In a Measure to Boost Economy, Govt Loosens Shackles of India Inc.

India Inc. soared as the Union Cabinet on March 4 gave its green signal to 72 amendments in the Companies Act, 2013 which will decriminalize a number of offenses and moderate the penalty regime to boost ease of doing business.

Crux of the Matter

Run India Inc. Run
A Bill to amend the Act will be moved in Parliament during the ongoing session. Punishments for 11 compoundable offenses will be replaced with fines and imprisonment will be removed. The move has come at a time when the Indian economy is struggling to perform at its best due to reduced demands and a global slowdown.

In order to make the act more humane, the Finance Minister Sitharaman said that a ministerial panel has looked into different sections in the Companies Act that cause businesses worries. She also explained the proposed changes which will recategorize 23 offenses of 66 compoundable offenses in the Act.

Amongst other decisions announced after the cabinet meeting includes providing an exemption from the requirement of having a CSR committee for companies that have an obligation to spend  Rs.50 lakhs or less.

Cabinet also approved Non-Residents Indians to invest up to 100% from earlier 49% in disinvestment-bound Air India.

PSB Mergers
Cabinet also approved a mega-merger of 10 Public Sector Banks into 4 w.e.f April 1, 2020.

Oriental Bank and United Bank of India will be merged into Punjab National Bank. Indian Bank will be merged with Allahabad Bank; Andhra Bank and Corporation Bank will be merged into Union Bank of India; Syndicate Bank will be merged into Canara Bank. 

The Finance Minister said the amalgamation is to enable the creation of digitally-driven consolidated banks with global heft and business synergies.

Curiopedia

The Companies Act 2013 is an Act on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company. The Act came into force on 12 September 2013. A new term of “one-person company” was included in this act that will be a private company and with only 98 provisions of the Act notified. A total of another 184 sections came into force from 1 April 2014. The Ministry of Corporate Affairs thereafter published a notification for exempting private companies from the ambit of various sections under the Companies Act. The 2013 legislation has stipulations for increased responsibilities of corporate executives in the IT sector, increasing India’s safeguards against organized cybercrime by allowing CEO’s and CTO’s to be prosecuted in cases of IT failure. More Info

Auditors are the New Watchdog of financial affairs of companies

Auditors work

The Companies (Auditor’s Report) Order, 2020 was released on February 26 by the Corporate Affairs Ministry which now mandates enhanced disclosures by auditors to detect frauds and bring in financial transparency in companies.

Crux of the Matter

The government has widened the scope of auditors as there has been a substantial rise in the number of fraud cases. This decision has been taken after fraud at companies like Infrastructure Leasing and Financial Services Ltd (IL&FS) and Dewan Housing Finance Corp. Ltd (DHFL).

Auditors have now been mandated to record their findings related to potential frauds in companies along with their ability to pay back loan debt. This will be applicable to all companies with sales less than Rs. 10 crores, banks, insurers, NGO’s and proprietorship companies.

Auditors will now also report if term loans were used for the purpose they were taken and look into whistle-blower complaints received by the company as well as concerns raised by outgoing auditors before forming their opinion.

The order states that the auditors are required to file their opinions on if ‘material uncertainty exists as on the date of the audit report that the company is capable of meeting its liabilities existing at the date of the balance sheet as and when they fall due within a period of one year from the balance sheet date’.

With these changes, the government expects to significantly improve the quality of reporting by auditors which will lead to greater transparency and faith in the financial affairs of the companies. This will indirectly also benefit Indian companies to attract FDI.

Curiopedia

Benami Transactions (Prohibition) Act, 1988 is an Act of the Parliament of India that prohibits certain types of financial transactions. The act defines a ‘Benami’ transaction as any transaction in which property is transferred to one person for a consideration paid by another person. Such transactions were a feature of the Indian economy, usually relating to the purchase of property (real estate), and were thought to contribute to the Indian black money problem. The act bans all Benami transactions and gives the government the right to recover property held benami without paying any compensation. The act came into force on 5 September 1988. More Info

Good News from India's Manufacturing Sector Hints at Economic Revival

After a long time, positive news comes in for India’s manufacturing sector as its activity reached an 8-year high in January 2020. The IHS Markit India Manufacturing PMI rose from 52.7 in December 2019 to 55.3 in January 2020.

Crux of the Matter

A survey conducted says that it is due to the sharp rise in new business orders amid a rebound in demand conditions that led to the rise in production and hiring activity.

Pollyanna de Lima, Principal Economist at IHS Markit said, “Manufacturing sector growth in India continued to strengthen in January, with operating conditions improving at a pace not seen in close to eight years.”

It is the 30th consecutive month that the manufacturing PMI has remained above the 50-point mark. Point above 50 means expansion whereas below that denotes contraction.

The fastest increase in new export orders was recorded since November 2018 as the rise in total sales was supported by strengthening demand from external markets.

Hiring activity also improved in January as firms employed at the fastest rate in nearly 7.5 years.

The survey also showed that there was a slow increase in both input costs and output charges. This survey and other positive forecasts have given hope and optimism in the manufacturing industry.

Curiopedia

Purchasing Managers’ Indexes (PMI) are economic indicators derived from monthly surveys of private sector companies. The three principal producers of PMIs are the Institute for Supply Management (ISM) the Singapore Institute of Purchasing and Materials Management (SIPMM) and the Markit Group.PMI surveys on a monthly basis by polling businesses that represent the makeup of the respective business sector. ISM’s surveys cover all NAICS categories. SIPMM survey covers all manufacturing sectors. The Markit survey covers private sector companies, but not the public sector. More Info

IHS Markit Ltd is a London–based global information provider formed in 2016 with the merger of IHS Inc. and Markit Ltd. One part of this conglomerate originally was a firm that assigns IMO identification numbers for ships, companies and registered owners. It has since grown to incorporate other companies in the information services sector, many dating back to the late 1700s and 1800s. With more than 1400 employees its revenue as of 2017 stands at US$3.6 billion. More Info

World Bank Projects 5% Growth Rate For India

In a slight respite to the Indian economy, World Bank in its recently released Global Economic Prospects projected a 5% growth in 2019-20 fiscal which is more likely to recover and reach up to 5.8%.

Crux of the Matter
  • India’s weakness lies in credit from non-banking financing sector which is slowing down the growth.
  • The report also highlighted that the recent stressful geopolitical situations have also contributed to tensions in the economy.
  • The report praised the efforts of the Indian government to eliminate subsidies on LPG.
  • The growth rate of the US also slowed down to 1.8% due to uncertainty. Europe‘s economy also has slipped due to weak industrial activity.
  • The growth rate of Bangladesh has been projected above 7%.
  • World Bank said the growth in South Asia is expected to pick up the pace and reach 6% by 2022.
  • World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu said, “With the growth in emerging and developing economies likely to remain slow, policymakers should seize the opportunity to undertake structural reforms that boost broad-based growth.”.
Curiopedia

The World Bank is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects. It comprises two institutions: the International Bank for Reconstruction and Development, and the International Development Association. he World Bank’s most recent stated goal is the reduction of poverty. As of November 2018, the largest recipients of World Bank loans were India ($859 million in 2018) and China ($370 million in 2018), through loans from IBRD. More Info

PwC India Reports 50% drop in Merger & Acquisitions In 2019

According to a consulting firm PwC India: Annual Review And Outlook for 2020 report, Merger and acquisition (M&A) activity in India halved in value in 2019 as compared to 2018. As of December 2019, India got 765 deals worth $37 billion out of which only 11 deals are valued at over $1 billion each compared to 25 in 2018.

Crux of the Matter
  • India’s inbound activity totalled around $12 billion in 2019 as compared to 2018 which saw deals worth $22.4 billion. The major highlight of 2018 was the acquisition of Flipkart by Walmart Inc. at $16 billion.
  • The US-China trade war contributed to the slowdown in deal activity as investors have a cautious approach.
  • Despite the slowdown, M&A deals by foreign firms rose from 28% to 32% value this year.
  • The report said, “India has witnessed significant interest from overseas corporates across sectors including Steel, Energy, Infrastructure and Financial Services.”
  • On the private equity (PE) front, investors were seen chasing control transactions or buyouts, with such deals witnessing record-high activity this year.
  • The buyout activity surpassed the record of 2018 by 30% in value. There were 45 buyout deals totalling to $12 billion in 2019.
  • This suggests that investors are now more keen to play a role in the performance of their investments, to be able to extend their expertise and work towards the profitability of the company.
  • The report suggests that foreign players are evidently still bullish on India and eager to take part in the opportunities India presents despite the challenging situations. This also depends on both domestic and global volatility as well as government reforms.
Curiopedia

PricewaterhouseCoopers International Limited is an MNC professional services network with headquarters in London, United Kingdom. PwC ranks as the second-largest professional services firm in the world. PwC is a network of firms in 158 countries, 721 locations, with 250,930 people. As of 2018, 28% of the workforce worked in Asia, 28% in North America and the Caribbean and 30% in Western Europe. The company’s global revenues were $41.3 billion in FY 2018. PwC provides services to 420 out of 500 Fortune 500 companies. The firm in its present form was created in 1998 by a merger between two accounting firms; Coopers & Lybrand, and Price Waterhouse. As of 2019, PwC is the 5th-largest privately owned company in the United States. More Info