIL (India) Limited and an independent system operator for pipelines, the agency added.
 
The downstream regulator, Petroleum and Natural Gas Regulatory Board (PNGRB) has released draft regulations pertaining to implementation of Unified Tariff Regime (UTR) for the natural gas pipelines on September 29, 2020. The draft regulations essentially propose pooling of the existing approved tariffs of the pipelines comprising the National Gas Grid to arrive at one single tariff to be charged across and will be called the Unified Pipeline Tariff.
 
The new regime also does away with the additive nature of the tariff to a large extent wherein earlier a consumer receiving natural gas flowing through multiple pipelines had to pay tariff for all the pipelines leading to the additivity of the tariffs. The draft regulations will remain revenue neutral for the gas pipeline operators although there will be redistribution of the transmission tariffs being paid by the consumers post the implementation of these regulations.
 
The board has sought comments/views from various stakeholders by October 20 and will be holding an open house on October 29 for discussing the same.
 
Commenting on the development, K. Ravichandran, Group Head & Senior Vice President, ICRA said, "In the current tariff regime, farther a player is located from the natural gas source, more the consumer pays for the transportation of the natural gas, thus resulting in concentration of gas based industries near the natural gas sources.
 
"For consumers located away from the natural gas sources, a significant portion of the natural gas cost comprises the transmission tariff due to higher approved tariffs and additive nature of the transmission tariffs. With the implementation of the Unified tariff regime, this pricing linked dislocation in the natural gas pricing will be done away with."
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    m.prabhu.shankar

    2 weeks ago

    Means obviously higher price for everyone right ?

    homaielavia

    2 weeks ago

    While on the question of billing, have a grievance which has not been addressed despite approach to various authorities including Finance Minister. Conservation of energy dictates prudence in use of natural gas while cooking at home. But this comes with a penalty. A minimum usage is set per billing cycle with normal tax thereon. If usage is below the minimum, shortfall is billed and GST recovered @ 18% on this shortfall. So, we pay tax on what we use and also GST on something we do NOT use. This is unearned income for the gas supplier for unused gas and for the government through GST on what is unused. Does this not amount to blatant cheating of the consumer? Individual should check their bills to verify this.

    Manufacturing Sector's Recent Performance Indicates Underlying Inertia: Exim Bank
    The recent performance of the manufacturing sector has been indicative of an underlying inertia and sector-specific strategies are one facet of the mosaic of elements, which would influence the manufacturing landscape in India, says a research note.
     
    In the report, Export-Import Bank of India (Exim Bank) says, "Encouraging research and development (R&D) and skill development, strengthening industrial clusters, correcting inverted duty structures, utilising public procurement for capacity development, developing efficient customs and port procedures, state-level interventions for encouraging industrial development, creating reliable standards and certification systems and developing robust infrastructure would be the other key tenets of the revitalisation plan for the Indian manufacturing sector."
     
    Manufacturing plays a key role in economic growth and development. A weak manufacturing sector often translates into high import dependence and large trade deficit. 
     
    Recent data on India’s manufacturing sector indicates that manufacturing accounted for only 15.1% of India’s gross value added (GVA) in 2019-20, compared to a share of 18.35% in 2010-11. This contraction in manufacturing is in spite of the strong growth in private consumption in the country, which registered an annual average growth rate of 12.7% from 2011-12 to 2019-20. 
     
    Prima facie, Exim Bank says, this is indicative of a greater share of the domestic demand being channelled towards consumption of foreign goods and services. 
     
    Further analysis of India’s imports by end-use (capital, intermediate, and consumer goods) indicates that nearly 79% of the imports by India in 2019 were intermediate goods, signifying the dependence of India’s manufacturing sector on imported intermediates, it added.
     
    Exim Bank says, "The significant dependence of Indian manufacturing on imports is also corroborated by the analysis of financial data of a sample of 8,558 Indian companies, which shows that foreign exchange spending accounted for 25.5% of the total sales of these companies in 2018-19. The high import intensity in the manufacturing sector also translates into a higher level of foreign value-added content in India’s manufacturing exports. The import intensity of exports is especially high in the case of basic metals, fabricated metal products, computer, electronics and optical products, electrical equipment, and machinery and equipment."
     
    The report identifies eight sectors, capital goods, chemicals and allied, electronics, defence equipment, pulses and edible oil, plastic and products, solar cells and modules and others sectors like iron and steel as the ones with high trade deficit.
     
    Capital Goods
     
    The trade deficit in capital goods sector currently stands at around $17 billion. Strategies for indigenisation in the sector could include, encouraging technology transfer and investments in the capital goods sector, fostering innovation-led start-up ecosystem through mechanisms, such as innovation challenge funds and innovation vouchers, support for creation of testing and certification infrastructure and introduction of schemes for refund of expenses incurred on certifications, expanding the scope of public procurement by relaxing conditions of prior supply in the technology-intensive areas, among others. 
     
    Exim Bank says, "the government could consider promoting capital goods for intelligent manufacturing through a national policy for adoption of Industry 4.0, which could inter-alia include schemes for facilitating domestic manufacturing of high-technology products like sensors, creation of industry standards for Industry 4.0 products, and incentive schemes for the medium, small and micro enterprises (MSMEs) to encourage adoption of Industry 4.0. The government may also like to look at addressing the issue of inverted duty structure as well as revisiting the duty concessions under free trade agreements (FTAs)." 
     
    Further, hi-tech manufacturing zones could be developed by government in collaboration with state governments. Additionally, government could also consider promoting technology acquisitions and technological upgradation by encouraging mergers and acquisitions through an alternative investment fund (AIF), it added. 
     
    Chemicals and Allied Products 
     
    The chemicals industry has emerged as one of the fastest growing industries in India. While the industry has registered significant growth in the past two decades, India faces significant trade deficit, amounting to $4 billion in this industry. Some of the products in which India has import dependence are: phosphoric acid, styrene, aluminium oxide, and anhydrous ammonia. The study highlights that India has a significant dependence on China for imports of antibiotics, penicillin and heterocyclic nitrogen compounds. 
     
    According to Exim Bank, India’s dependence (backward linkage) on China is higher for some critical inputs used by the chemical and pharmaceutical industry. "To reduce the import dependence and boost chemical exports from India, greater emphasis should be laid on enhancing India’s integration into the global value chains (GVCs). Further, the study recommends that the government could enter into strategic partnerships with top global importers like the US, Germany, Japan and South Korea to attract investments, besides providing conducive business environment to manufacture in India," it added.
     
    Defence Sector 
     
    India was the second largest importer of major weapons in the world during 2015-2019. India’s trade deficit in defence equipment amounted to $7.8 billion in 2019-20. 
     
    According to the report, possible strategies for promoting indigenisation in the sector could include: revisiting the foreign direct investment (FDI) limit under the strategic partnership model, removing tax impediments to create a level- playing field, addressing the ambiguity in procurement categories, and bringing out policies to ensure greater accountability, among others. 
     
    It says, "It may also be important to carry out some revisions in draft offset guidelines 2020 such as revising the quantum and threshold for offset, considering differential quantum levels for single-source procurement vis-à-vis competitive tendering, and reconsidering the multiplier coefficient for parts and components. 
     
    "Further, a defence development fund could be created by the government, which could be managed by Exim Bank, for facilitating medium to long term credit for exports of defence equipment from India. Additionally, the government could also launch a credit-linked capital subsidy scheme through this fund for the players in this sector," Exim Bank says in the report. 
     
    Electronics
     
    India currently has a trade deficit of over $41 billion in electronics. Electronic components, computer hardware and peripherals, consumer electronics, electronic instruments, and telecom instruments are some of the major segments contributing to the trade deficit in the electronics industry. 
     
    Some of the plausible steps which could be taken up by the government for boosting domestic manufacturing in electronics include: recalibration of the recently launched production- linked incentive schemes for attracting large-scale GVC (global value chain)-oriented investments, increasing customs duty on select non-ITA (Information Technology Agreement)-1 import items, renegotiating FTAs in the context of electronics, providing thrust to investment in medical electronics and devices, encouraging strategic electronics through adoption of a model similar to the US' trusted foundry model, and promoting innovation and R&D (research & development) through financial and fiscal incentives. 
     
    Exim Bank says, "There is evidence that availability of low cost working capital to electronic companies in countries such as China and Vietnam enhances their cost competitiveness. Therefore, the government could consider setting up a fund to provide interest subvention for working capital." 
     
    Plastics and Allied Products
     
    India has attained significant diversification in the plastics industry over the past few years. However, the sector has a significant trade deficit of nearly $7 billion. 
     
    Exim Bank says, challenges exist especially in the area of sourcing of raw materials needed for plastic manufacturing. "It is suggested that the government may consider production linked incentive schemes for the sector, along the lines as in the electronics sector, which could position India as a viable alternative to countries like China in the long term," it says. 
    "There is also a need for the plastics industry to be included in a comprehensive economic partnership agreement focusing on technology transfer and investments, besides trade with select countries such as the US, Germany and Mexico that are strong in plastic manufacturing technology." 
     
    Pulses and Edible Oils
     
    India runs a trade surplus of nearly $15 billion in the agriculture and processed food category,  but faces significant import dependence in products like edible oil (crude palm oil, crude soya  bean oil, safflower oil), and pulses (dried shelled lentils). Indonesia and Canada were the largest import sources for edible oils and pulses for India in 2019. 
     
    The study notes that backward linkages in India’s agricultural exports are substantially higher than the forward linkages, and there is a need to increase the GVC participation in agriculture, forestry and fishing through forward linkages with the global food processing industry. There is also a need to promote agricultural investments in the CLMV region, as well as the African continent, where opportunities exist. 
     
    This would entail long-term assurance towards buying back produce from these regions at a rate not less than the minimum support price for the same produce in India. The government also needs to diversify its import sources and put in place a consistent policy for import of these two key products.
     
    Rare Earth Elements
     
    Rare earth elements (REEs) are needed in various industries such as defence, electronics, and renewables, amongst others. India accounts for 5.8% of global reserves of REEs. The significant requirement of REEs in India is met through imports, particularly from China. As a way forward, India could explore the feasibility of sourcing REEs from other countries such as Brazil, Vietnam, Russia, Australia and the US. India could also collaborate with other countries for joint exploration activities, thereby securing REE assets within India and abroad.
     
    Indian State-run companies can form joint ventures to secure minor mineral assets such as lithium and cobalt that could fuel India’s plan for mass adoption of electric vehicles by 2030. A dedicated overseas strategic investment fund for the purpose of securing RRE assets could be considered, which could be housed and administered by a specialised government financial institution, akin to the Chinese model. The government also needs to promote R&D in order to find better substitutes for priority minerals, as also in the recycling and material recovery areas.
     
    Solar Cells / Modules 
     
    India has progressed immensely in the renewable energy sector, but significantly lags behind in manufacturing of photovoltaic cells, and consequently faces a huge trade deficit, with particularly high dependence on China. To reduce import dependence and enhance domestic production, an extension of the safeguard duty on solar cells and modules is required. Further, to stimulate the  demand for solar cells and modules in the market, mandatory uptake of domestically  manufactured solar devices by the state and Central government offices is also recommended. 
     
    Besides, domestic capacities also need to be built up for silicon wafers and ingots used in the manufacturing of solar cells and modules. The government could consider providing a viability  gap funding to projects for setting up such facilities.
     
    Auto-components
     
    India has overall trade surplus in the auto-components industry but depends significantly on China for its imports of certain critical components such as drive transmission and steering parts, cooling systems, suspension and braking parts, due to cost competitiveness of China and lower technological competence of Indian players in the segment. To enhance domestic capacities, government could consider setting up technology upgradation fund for facilitating upcoming technological changes in the sector. The resources of the fund could be utilised for incentivising capital investments and low-cost funding.
     
    The government could also consider rationalizing the GST (goods and services tax) levied for auto-components from the current levels of 18%-28% to 5%-12%. The GST could be reduced to 5% on components for electric vehicles (EV), bringing it at par with the GST for EVs.
     
    Steel 
     
    While India is the world’s second-largest iron and steel producer, it is still dependent on imports. India had the highest trade deficit in iron and steel with South Korea in 2019, followed by China and Japan. India’s deficit in iron and steel with South Korea and Japan has almost doubled in the last decade, since it signed FTAs with these nations. 
     
    Going forward, India may like to review the implications of FTAs on the industry. India also needs to raise awareness on the utilisation of preferential tariffs. Better utilisation rate, in the long term, can increase India’s exports and ultimately reduce the trade deficit.
     
    Besides, to produce iron and steel at globally competitive prices, Indian steel producers need to modernise their plants with state-of-the-art technology in order to increase the productivity, improve quality and reduce maintenance costs. The capacity utilisation of the steel industry in India is just over 75%, and needs to be increased substantially, given the demand for steel.
     
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    s5rwav

    3 weeks ago

    Dear #ChiefElectionCommissioner of India, Smothering the Manufacturing of India and OverDependence on Imports is Dangerous Trend and, for this Reckless Mismanagement, the Accused #BJPPM Mr Narendra Modi be Permanently Debarred from Contesting Any Election hereafter. I am Babubhai Vaghela from Ahmedabad. Thanks.

    1/3rd of Vulnerable, Rated Mid & Emerging Corporates Seeking Restructuring Could be Ineligible: Ind-Ra
    India Ratings and Research (Ind-Ra) expects 43% of entities in the highly vulnerable segment of the mid and emerging corporates (MECs) portfolio, with revenues below Rs7,500 million, belonging to the sectors linked to discretionary spending and having limited liquidity buffers and significant leverage at FYE18-19, to seek restructuring. However, near-term delinquency could be predicted  for the entities having limited access to the restructuring window, given the incremental risk aversion by lenders, particularly lower down the credit curve, the ratings agency says.
     
    According to Ind-Ra, entities rated primarily in the BBB and below rating categories, are the ones to avail the Reserve Bank of India (RBI)’s financial restructuring facility. Furthermore, it says, a weak cash-flow recovery and stretched liquidity among them could result in significant haircuts for lenders. 
     
    The ratings agency expects rating actions on these issuers hinged on their ability to recover to their pre-COVID levels, manage their liquidity profile and working capital requirements effectively. "However, we expect negative rating actions to stem from ineligible speculative grade issuers (primarily BB) who have availed a moratorium and possess a weak liquidity profile, constituting 6% of the overall MECs analysed," it added. 
     
    According to Ind-Ra, restructurings are likely to be minimal in the low and moderately vulnerable MEC issuers, given their adequate liquidity and strong operational profile. It says it expects restructurings in the large corporate portfolio (revenue of Rs7,500 million and above) to be less than 5% of the portfolio, emanating primarily from entities in the IND BBB and below categories.
     
    Ind-Ra has analysed 301 issuers in its MEC portfolio for restructuring eligibility based on the KV Kamath committee recommendations on financial parameters. Of these 96% are rated in the BB and BBB categories and 4% in the A category. 
     
    In Ind-Ra’s MEC portfolio, 71% of the 178 investment-grade MECs (primarily IND BBB) and 50% of the 123 speculative grade MECs (primarily IND BB) are eligible to qualify for restructuring. The investment grade MECs contribute 87% and speculative grade MECs contributed 13% to the total debt of eligible borrowers at FYE19.
     
     
    According to the ratings agency, eligible issuers in investment grade are likely to benefit from loan restructuring. 
     
    Of the 188 issuers in Ind-Ra’s MEC portfolio eligible to qualify for restructuring, 67% belong to the investment grade rating category (primarily IND BBB) and belong to sectors such as construction, iron and steel, gems and jewellery, chemicals, cement and textiles. 
     
    Within these 188 eligible issuers, 55% borrowers are in the low and moderately vulnerable category, are primarily rated in the BBB category, belong to the essential and non-discretionary buckets and had adequate liquidity and on balance sheet cash at FYE18-19. While some of these would witness deterioration in credit profile over FY20-21 and FY21-22, cash flows are likely to revert to their pre-COVID levels, given their strong operational profile, the ratings agency says. 
     
    Ind-Ra says it does not expect a significant number of issuers to opt for restructuring under this bucket; however, loan restructuring would provide further liquidity support to manage their cash-flows in the interim. 
     
    The remaining 45% of the eligible issuers, having high vulnerability and weak liquidity at FYE18-19, belonging to the industrial and discretionary segments and being rated in the BB rating category, are most likely to opt for restructuring, it added. 
     
    "While these may qualify under the KV Kamath committees recommended financial parameters, in the event of a prolonged recovery in demand, the credit profile of such entities may not be sustained over FY21-22 and FY22-23. A mismatch in asset-liability could result in incremental delinquency from this bucket, resulting in significant haircuts for lenders. Rating actions on these issuers would be dependent on restructuring approval from lenders and their post-COVID credit profile," Ind-Ra says. 
     
     
    As per the report, there are significant haircuts for ineligible issuers with already stretched liquidity. Of the 113 ineligible issuers under the KV Kamath committee recommended financial parameter, Ind-Ra says it expects 40% issuers belonging to the highly vulnerable category with stretched liquidity to turn delinquent over the next six-12 months or would require significant haircuts for lenders. 
     
    "Negative rating actions are likely to emanate from this bucket. About 50% of these entities belong to the speculative grade rating category and sectors such as consumer durables, construction, textiles, building materials, hotel, real estate and sugar. The remaining 60% of ineligible issuers in the low-to-moderate vulnerability category and having adequate liquidity as of FYE19 may not seek restructuring immediately. However, within these, where the cash flows recovery is delayed and liquidity profile worsens, lack of access to the restructuring window could impact their solvency over a period of time," it added.
     
     
    Ind-Ra’s analysis indicates that around 59% of its MEC portfolio is under moratorium, of which 58% qualify for the restructuring scheme. Of the remaining 42% of the issuers which had availed moratorium and thus are not eligible for the scheme, nearly half exhibit a weak-to-modest liquidity profile and belong to sectors such as construction, consumer durables, iron & steel manufacturing and textiles. 
     
    Among the moratorium availed-ineligible issuers, 60% are rated below the investment grade, i.e., those issuers which were already facing intensified liquidity headwinds even prior to the pandemic. Thus, in the absence of any relief from the government or bankers, negative rating actions in the near term could stem from such issuers, the ratings agency says.
     
     
    According to Ind-Ra, majority issuers in the MEC portfolio qualify in three out five ratios, particularly due to thin margins as is inherent to the nature of business and higher debt due to a stretched working capital cycle. 
     
    On an overall basis, 62% of the issuers (47% by total debt) qualify for all the ratios recommended by the KV Kamath committee financial guidelines for restructuring based on the FY18-19 balance sheet. The issuers not qualified for restructuring and belonging to the speculative grade, having stretched liquidity even pre-pandemic is likely to see a deterioration in their credit profile and liquidity profile over FY21-022 and FY22-23. 
     
     
    "While majority of sectors pass through the ratios recommended under Kamath committee, sectors such as sugar, real estate, auto dealership, building material has median ratios that are weaker than the recommended ratios, given their already pre-pandemic stretched balance sheet," the ratings agency added.
     
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