[aaykarbhavan] Business standard news updates 9-1-2014

cutting no ice with investors  Policies for FDI in sectors like railways and e- commerce also likely to be relaxed soon

NAYANIMA BASU New Delhi, 8 January Months before the Lok Sabha elections, the government seems to be trying to make up for lost time, at least in decisions on foreign direct investment ( FDI). It is soon going to throw open sectors like the railways for foreign participation —something controversial until a couple of years ago. Also, foreign players might soon be allowed to sell to consumers anything from locks to laptops online. But, the question that looms is: Who are these players and are they really interested? Next week, the Cabinet Committee on Economic Affairs, chaired by Prime Minister Manmohan Singh, is expected to give the green signal to FDI in railways. Earlier this week, a discussion paper on allowing FDI in ecommerce was floated by the commerce &industry ministry. Besides, the Department of Industrial Policy and Promotion ( DIPP), the nodal agency for FDI, is keen to push foreign investment in low- cost housing. But where are the takers? This question is being asked not only by firms but in government corridors, too. A top official involved in formulation of the FDI policy told Business Standard the government was trying "to do its best" in bringing reforms by allowing more FDI in some crucial sectors but was finding it hard to find investors. In July last year, a high- level committee under the prime minister had relaxed FDI norms for 10 key sectors, including telecom, defence production, courier services, petroleum refining and commodity exchanges. Despite that, FDI inflows, according to official data, stood at just $ 12.6 billion during the April- November period, down 15 per cent from $ 14.7 billion in the yearago period. According to experts, the government has taken a flurry of measures to relax the country's FDI norms, but investors have shied away from putting in money due to the fear of a rollback of decisions later. "Investor sentiment is hurt. It is deeply harmed by the fact that there is no stability, Investors have gone into a wait- andwatch mode so far as FDI is concerned. They are now waiting for the new government to come in. The fear of a rollback is always there," says Punit Shah, co- head ( tax), KPMG. He also underscores the fact that some of the government departments, such as the Foreign Investment Promotion Board (FIPB) of the finance ministry, are increasingly acting as a deterrent to investment proposals with a plethora of rejections, deferrals and cancellations. A case in point is the Jet- Etihad deal, in which the Abu Dhabi- based airline bought a 24 per cent stake in Jet Airways for $ 379 million. The proposal had to face deferrals a couple of times both by FIPB and DIPP. Turn to Page 9 > CHANGES IN FDI LANDSCAPE |Jan 2012: Govt allows 100% FDI in single- brand retail |Sep 2012: Govt allows 51% FDI in multi- brand retail ( the decision had got stalled due to stiff opposition in November 2011) |May 2013: Swedish furniture giant IKEA's FDI proposal to invest ₹ 10, 500 crore gets approval |Jul 2013: Govt relaxes FDI rules for telecom, defence production, power exchanges, commodity exchanges, stock exchanges, asset reconstruction companies, petroleum, credit information companies |Jul 2013: Govt allows 100% FDI in courier services |Aug 2013: Govt eases FDI policy for multi- brand retail |Dec 2013: British retail giant Tesco Plc becomes the first multi- brand retailer to invest in India ($ 110 million proposed)

 

Government keeps 100% FDI policy in pharma unchanged BS REPORTER New Delhi, 8 January Despite concerns over a series of takeovers of Indian pharmaceutical companies by international ones, the government on Wednesday kept the existing policy, allowing up to 100 per cent foreign equity in the sector. Notifying the decision, taken by the Cabinet Committee on Economic Affairs ( CCEA) in November, the department of industrial policy and promotion (DIPP) under the ministry of commerce and industry stated 100 per cent foreign direct investment ( FDI) would be allowed in both greenfield ( new) and brownfield ( existing) segments. As earlier, FDI in brownfield will be subject to approval by the Foreign Investment Promotion Board ( FIPB). However, as a rider, DIPP said a' non- compete clause' " would not be allowed except in special circumstances with the approval of FIPB". There had been speculation that any takeover or sale agreement would be forbidden from having such a clause. While both the health and commerce & industry ministries had proposed more restrictions for new entrants into the sector, the finance ministry felt putting various riders on new investment would hurt the flow of foreign exchange. FDI in the pharma sector grew 86.5 per cent to $ 1.08 billion (₹ 6,750 crore) during AprilOctober of the current financial year over the same period last year. The commerce and industry ministry had suggested lowering the FDI cap to 49 per cent in the brownfield segment, keeping in mind the affordability of medicines and takeovers of domestic drug making companies by multinational giants. Commerce and Industry Minister Anand Sharma had felt the present FDI policy in the sector had not yielded tangible benefits. He said investments in new areas had not displayed value addition in terms of additional infrastructure or the research and development segment. While, FDI in brownfield investment had resulted in acquisition of domestic manufacturers by multinationals. The debate has been on since 2011, when a panel under Planning Commission member Arun Maira recommended more teeth to the Competition Commission of India ( CCI) in allowing mergers and acquisitions in the sector, instead of changing the FDI rules. FIPB's final say in non- compete clauses for M& As the only change; FinMin view prevails over health counterpart TOP FIVE PHARMA DEALS Year Buyer Seller Amount ($ bn) 2008 Daiichi Sankyo ( Japan) Ranbaxy Lab 5.65 2010 AbbottLab ( US) Piramal Healthcare 3.72 2013 Mylan Inc ( US) Agila Specialities 1.75 2009 Sanofi Aventis( France) Shantha Biotech 0.78 2007 Mylan Inc ( US) MatrixLabs 0.73 stiffening by RBI Some easing, some BS REPORTER Mumbai, 8 January The Reserve Bank of India (RBI) has eased the norms for extending loans against gold jewellery as collateral. Now, non- banking finance companies ( NBFCs) can give a loan up to 75 per cent of the gold value; the previous limit was 60 per cent. A committee chaired by K U BRao had recommended this, once business levels of gold loan NBFCs came to an appropriate level. The loan- to- value ceiling had been raised after moderation in the growth of gold loan portfolios of NBFCs in the recent past, RBI stated on Wednesday. IUnnikrishnan, executive director & deputy chief executive, Manappuram Finance, said: " This will be positive for the ( gold loan) industry; it will also benefit customers." Only the intrinsic value of the gold content should be used for determining the maximum loan. No other cost elements should be added. Some NBFCs are adding making charges to the value of the gold jewellery, RBI said. It added that the finance companies would have to give a certificate on the gold purity. The certified purity will be used to determine the maximum permissible loan and the reserve price for auction. NBFCs can, however, include suitable caveats to protect themselves against disputes on redemption, RBI said. Unnikrishnan said: " We give certificates on purity and weight of the gold to our borrowers. So, for us, it does not change anything." NBFCs had raised apprehensions on certifying the purity of gold jewellery, saying this could lead to disputes with borrowers. RBI said ownership verification should also be done, especially where the jewellery pledged is more than 20g. NBFCs should have an explicit policy in this regard in their overall loan policy. RBI turned down a plea for geographical flexibility in conducting auctions of pledged gold. It said these finance companies must do so in the same town or taluk in which the branch which had extended the loan was located. The disbursement of loans of ₹ 1 lakh and above must be done only through cheques. At present, the majority of loans in NBFCs' portfolios are below ₹ 1 lakh each, said RBI. NBFCs had argued that payment by cheque would mean delays in the borrower getting the funds and these could be accentuated where disbursements happen during weekends. THE RIDERS ON GOLD LOANS |Only intrinsic value of the gold to be used to determine the loan value |NBFCs will have to certify on purity of gold, which will be used to determine the maximum permissible loan and the reserve price for auction |The firms can, however, include suitable caveats to protect themselves against disputes on redemption |Mandatory ownership verification to be done in cases where the gold jewellery pledged is more than 20g, through a suitable document explaining how the ownership was determined |Firms have to conduct auction in the same town or taluk, in which the branch that had extended the loan is located |Disbursement of loans of ₹ 1 lakh and above must be done through cheques GOLD LOANS A nominee is not alegal heir Ashok Singh had bought an insurance policy in 2000. When he passed away in 2008, his elder son and wife ended in a legal battle because while the son was the nominee, his wife was the legal heir. Ideally, the nominee and the heir are the same. But if they are different, the law depicts a nominee as only a trustee. This is true for all financial instruments, except shares and debentures. Says Sajid Mohamed, partner at PDS Associates: " If one is a nominee to investments in shares or debentures, he or she has all rights to liquidate the share, even without the legal heirs permission. That is, a nominee is superior to a legal heir according to the Companies Act." Under Section 109A of the Companies Act, if the nomination is made under procedure prescribed by law, he/ she will be entitled to become the rightful owner of shares. And, such right shall exclusively favour the nominee and exclude all other persons. In comparison, Section 39 of the Insurance Act says the appointed nominee will be paid, though he/ she may not be the legal heir. The nominee, in turn, is supposed to hold the proceeds in trust and the legal heir can claim the money. Similarly, Reserve Bank of India ( RBI) guidelines specify the deceased's nominee would receive the money in the capacity of a trustee of the legal heirs. This applies to other financial transactions like provident fund, mutual funds and so on. In case of property, Section 30 of the Maharashtra Co- operative Society Act says in event of the death of a member of a society, the shares of the deceased will be transferred to the nominee. But, this transfer cannot result in vesting of the flat with the nominee. The situation can get complex in the absence of a will because it can get difficult for the heir to access the money. If Singh had not made a will, his son could have refused to claim the money from the insurance company till his mother agreed to share the proceeds with him. The reason being, "a financial institution will not hand over the money to anyone but the nominee," says Mohamed. Lawyers say there are many cases where nominees refuse to collect the money from a financial institution till they are promised a share. Or, like Singhs son, a nominee will have to fight a case for their share. And, they may be favoured by the court if they are dependent like aged parent, sibling, wife and so on. If the nominee does not collect the money the legal heir will have to produce a succession certificate from the court to prove that he or she is the heir to be able to get the money. You can produce a copy of ration card, education certificate( s), PAN or passport as relationship proof as all these documents mention either father's or husband's name. And if the nominee ( if in the capacity of a trustee, except in case of shares) is dependent on the deceased, then he can file a case for a share in the proceeds, says Ameet Hariani, managing partner at Hariani & Company. Lawyers say in cases where nominee is different from legal heirs it makes sense to have a will in place. Thats why it was easier for Singhs wife to get the money. Otherwise, nomination to someone who is not a blood relative can be challenged by legal heir, says Hariani. NEHA PANDEY DEORAS Only in case of equities will she automatically get the money. Otherwise, she is only a trustee >YOUR MONEY Ideally, the nominee and the heir are the same. But in case they are different, the law depicts a nominee as only atrustee. This is true for all financial instruments except shares and debentures

 

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CS A Rengarajan

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