Covid-19 Package: 74% FDI allowed in defence production; space sector opened to private sector

17 May 2020

Finance minister Nirmala Sitaraman today announced major structural reforms in eight key sectors of coal, minerals, defence production, civil aviation, power, social infrastructure, space and atomic energy, opening up some and expanding scope for investment in some others.

Accordingly, she announced a hike in foreign investments in defence production from 49 per cent to 74 per cent. Six airports will now be offered for development under public-private partnership while the space sector will be opened up for active participation by the private sector.

In the fourth tranche of the economic relief package in connection with the rapidly spreading Covid-19 pandemic, finance minister Nirmala Sitaraman today shifted focus to systemic reforms, stating that many sectors need policy simplification, to make it simpler for people to understand what that sector can give, participate in activities and bring transparency. Once we decongest the sectors, we can boost the sector, for growth, the finance minister said.

The aim is to create conditions suitable for a self-reliant India as enunciated by Prime Minister Narendra Modi while announcing a special and comprehensive economic package of Rs20 lakh crore, equivalent to 10 per cent of the country’s GDP, to boost the economy pummelled by the Covid-19 related lockdown that halted economic activity across the country.

The prime minister also outlined five pillars of `Atmanirbhar Bharat’ (self-reliant India), viz, Economy, Infrastructure, System, Vibrant Demography and Demand.

Announcing the new set of reforms, the finance minister said the new measures are in continuation of the Modi government’s record in taking up deep systemic reforms like Direct Benefit Transfer enabled giving money directly to people; GST that brought in One Nation, One Market; Insolvency & Bankruptcy Code (IBC) that helped resolve insolvency issues and the steps taken for Ease of Doing Business.

Sitaraman outlined the need for policy reforms to fast track investments and the steps taken by the government in this regard. She stated that fast track clearance is being done through Empowered Group of Secretaries, adding that a Project Development Cell would be set up in each ministry to prepare investable projects and coordinate with investors and central and state governments.

The Project Development Cell will prepare investible projects, coordinate with investors and central and state governments. There

There will be a ranking of states on investment attractiveness to compete for new investment. Incentive schemes for promotion of new champion sectors will be launched in sectors such as solar PV manufacturing; advanced cell battery storage etc.

Sitaraman also announced that a scheme will be implemented in states through challenge mode for Industrial Cluster Upgradation of common infrastructure facilities and connectivity. There will be availability of industrial land/land banks for promoting new investments and making information available on Industrial Information System (IIS) with GIS mapping, she said, adding that 3,376 industrial parks/ estates/SEZs have been marked in five lakh hectares on IIS. The government plans to rank all industrial parks during 2020-21.

The finance minister today announced the following structural reforms in the eight sectors of coal, minerals, defence production, civil aviation, power, social infrastructure, space and atomic energy.

Coal Sector

Introduction of Commercial Mining in Coal Sector:

The government will introduce competition, transparency and private sector participation in the Coal Sector through a revenue sharing mechanism instead of regime of fixed rupee/tonne. Any party can bid for a coal block and sell in the open market.

Entry norms will be liberalised. Nearly 50 blocks will be offered immediately. There will not be any eligibility conditions, only upfront payment with a ceiling will be provided.

There will be exploration-cum-production regime for partially explored blocks against earlier provision of auction of fully explored coal blocks. This will allow private sector participation in exploration.

Production earlier than scheduled will be incentivised through rebate in revenue-share.

Diversified Opportunities in Coal Sector:

Coal gasification / liquefaction will be incentivised through rebate in revenue share. This will result in significantly lower environment impact and also assist India in switching to a gas-based economy.

Infrastructure development of Rs50,000 crore will be done for evacuation of enhanced Coal India Limited’s (CIL) target of 1 billion tonnes of coal production by 2023-24 plus coal production from private blocks. This will include Rs18,000 crore worth of investment in mechanised transfer of coal (conveyor belts) from mines to railway sidings. This measure will also help reduce environmental impact.

Liberalised Regime in Coal Sector:

Coal Bed Methane (CBM) extraction rights will be auctioned from Coal India Limited’s (CIL) coal mines.

Ease of Doing Business measures, such as Mining Plan simplification, will be taken. This will allow for automatic 40% increase in annual production.

Concessions in commercial terms given to CIL’s consumers (relief worth Rs5,000 crore offered). reserve price in auctions for non-power consumers reduced, credit terms eased, and lifting period has been enhanced.

Mineral Sector

Enhancing Private Investments in the Mineral Sector

There will be structural reforms to boost growth, employment and bring state-of-the-art technology, especially in exploration through introduction of a seamless composite exploration-cum-mining-cum-production regime. The government would offer 500 mining blocks through an open and transparent auction process.

Joint auction of bauxite and coal mineral blocks will be conducted to enhance aluminum industry’s competitiveness and help aluminum industry reduce electricity costs.

Policy reforms in Mineral Sector:

The distinction between captive and non-captive mines to allow transfer of mining leases and sale of surplus unused minerals, leading to better efficiency in mining and production shall be removed. Ministry of mines is in the process of developing a Mineral Index for different minerals. There will be rationalisation of stamp duty payable at the time of award of mining leases.

Dfence Sector

Enhancing Self Reliance in Defence Production

‘Make in India’ for self-reliance in defence production will be promoted by notifying a list of weapons/platforms for ban on import with year wise timelines. This along with indigenisation of imported spares, and separate budget provisioning for domestic capital procurement will help reduce huge defence import bill

Corporatisation of ordinance factory board to improve autonomy, accountability of ordnance supplies.

Policy Reforms in Defence Production:

FDI limit in defence manufacturing under automatic route to be raised from 49 per cent to 74 per cent.

There will be time-bound defence procurement process and faster decision making will be ushered in by setting up of a Project Management Unit (PMU) to support contract management; Realistic setting of General Staff Qualitative Requirements (GSQRs) of weapons/platforms and overhauling Trial and Testing procedures.

Civil Aviation

Efficient Airspace Management for Civil Aviation:

Restrictions on utilisation of the Indian air space will be eased so that civilian flying becomes more efficient. This will bring a total benefit of about Rs1,000 crore per year for the aviation sector. This will lead to optimal utilisation of airspace; reduction in fuel use, time and will have positive environmental impact.

More world-class airports through PPP: 6 more airports have been identified for second round bidding for operation and maintenance on public-private partnership (PPP) basis. Additional investment by private players in 12 airports in first and second rounds is expected to bring around Rs13,000 crore. Another 6 airports will be put out for the third round of bidding.

The aim is to make India a global hub for Aircraft Maintenance, Repair and Overhaul (MRO).

Tax regime for MRO ecosystem has been rationalised. Aircraft component repairs and airframe maintenance business is expected to increase from Rs800 crore to Rs 2,000 crore in three years. It is expected that major engine manufacturers in the world would set up engine repair facilities in India in the coming years. Convergence between defence sector and the civil MROs will be established to create economies of scale. This will lead to maintenance cost of airlines to come down.

Power Sector

Tariff Policy Reforms Planned to Lay Out the Following Reforms:

· Discom inefficiencies not to burden consumers;

· Standards set for service and associated penalties for Discoms;

· Discoms to ensure adequate power; load-shedding to be penalised;

Promoting Industry:

· Progressive reduction in cross subsidies;

· Time bound grant of open access;

· Generation and transmission project developers to be selected competitively;

Sustainability of Sector:

· No regulatory assets;

· Timely payment of Gencos;

· DBT for subsidy; Smart prepaid meters;

Privatisation of Distribution in UTs:

Power departments / utilities in union territories will be privatised. This will lead to better service to consumers and improvement in operational and financial efficiency in distribution. This, according to the government, will also provide a model for emulation by other utilities across the country.

Social Infrastructure

Boosting Private Sector Investment Through Revamped Rs8,100-crore Viability Gap Funding Scheme:

The government will enhance the quantum of viability gap funding (VGF) up to 30 percent each of total project cost as VGF by the centre and state statutory bodies. For other sectors, VGF existing support of 20 per cent each from Government of India and states/statutory bodies shall continue. Total outlay is Rs 8,100 crore. Projects shall be proposed by central ministries/ state government/ statutory entities.

Space Sector

Boosting Private Participation in Space Activities

Government will ensure that a level playing field is provided to private companies in satellites, launches and space-based services. Predictable policy and regulatory environment to private players will be provided. Private sector will be allowed to use ISRO facilities and other relevant assets to improve their capacities. Future projects for planetary exploration, outer space travel etc shall also be open for private sector. There will be liberal geo-spatial data policy for providing remote-sensing data to tech-entrepreneurs.

Atomic Energy Related Reforms

It is planned to set up a research reactor in PPP mode for production of medical isotopes to promote welfare of humanity through affordable treatment for cancer and other diseases. Facilities in PPP mode to use irradiation technology for food preservation – to compliment agricultural reforms and assist farmers shall also be established. India’s robust start-up ecosystem will be linked to nuclear sector and for this, technology development-cum-incubation centres will be set up for fostering synergy between research facilities and tech-entrepreneurs.