Birth of a new institution

In line with the Government of India’s approach of less government and a move away from centralised planning, the NITI Aayog with a new structure and focus on policy will replace the 64-year old Planning Commission that was seen as a vestige of the socialist era. The new body, conceived more in the nature of a think-tank that will provide strategic and technical advice, will be helmed by the Prime Minister with a Governing Council of Chief Ministers and Lt. Governors, similar to the National Development Council that set the objectives for the Planning Commission. The NITI Aayog seeks substitute centralised planning with a ‘bottom-up’ approach where the body will support formulation of plans at the village level and aggregate them at higher levels of government. In short, the new body is envisaged to follow the norm of cooperative federalism, giving room to States to tailor schemes to suit their unique needs rather than be dictated to by the Centre. This is meant to be a recognition of the country’s diversity. The needs of a State such as Kerala with its highly developed social indicators may not be the same as that of, say, Jharkhand, which scores relatively low on this count. If indeed the body does function as has been envisaged now — and the jury will be out on that — States will, for the first time, have a say in setting their own development priorities.

One significant change of note is that one of the functions of the body will be to address the needs of national security in economic strategy. Nowhere is this more relevant than in the area of energy security where India, unlike China, has failed to evolve a coherent policy over the years. Similarly, networking with other national and international think-tanks and with experts and practitioners, as has been envisaged, will add heft to the advice that the NITI Aayog will provide. To deflect criticism that this will be a free-market institution that ignores the deprived, the government has taken care to make the point that the body will pay special attention to the sections of society that may not benefit enough from economic progress. How this operates in practice will bear close watching. Interestingly, though it will not be formulating Central plans any more, the NITI Aayog will be vested with the responsibility of monitoring and evaluating the implementation of programmes. Thus, while the advisory and monitoring functions of the erstwhile Planning Commission have been retained in the new body, the executive function of framing Plans and allocating funds for Plan-assisted schemes has been taken away. But who will now be responsible for the critical function of allocating Plan funds? Hopefully, there will be greater clarity on this aspect in the days ahead.

A step in the right direction,ias mains

Yet another bold initiative was taken on the last day of 2014 when the Union government made public the draft National Health Policy 2015. The policy is a first step in achieving universal health coverage by advocating health as a fundamental right, whose “denial will be justiciable”. While it makes a strong case for moving towards universal access to affordable health-care services, there are innumerable challenges to be overcome before the objectives become a reality. The current government spending on health care is a dismal 1.04 per cent of gross domestic product (GDP), one of the lowest in the world; this translates to Rs.957 per capita in absolute terms. The draft policy has addressed this critical issue by championing an increase in government spending to 2.5 per cent of GDP (Rs.3,800 per capita) in the next five years. But even this increase in allocation falls short of the requirement to set right the dysfunctional health-care services in the country. Citing the health-care system’s low absorption capacity and inefficient utilisation of funding as an alibi for not raising the spending to 3 per cent of GDP is nothing but a specious argument. Insufficient funding over the years combined with other faulty practices have led to a dysfunctional health-care system in the country. Undivided focus is an imperative to strengthen all the elements of health-care delivery. The failure of the public health-care system to provide affordable services has been the main reason that has led to increased out-of-pocket expenditure on health care. As a result, nearly 63 million people are driven into poverty every year. The Ebola crisis in Liberia, Guinea and Sierra Leone, which underlined the repercussions of a weak public health-care system, should serve as a grim reminder of this.

The national programmes provide universal coverage only with respect to certain interventions such as maternal ailments, that account for less than 10 per cent of all mortalities. Over 75 per cent of the communicable diseases are outside their purview and only a limited number of non-communicable diseases are covered. It is, therefore, crucial for the Union government to undertake proactive measures to upgrade the health-care services of poorly performing States such as Bihar and Uttar Pradesh. As it stands, health will be recognised as a fundamental right through a National Health Rights Act only when three or more States “request” it. Since health is a State subject, adoption by the respective States will be voluntary. Though a different approach has been taken to improve adoption and implementation by States, the very objective of universal health coverage that hinges on portability will be defeated in the absence of uniform adoption across India.

Municipal bonds: FinMin asks urban development ministry to identify cities

Days after the Securities and Exchange Board of India (Sebi) proposed new rules for issuance of municipal bonds, thefinance ministry has asked its urban development counterpart to identify five or six cities, and specific infrastructure projects in those cities, for which those civic bodies could issue such bonds.

Municipal bonds are instruments issued by municipal bodies, or by states on these bodies’ behalf, to raise capital for infrastructure projects. After Finance Minister Arun Jaitley in the Union Budget for 2014-15 announced the intention to develop 100 smart cities, the government deliberated on various ways to finance the infrastructure for such cities and decided reviving the dormant municipal bonds could be one of the ways.

“The urban development ministry has been asked to identify five to six cities and specific projects within these cities for which the municipal bonds will be issued. This will only be the start. There will be more cities identified for infrastructure funding, to develop those into smart cities,” a senior government official told Business Standard.

According to the plan, these will be Tier-II and -III cities and include smaller state capitals and satellite towns around larger metros. The official added the urban development ministry was expected to come up with specific names within a week.

On December 30, Sebi had released a concept paper on the issue and trading of such bonds on exchanges and invited comments from the public. The concept paper said the civic body issuing these bonds would have to obtain ratings from credit rating agencies and would have a minimum tenure of three years.

The market for municipal bonds has existed in India since 1998, when Ahmedabad became the country’s first city to issue such bonds. But 25 municipal bond issues in the past 16 years have garnered only about $300 million, according a report by Mukul Asher, professor at the National University of Singapore, and Shahana Sheikh of New Delhi’s Centre for Policy Research. The amount raised so far is only a fraction of those raised by developed markets like the US, where the municipal bond market is worth more than $3 trillion.

Analysts and policy watchers say the market for such bonds has not picked up in India for a number of reasons. These include the lack of interest among investors, the sorry state of finances at many municipal bodies, shoddy accounting of their books, bureaucratic hurdles, lack of interest at the central and state levels, and the issue of who will guarantee these bonds. Besides, there also is local political interference in these civic bodies.

Govt raises solar investment target to $100 bn by 2022 Solar energy contributes less than 1% to India's total energy needs currentl

Prime Minister Narendra Modi has ramped up his target for solar energy as he bets on renewables to help meet rising power demand and overcome the frequent outages that plague Asia's third largest economy, a senior official told Reuters.

India gets twice as much sunshine as many European countries that use solar power. But the clean energy source contributes less than 1% to India's energy mix, while its dependence on erratic coal supplies causes chronic power cuts that idle industry and hurt growth.

Modi now wants companies from China, Japan, Germany and the United States to lead investments of $100 billion over seven years to boost India's solar energy capacity by 33 times to 100,000 megawatts (MW), said Upendra Tripathy, the top official in the Ministry of New and Renewable Energy.

That would raise solar's share of India's total energy mix to more than 10%. In Germany, a leader in renewable energy, solar accounted for about 6% of total power generated in 2014.

India had earlier set an investment target of $100 billion for the next five years for all types of renewable energy, with wind taking up two-thirds of the total. In an interview, Tripathy said Modi's new solar target was ambitious, "but if you do not have a higher goal, you will not achieve anything".

Canadian Solar and China's JA solar told Reuters they are looking at making cells or modules - used in solar panels - in India. JinkoSolar Holdings said recent announcements have also raised their interest.

US-based First Solar and SunEdison Inc have sizeable businesses in India, and together with local firms will invest $6 billion in India for the fiscal year to March 31. Tripathy expects new and existing companies to invest about $14 billion annually starting next fiscal year through to 2022.

Among First Solar's top projects are two plants with Kiran Energy Solar Power and Mahindra Solar One totalling 50 MW in Rajasthan. SunEdison is working on a 39 MW project in India and hopes to participate in the solar expansion plan, said regional managing director Pashupathy Gopalan.

COST CHALLENGE

Solar energy in India costs up to 50% more than power from sources like coal. But the government expects the rising efficiency and falling cost of solar panels, cheaper capital and increasing thermal tariffs to close the gap within three years.

Modi promised on high-profile visits to Japan and the United States last year to help solar companies overcome barriers to entering the Indian market.

"Their basic problems are who is the buyer, where is the land and can India have a regime where they can raise low-cost capital?" Tripathy said. "These three issues have to be addressed and we are addressing them."

To create sufficient demand, power distributors will have to raise renewable energy purchases to 8% from 3% by 2020. There is also a plan to require new thermal plants to have a 10% renewable mix, which they can generate or buy from solar companies as credit.

India recently signed a $1 billion agreement with the Export-Import Bank of the United States for companies willing to ship equipment from that country. India is also thinking of solar bonds and helping foreign firms raise rupee bonds to cut costs.

Foreign companies say they are enthused by Modi's personal interest, but red tape is still an issue.

"The policy framework needs to be improved vastly. Documentation is cumbersome. Land acquisition is time-consuming. Securing debt funding in India and financial closures is a tough task," said Canadian Solar's Vinay Shetty, country manager for the Indian sub-continent.

Why the road sector ccould see a pickup in project finance

Transport minister Nitin Gadkari addressed a press conference in Mumbai on Thursday where he said that all new roads laid by the central government will be of concrete. He added that target of increasing the speed of highway construction to 30 km a day will now be achieved within 18 months against an earlier estimate of 24 months as work on 95% of 190-odd stuck road projects stuck has re-started.

The minister, however, did not elaborate how he intends to finance new road construction. Most of the older projects which were stuck had lined up their finances and were held up on account of various clearances. But on the new ones, the government does not have any clarity on how they will be financed.

Reports say that the Road Transport Ministry needs at least Rs 2 lakh crore for expanding at least 20,000 km national highways (NH) in the next few years. However, there are no private funders for these projects. The Transport Minister has raised the issue with the finance ministry. But with the fiscal deficit already touching 99% of its targeted limit in the first eight months of the fiscal year, it is unlikely that Arun Jaitley will be able to help Gadkari.

Given the tight situation in which the government finds itself, the road ministry is now contemplating using a hybrid modelto fund highway projects. Under this mechanism, government will fund 40% of the value of the project through viability gap funding (VGF).

In India road projects are awarded through one of three models: Build Operate and Transfer (BOT) – Toll, BOT –Annuity, and Engineering Procurement and Construction (EPC). The key differential in each of these is the risk profile of the developer. In the BOT-Annuity case, the risk of the developer is to construct the road and maintain it. In BOT – Toll the developer not only has to construct and maintain the road but also has to recover his money by collecting tolls; here an additional traffic risk has to be borne by the developer. In an EPC contract, only the construction risk is with the developer.

The Hybrid model proposed by the road ministry is for BOT-Toll mode, where the traffic risk component of the project will be largely borne by the government and will thus act as a quasi BOT-Annuity model. Reports say that three highway projects – one each in Odisha, Bihar and Karnataka will adopt the hybrid model.

In a note, Morgan Stanley has said that the hybrid model will be a win-win for developers as well as the government. In the current situation where developers lack capital, a move to lower the upfront costs is significant. Given the certainty of cash flows in the annuity model – the government will be in charge of toll collection – developers can obtain more leverage from banks, thus reducing their equity requirements quite significantly. This model helps the government, which is relying mainly on the EPC model, as it lowers their upfront contribution for the project.

The model has the potential of reviving the road sector as the risk element of pricing based on traffic movement on the roads will be taken over by the government. Morgan Stanley feels that while this move actually benefits the weaker (read funds-starved) players in the industry, it is a continuation of the impetus the government is putting on the roads industry.

In the same model, the government is also allowing players to completely exit from the project two years after the start of toll collection. This would help the companies free up their capital for investment in other projects.

Bhel to set up Telangana's first thermal power plant for Rs 3,810 cr

Bhel to set up Telangana's first thermal power

 plant for Rs 3,810 cr

State-owned Bhel has bagged a Rs 3,810 crore contract fromTelangana for setting up the newly formed state's first thermal power project.

"Valued at Rs 3,810 crore, the order is for setting up the 800 MW supercritical thermal power plant on EPC (engineering, procurement & construction) basis at Kothagudem inKhammam District of Telangana," Bhel said in a statement.

The order has been placed on the company by the Telangana State Power Generation Corporation Limited (TSGENCO).

The project is to be commissioned in 36 months on fast-track basis with both Bhel and TSGENCO setting up teams to expedite clearances and execution of the project.

TSGENCO has entered into an MoU with Bhel for construction of new thermal power plants totalling to 6,000 MW in the state in the next three years to meet the increasing demand for power, the statement said.

Bhel's scope of work in the project includes design, engineering, manufacture, supply, construction, erection, testing and commissioning of the 800 MW supercritical set on EPC basis.

The key equipment for the contract will be manufactured at Bhel's Trichy, Hyderabad, Haridwar, Bhopal, Ranipet, Bangalore and Jhansi plants. The company's power sector western region is responsible for civil works and erection, commissioning of the equipment.

Bharat Forge acquires France-based MGL

Acquisition largely focused on further consolidating BFL position in Oil & Gas space

announced that its German Subsidiary CDP Bharat Forge GmbH, has acquired 100 per cent equity shares of Mecanique Generale Langroise (MGL) for Euro 11.8 million (around Rs 90 crore).

This acquisition is largely focused on further consolidating BFL position in the Oil & Gas

space by enhancing service offerings and geographical reach, said the company. This also brings BFL closer to its customers and increases the value addition provided to them. "This is first among many opportunities we are looking at addressing in North America, North Sea area & Middle East" said the company.

MGL primarily caters to premium global oil & gas customers, all of whom are already customers of BFL.

Baba N Kalyani, Chairman and Managing director of Bharat Forge, said "The acquisition of MGL is in line with our strategy of moving up the value chain in the industrial business. This acquisition enhances BFL's ability to provide turnkey solution and simultaneously strengthens the product offering in the Oil & Gas sector."

MGL based in Saint Goesmes, France is technology oriented company focused on precision machining and other high value added processes like cladding for critical application in the Oil & Gas industry. MGL supplies turnkey components for drilling application like Blow out Preventers (BoP), Surface & sub-sea well heads in addition to components for power sector.

For Bharat Forge this is the fifth acquisition. The earlier acquisitions done in the period of 2004 to 2006-three in the Europe and one in the US-was primarily done in the automotive segment. These acquisitions have not only allowed the company to penetrate deeper into the global markets but also made it one of the largest forging companies globally.

For instance, in November 2003, BFL acquired Germany based Carl Dan Peddinghus GmbH & Co. KG (CDP)-then the largest forging company in Germany--making it the world's second largest forging company. The other acquisitions include Germany's CDP Aluminium Technik GmbH & Co. KG and Sweden based Imatra Kilsta AB in Europe. In 2005 it also acquired US-based Federal Forge from a bankruptcy court. BFL had also entered into a JV with China FAW Corporation in 2006. However, earlier this year it offloaded its entire stake (51.85 per cent), ending its eight-years JV.

About 60 percent of the company's revenue comes from automative sector and rest from other business segments such as energy, transport, constructing and mining.

While automative business declined in India last year, there was a recovery and automative and oil and gas business in Europe and North America.

Deen Dayal Upadhyaya Gram Jyoti Yojana – Round The Clock Power to Rural Households & Adequate Power For Agriculture

One of the major commitment of the Shri Narendra Modi government is to provide 24X7 uninterrupted quality electricity to all parts of the country. Yet missing infrastructure leaves large rural areas and many poor households behind. The conditions are aggravated by the fact that, to irrigate their fields, millions of farmers opt for pumping groundwater. Dwindling water tables and cheaper but ever more powerful pumps together with high energy subsidies contribute significantly to unsustainably rising electricity consumption. This not only adds to the fiscal burden of the state but results in load shedding that disrupts well-being and production.

In order to reverse the negative trends, several states have developed programmes for rural electricity segregation whereby separate feeders provide agricultural and non-agricultural consumers. According to evaluations of this scheme by the World Bank, Gujarat which serves as the most interesting and widely disseminated example previously had to deal with rampant power theft and farmers refusing to comply with regulations for rationing. Eventually, the Gujarat electricity utilities decided to enforce the rules through deployment of 500 ex-military men. Gujarat’s load management reforms have, all in all, attempted to reduce the demand for both electricity and groundwater among farmers, but they have resulted mainly in increased power supply to villagers and small rural industries.

The new scheme of Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), recently approved by the Union Government draws its inspiration from the similar pioneering scheme implemented by the Government of Gujarat. This scheme will enable to initiate much awaited reforms in the rural areas. It focuses on feeder separation (rural households & agricultural) and strengthening of sub-transmission & distribution infrastructure including metering at all levels in rural areas. This will help in providing round the clock power to rural households and adequate power to agricultural consumers .The earlier scheme for rural electrification viz. Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) has been subsumed in the new scheme as its rural electrification component

Components:

The major components of the scheme are feeder separation; strengthening of sub-transmission and distribution network; Metering at all levels (input points, feeders and distribution transformers); Micro grid and off grid distribution network & Rural electrification- already sanctioned projects under RGGVY to be completed.

Budgetary Support:

The full scheme entails an investment of Rs 43,033 crore which includes the requirement of budgetary support of Rs. 33,453 crore from GOI over the entire implementation period. All Discoms including private Discoms and State Power Departments are eligible for financial assistance under this Scheme. Discoms will prioritize strengthening of rural infrastructure work considering specific network requirement and will formulate Detailed Project Reports (DPRs) of the projects for coverage under the Scheme. Rural Electrification Corporation (REC) is the Nodal Agency for operationalization of this Scheme. It will furnish monthly progress reports on the implementation of the scheme indicating both financial and physical progress to Ministry of Power and Central Electricity Authority .

Monitoring Committee:

The Monitoring Committee under the Chairmanship of Secretary (Power) will approve the projects and also monitor implementation of the scheme. Suitable Tripartite Agreement will be executed between REC as the Nodal Agency on behalf of Ministry of Power, the State Government and the Discom to ensure implementation of the scheme in accordance with the guidelines prescribed under the scheme. Bipartite agreement will be executed in case of State Power departments.

Execution Period:

Projects under this Scheme will be completed within a period of 24 months from the date of issue of Letter of Awards by the utility.

Funding Mechanism:

 Grant portion of the Scheme is 60% for other than special category States (up to 75% on achievement of prescribed milestones) and 85% for special category States (up to 90% on achievement of prescribed milestones). The milestones for the additional grant are: timely completion of the scheme, reduction in AT&C losses as per trajectory and upfront release of subsidy by State govt. All North Eastern States including Sikkim, Jammu & Kashmir, Himachal Pradesh and