COVID-19, Highlights of Government of India’s financial package Part – IV: Highlights of May 16, 2020
I. Purported reform in coal sector
1. Change effected by Government/proposed change to be effected
(a) Commercial Mining of Coal; (b) Revenue sharing mechanism instead of regime of fixed Rupee/tonne in case of coal mining; (c) Coal gasification etc.
2. Date of applicability and period till when applicable.
Currently no date has been prescribed.
3. Brief synopsis of the change including prior position, change in position and effect of the change
The Government will introduce competition, transparency and private sector participation in the Coal Sector, to end the Government monopoly in the sector, through reforms. As a first step it will introduce a revenue sharing mechanism instead of regime of fixed rupee/tonne by allowing parties to bid for a coal block and sell in the open market (currently open sale by private enterprises is restricted). Furthermore, the entry norms for private entities will be liberalized and nearly 50 blocks will be offered immediately for mining. For such enterprises no eligibility condition will be there, instead an upfront payment with a ceiling will be required.
Another step being introduced is that of promoting coal gasification which will incentivise through rebate in revenue sharing in order to promote environmentally viable usage of coal as direct usage and burning of coal is more polluting. Partially explored coal mines will be opened for auction as well. Production done before time will be incentivized through rebate on revenue. The Government will also spend rupees fifty thousand crores (INR 50,000 crore) for infrastructure development for the same.
4. Clarification required
Currently, no clarifications are required.
5. AJC viewpoint
While the reform for opening the coal mining sector for commercial usage of coal is revolutionary in nature one has to wait for other necessary guidelines. It would be interesting to note as to how the Government copes with certain novel ideas including the revenue sharing model. If a large pie gets taken up by the Government then the same may not be very viable for the companies to engage in mining. In such cases probably certain rebates in license fee and other tax rebates can be provided to the new companies.
II. Purported reform in the mining sector
1. Change effected by Government/proposed change to be effected
The Government will bring about a structural reform to boost growth, employment and bring state-of-the-art technology in exploration.
2. Date of applicability and period till when applicable.
Currently no date has been prescribed.
3. Brief synopsis of the change including prior position, change in position and effect of the change
The Government plans on introducing a seamless composite exploration-cum-mining-production regime. As per this regime the person who is involved in exploration would also be offered mining rights for such mines to defray costs of exploration. The Government also plans to offer five hundred (500) mining blocks through an open and transparent auction process.
The Government plans on introducing joint auction of bauxite and coal mineral blocks to enhance aluminium industry’s competitiveness. Further, there will be necessary removal of distinction between captive and non-captive mines to allow transfer of mining leases and sale of surplus unused minerals. There is also a plan on rationalization of stamp duty payable at the time of award of mining leases.
4. Clarification required
Currently, no clarifications are required.
5. AJC viewpoint
The Government’s proposed activities in the minerals sector are a breath of fresh air. The major aspects are all for opening the mineral sector. With the end to only using minerals for captive purposes, one expects major changes also to be brought into the Mines and Minerals (Development and Regulation) Act, 1957. It would also be feasible to make appropriate changes to the FDI policy to allow certain leverages and revenues to the FDI in the mining sector.
III. Changes in the defence sector
1. Change effected by Government/proposed change to be effected
A push for ‘Make in India’ campaign and push for localisation in the defence sector.
2. Date of applicability and period till when applicable.
Currently no date has been prescribed.
3. Brief synopsis of the change including prior position, change in position and effect of the change
The Government will bring about a reform to promote self-reliance in defence sector of India. In this regard the Government will bring out a list of weapons/platforms which will be banned for import but rather be made within in India. This list will be made on a yearly basis.
The Ordnance Factory Board in order to improve its autonomy, accountability and efficiency in ordnance Supplies will be corporatized. Details of the same are awaited but it is highly unlikely that there would be any private participation. The Government also plans to increase FDI in defence sector under automatic route from 49% to 74%, provided certain conditions of local production are met.
Time bound defence procurement process and faster decision making will be ushered in by setting up of project management unit to support contract management.
4. Clarification required
Various clarifications are required as to what would constitute local production in case the FDI of 74% is given approval. Furthermore, will this increase in FDI also take into account foreign state owned companies as defence is a very precious sector?
Currently, no clarifications are required.
5. AJC viewpoint
The localization of certain defence production will enhance job productivity in India and also promote indigenisation of arms and military goods. However, care needs to be taken that such requirement does not affect supply of essential material and goods to the armed forces. Some time related relaxation may be given to support indigenisation and an able work force, e.g. like in retail FDI, window of three (3) to five (5) years may be given for to start producing their goods locally in India.
IV. Changes in civil aviation
1. Change effected by Government/proposed change to be effected
Changes to airspace management, more public private partnership and increasing maintenance activities in the airline sector
2. Date of applicability and period till when applicable.
Currently no date has been prescribed.
3. Brief synopsis of the change including prior position, change in position and effect of the change
The Government will promote volume in the airline sector by promoting reduction of the flying cost by INR. 1,000 crore in the sector. For this, the restrictions on utilization of the Indian Air Space will be eased so that civilian flying becomes more efficient. The Government has identified 6 more airports for the public private partnership for operation and management. Through the first two rounds of bidding, this is expected to bring in about Rs.13,000 crores through additional investment by private players. The Government shall work toward making India the Maintenance, Repair and Overhaul (MRO) hub. The tax regime for the MRO ecosystem has already been rationalized. This will help in attracting major engine manufacturers in the world to set up in India. Convergence between defence and civil MROs will be established to create economies of scale as well.
4. Clarification required
Currently, no clarifications are required.
5. AJC viewpoint
The airline sector needs more reforms than the ones purported above. There needs to be a better model derived for various licensing charges and other necessary airline management issues. Further, airlines suffer tremendously during any price or policy management but their takeover, merger etc. always lags behind. It would be advisable for government to fast track their insolvency petitions etc. and prevent major losses in the airline industry.
The Government may also consider providing adequate license and permits to airline operators to run their own airline training schools. In the event certain tax benefits are provided to them for such aspects of training etc., even international airlines may consider shifting their MRO to India.
V. Changes in power distribution sector
1. Change effected by Government/proposed change to be effected
The Government proposes a change in tariff policy to make it more suitable for investment, provide for sustainability of the sector and reduction is subsidies.
2. Date of applicability and period till when applicable.
Currently no date has been prescribed.
3. Brief synopsis of the change including prior position, change in position and effect of the change
The Government will bring about the reform for the power distribution agencies. For this a tariff policy reform will be brought in with: consumer rights, i.e. the reform will provide a standard of service and associated penalties for distribution companies. Actions such as unauthorised power cuts and load shedding will be penalized.
Further, the Government plans a progressive reduction in cross subsidies and a time bound grant of open access will be provided. The reform will ensure that generation and transmission project developers are selected competitively.
The Government plans to do away with regulatory assets and timely payment to power generation companies will be incentivized. Smart prepaid meters will also be brought into play for smooth working.
The power departments and utilities in the Union Territories will be privatized. This shall lead to better service to consumers and provide improvement in operational and financial efficiency in distribution.
4. Clarification required
Currently, no clarifications are required.
5. AJC viewpoint
With the proposed changes already laid out by the Government in May 2018 draft of the proposed amendments to the National Tariff Policy 2016, the idea should now basically be on implementation. Similarly, the move to privatise electricity distribution was also alluded to in the Draft Electricity (Amendment) Bill 2020, released on April 17, 2020 and necessary steps should be taken to ensure that the same is passed soon and made a law.
VII. Reforms in the space sector
1. Change effected by Government/proposed change to be effected
The Government will allow private participation in space activities.
2. Date of applicability and period till when applicable.
Currently no date has been prescribed.
3. Brief synopsis of the change including prior position, change in position and effect of the change
The Government will provide level playing field for private companies in satellites, launches and space-based services. This will include a seamless policy and regulatory environment for private players to participate with ease. Initially the private players will be allowed to utilize ISRO facilities and other relevant assets to improve their capacities. The policy will also provide future projects for planetary exploration, outer space travel etc for the private sector. It will also include a liberal geo-spatial data policy for providing remote-sensing data to tech-entrepreneurs.
4. Clarification required
Currently, no clarifications are required.
5. AJC viewpoint
The space exploration sector requires tremendous help and assistance from the Government to have any form of investment. It would be advisable to draft policies and laws that only permit those enterprises which are actively involved in the space sector to be allowed to utilize precious resources developed by the Government.
Other major purported reforms
(i) The Government will enhance the quantum of ‘Viability Gap Funding’ (VGF) up to 30% each of the total project cost as VGF by Centre and State/Statutory Bodies. This shall only be done for the social infrastructure projects and other sectors will continue to have the standard 20% VGF. This is expected to provide Rs.8,100 crores outlay;
(ii) The Government shall establish research reactor in PPP mode for production of medical isotopes to promote welfare of humanity through affordable treatment for cancer and other diseases