[aaykarbhavan] Business standard updates

Govt mulls common law for all financial- sector regulators

VRISHTI BENIWAL New Delhi, 3 June Days after Finance Minister Arun Jaitley asked his officials to come up with reform ideas, the ministry is said to be considering aunified law for all financial- sector regulators, including the Reserve Bank of India (RBI), for better regulation. This might function on the lines of the Indian Penal Code, which covers aspects of all states' criminal laws, even as the states have individual control over the police. The Financial Sector Legislative Reforms Commission ( FSLRC) had in a report last year proposed a unified regulator for the entire financial sector — markets, insurance, commodities and pension. It had, however, proposed to keep banking out of its purview for now. The Commission had also suggested a common Indian Financial Code for the sector. "At present, pieces of legislation have close connections between agencies concerned and the work they do. But changes in work allocation should not require changes to underlying laws," said a finance ministry official asking not to be named. Some officials said the ministry could consider a common law for all to begin with, as formation of a unified regulator would take time, given the opposition from certain quarters. In other words, the chiefs of all these regulators would stay but a new law would replace the different pieces of existing legislation. FSLRC Member D Swarup said this would help address the problems that arose among regulators — for example, the one between the Securities and Exchange Board of India ( Sebi) and the Insurance Regulatory and Development Authority (Irda) over jurisdiction of unit- linked insurance products a few years ago. "This was our suggestion, too. We have provided the draft; the law ministry has to clear it. The finance ministry can then table it in Parliament," Swarup added. At present, RBI, Sebi, Irda, the Pension Fund Regulatory & Development Authority (PFRDA) and the Forward Markets Commission ( FMC) are governed by their own respective laws. "The allocation of work was never designed deliberately. It evolved over years through a sequence of piecemeal decisions that responded to immediate pressures," the official added. FSLRC, headed by retired Supreme Court judge B N Srikrishna, was formed in March 2011 to rewrite and harmonise financial- sector laws. It proposed the Indian Financial Code to replace the country's existing financial laws and proposed areview of these laws every three years, besides judicial review of regulations. The Commission also gave a draft of the code that addressed concerns like consumer protection, micro- prudential regulation, resolution mechanisms, systemic risk regulation, capital controls, monetary policy, public- debt management, development and redistribution, and contracts, trading and market abuse. In January, the finance ministry asked regulators to voluntarily implement FSLRC's non- legislative recommendations and released a handbook to guide them in developing a uniform understanding of processes and achieve standardisation. In the handbook, the finance ministry said regulators at present implemented many measures in sectoral silos with a wide divergence in practices and minimum standards. Definitions of key terms and regulatory approaches varied across regulators and sectors. |Common law: The finance ministry is considering a single law for financial- sector regulators: RBI, Sebi, PFRDA, FMC and Irda |Common watchdog: FSLRC had suggested a common regulator for markets, insurance, commodities and pension, besides RBI. But the finance ministry believes that recommendation might take time to be implemented |RBI under law: Though FSLRC had suggested RBI could act as a separate entity in addition to the common regulator, the common law is likely to govern all financial- sector regulators, including RBI |Similar to IPC: Officials say the new law could be like Indian Penal Code, which covers aspects of criminal laws in all states, even as states independently control the police

 

Investment of up to 49% may be allowed without tech transfer SURAJEET DAS GUPTA & NAYANIMA BASU New Delhi, 3 June The government might allow foreign direct investment ( FDI) of up to 49 per cent in the defence sector without any mandatory transfer of technology. Also, the Department of Industrial Policy & Promotion (DIPP) is believed to have suggested doing away with certain stringent conditions to give a boost to the sector which has seen weak foreign fund inflows. FDI in the defence sector during 2000- 2014 has been a meagre $ 4.94 billion, despite the total FDI flow into the country across sectors standing at $ 321.81 billion. According to the existing policy, FDI beyond 49 per cent in the sector is allowed only if there is transfer of technology. But a draft Cabinet note is learnt to have suggested that any proposal for foreign investment of up to 49 per cent in an Indian company be cleared without this. This, according to DIPP, will boost domestic manufacturing and allow Indian entrepreneurs with the required technology to access funds. The department is believed to have recommended that up to 100 per cent FDI in the sector be allowed under the government route and that all investment proposals be screened by DIPP before the Foreign Investment Promotion Board (FIPB) considers it. At present, the provisions stipulate that all defence FDI proposals should be first made to FIPB. The 30- page Cabinet note, circulated to all ministries for their inputs, is likely to have suggested removal of the condition that the management of afirm applying to bring in FDI must be run by Indians, have an Indian chief executive and have a majority representation of Indians on its board. DIPP is learnt to have argued that the cap on foreign money in the sector be composite — including foreign direct investment, foreign portfolio investment, foreign institutional investment and that by non- resident Indians. The idea is that there appears no justification to deny institutional investments in the sector, as the sectoral cap is 100 per cent. At present, FDI proposals of up to 26 per cent but exceeding ₹ 1,200 crore in value need approval from the Cabinet Committee on Economic Affairs ( CCEA). Additionally, FDI proposals exceeding 26 per cent require permission from the Department of Defence Production ( DoDP) as well. On this, DIPP is believed to have proposed that only those proposals that are for up to 74 per cent FDI and involve investments of ₹ 1,200 crore require CCEA's approval. DoDP's permission should be sought only when the proposal is for more than 74 per cent FDI. However, if such a proposal has already gone to the Cabinet Committee on Security ( CCS), it should not need DoDP's clearance. According to DIPP, since the defence sector is not only under the government approval route but has performance- linked conditions, the FDI policy for the sector should be aligned with the FDI policy for limitedliability partnerships. The department is likely to have said in the Cabinet note that increasing the FDI limit in defence will encourage original equipment manufacturers and bring proprietary technology, besides boosting modernisation of defence equipment. It would also push defence- related research & development. DIPP might also have underscored that since permission for FDI in the defence sector is subject to industrial licence under the Industrial ( Development and Regulation) Act, the government reserves the right to refuse grant of licence in cases where applicant companies or their officials are suspected of wrongdoing. IN DEFENCE OF FDI Some proposals DIPP could have made in its draft Cabinet note TECH NO BAR FDI of up to 49% be allowed without the mandatory technologytransfer condition SCREENING An FDI proposal be screened by DIPP before FIPB considers it LIFT TOUGH NORMSClause concerning companies proposing to get FDI be removed ALL- INCLUSIVE The 100% FDI cap be composite — that is, including FPIs, FIIs and investments by NRI CLEARING HURDLESOnly those proposals that are for up to 74% FDI ( against 26% now) should require CCS or DoDP clearance ALIGNMENT The policy for FDI in the defence sector be aligned with that for LLPs FDI IN DEFENCE   Cross- border M& As to get aModi boost ABHINEET KUMAR Mumbai, 3 June Big- ticket cross- border mergers and acquisitions ( M& As), which took a beating in a slowing economy and uncertain regulatory environment, are set to get a boost with the new government at the Centre under Narendra Modi promising reforms. "The mandate that has been given to the new government and its message that it plans to focus on development are hugely positive for anyone looking to invest in India," said Raj Balakrishnan, head of investment banking at the Indian arm of Bank of America Merrill Lynch. This comes when the global deal volume is up 60 per cent to $ 1.2 trillion as companies in developed markets, such as the US and Europe, are seeking to merge to cut costs. The deal between European cement producers Holcim and Lafarge is a prominent example of this consolidation trend. "As global liquidity is very comfortable, Indian stocks are getting re- rated and global M& A environment is improving significantly, we expect both outbound and inbound M& A environment to improve," said Manisha Girotra, chief executive at US investment bank Moelis & Company's local arm. Consolidation has begun in the country also. In the pharmaceutical sector, Sun Pharmaceutical Industries recently bought Ranbaxy Laboratories and Torrent acquired Elder Pharmaceutical's local formulation business. Adtiya Birla Group's cement maker UltraTech has bought Jaypee Cement's Gujarat plant. As confidence among Indian industrialists about growth in the country rises, M& As are expected to pick up further as they put in more capital to build scale. "In India, with increased optimism about growth, regulatory clarity and a significant improvement in access to capital, we expect to see outbound M& A activity to gradually pick up," said Gaurav Mehta, head of corporate client solutions at UBS Securities. UBS expects to first see an increase in inbound M& A negotiations in health care, consumer goods, telecommunications, media and technology sectors. Subsequently, it believes, Indian companies will start scouting for acquisitions abroad. This augurs well for the investment banks advising and executing these transactions; these have not seen any significant hiring in the past three years, said Vedika Bhandarkar, vice- chairman at the local arm of Swiss investment bank Credit Suisse.

 

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A.Rengarajan

Company  Secretary

Chennai

93810  11200

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