Core sector growth: May 2016

India's infrastructure sector grew at its slowest pace in five months in May with key sectors such as electricity, steel, cement and refinery products remaining sluggish and crude oil and natural gas contracting.
Data showed the eight core sectors spanning coal, steel, cement, electricity, crude oil, natural gas and fertilizer and refinery products, grew an annual 2.8% in May , slower than the previous month's 8.5% and lower than the 4.4% growth clocked in May 2015.
The cumulative growth during April to May was a healthy 5.5% compared to 2.1% in the previous year. The robust growth of 8.5% in April had triggered hopes of a turnaround in the sector which has remained sluggish for a significant period.
The core sector accounts for 38% of the index of industrial production and it is generally expected that a turnaround in the infrastructure sector helps overall growth in industrial output. But industrial output growth contracted 0.8% in April, first decline in three months. Industrial output data has remained volatile and has attracted calls for revision from economists.

Govt Seals Cyprus Tax Haven Route

The country's renegotiated tax treaty with Cyprus will provide for taxation of capital gains in India arising from sale of shares of desi companies. However, all investments undertaken prior to April 1, 2017, will be grandfathered.
A release issued by the Cypriot ministry of finance says, “The agreement reached provides for source-based taxation for gains from the alienation of shares. Investments undertaken prior to April 1, 2017 are grandfathered with the view that taxation of disposal of such shares at any future date remains with the contracting state of residence of the seller.“ In other words, a Cyprus resident investor who has invested in Indian shares prior to this date will not have to pay tax on capital gains in India.
The recent protocol which India signed with Mauritius also provides for grandfathering of investments made prior to April 1, 2017. This release doesn't give any further details, such as that pertaining to any concessional rate of tax on capital gains, post the grandfathering period.
The final round of negotiations between the competent authorities of the two countries took place in New Delhi on June 29. India had earlier agreed to rescind the notification which had dubbed Cyprus to be a non-cooperative jurisdiction once the renegotiated treaty came into force. A fallout of the unilateral notification, issued by India on November 1, 2013, was that all investments via Cyprus were subject to greater disclosure norms and more stringent transfer pricing provisions. For Cypriot resident investors, it also meant a higher withholding tax in India of at least 30% against the more beneficial rates prescribed in the India-Cyprus tax treaty (for eg, interest income attracts a withholding of just 10% under the treaty and Cyprus was a popular route for debt investments into India).
“It has been agreed that, following the entering into force of the amending agreement, the Indian authorities will proceed with retrospectively rescinding the classification of Cyprus in the `Notified Jurisdictional Area' as from November 1, 2013,“ says this official release.
Substantial investments flow into India from Cyprus. FDI inflows from Cyprus during the fiscal 2015-16 aggregated to Rs.3,317 crore.

Barak 8

India took a major step towards plugging some gaping holes in its air defence coverage with the maiden test of a new surface-to-air missile (SAM) system designed to detect, track and destroy hostile aircraft, missiles, helicopters and drones at a range of 70 km.
The medium-range SAM system, jointly developed by DRDO and Israeli Aerospace Industries, was tested twice against a British-origin target drone `Banshee' at the integrated test range at Chandipur-on-sea off the coast of Odisha.
The MR-SAM systems with their MF-STARs (multifunction surveillance and threat alert radars) as well as weapon control systems with data links are designed to neutralise multiple targets simultaneously .
IAF will begin inducting an initial nine squadrons of this land-based MR-SAM -at a cost of Rs.10,076 crore -from 2017-18 onwards.
“During the two tests on Thursday , first at 8.15 am and then at 3.45 pm, the interceptor missiles directly hit the manoeuvring target drones (mimicking enemy aircraft), destroying them.All mission objectives were met successfully ,“ Dr G Satheesh Reddy , scientific advisor to the defence minister, said. While two “profiles“ at different altitudes in the flight envelope were tested on Thursday , the MR-SAM will require a few more tests before its production can kick off next year. While Israel calls the system Barak-8, India is yet to officially name it.
The Navy , incidentally , has already equipped three of its latest Kolkata-class destroyers with the warship-based version of the MR-SAM.
The all-weather air defence system, which is being produced by defence PSU Bharat Dynamics (BDL), has also been earmarked for another 12 under-construction warships, including the 40,000-tonne aircraft carrier INS Vikrant.
There are, however, some concerns over its high cost, with each MR-SAM system for a warship estimated to cost over Rs.1,200 crore.
This has also led to the initial army order for one MR-SAM regiment or group, pegged at Rs.14,000 crore, to be stuck in the final clearance stage for well over a year now,

Power surplus snapshot

Kudankulam 2 update

Unit 2 of the Kudankulam nuclear power project is just one step away from attaining criticality , which would mean the plant can start producing power. On Wednesday , the Atomic Energy Regulatory Board (AERB) gave its approval for the unit to start the fission reaction. Nuclear Power Corporation of India (NPCIL) officials are now awaiting the nod from the department of atomic energy as well as clearances from the Union environment ministry and Tamil Nadu Pollution Control Board as per Su preme Court guidelines.
Unit 2 which was to be commissioned in 2008 has been delayed as Unit 1 faced several hurdles and the entire NPCIL and Russian teams were involved in commissioning Unit 1. “We wanted Unit 1 to be commissioned as it faced problems several times. Only since April this year it has been functioning to full capacity and continuously , said the official. Unlike Unit 1, which faced problems from anti-nuclear activists in 2011, the commissioning process of Unit 2 has been smooth. Changes made in Unit 1 were made in Unit 2 also. Fuel loading in Unit 2 began in May and it was completed within a month. The reactor was boxed up a few days ago. Mandatory tests were conducted for the unit to start fissile reaction.
Once the unit attains criticality, power production can start although it will be infirm (irregular).“The power produced will be less, but slowly the unit will be tuned to attain full capacity. Whatever electricity is generated after the unit attained criticality will be fed into the grid. In between we would stop the process to conduct mandatory tests and the entire process of criticality will take a month,“ said the official.
Once the unit is functioning to full capacity , the state will get 563 MW from the unit. From Kudankulam 1 and 2, a total of 1,126 MW will be for Tamil Nadu's use.
Other states which will get power from the unit are Karnataka, Kerala and Puducherry . Allocated only 463 MW initially , TN sought for more power from the Centre, which increased the allocation to 563 MW.

The Model Shops and Establishment (Regulation of Employment and Condition of Services) Bill 2016

Shops, malls, cinema halls and other commercial establishments will be able to operate 24x7 throughout the year as the Union Cabinet cleared a model law which allows such workplaces to operate round the clock.While malls already operate on all days, the hours can be further expanded, while smaller establishments employing 10 or more employees will also be able to stay open longer, provided respective states agree to implement the model law.
The law specifies measures to ensure safety of women working late. The proposed change in work conditions for women is intended to end “protective discrimination“ that reduced employment opportunities for women employees, finance minister Arun Jaitley told the media.
Gender equality and better working conditions are key focus areas of the law which will cover establishments employing 10 or more workers except manufacturing units and will provide freedom to operate 365 days with flexibility on opening and closing hours.
The bill provides for women to be employed on night shifts with adequate security, provision of rest rooms and transportation while also listing working conditions such as drinking water, canteens, first aid, lavatory and a creche.
There is also a provision to exempt highly-skilled workers like those in IT and bio-technology from a daily 9-hour work-day and weekly 48 working hours. However, it will be subject to maximum 125 over-time hours in a quarter.
The Model Shops and Establishment (Regulation of Employment and Condition of Services) Bill 2016, proposed by the labour ministry , will not require Parliament's approval and can be adopted by states in totality or modified as per their requirements. This means the bill is only an advisory and its implementation depends on states.
An official said the law will help in generating more jobs as shops and establishments will have freedom to operate for longer hours round the year. In a pro-worker move, the bill has made a provision for five paid festival holidays in addition to national holidays.
Prime Minister Narendra Modi has said that if big malls can run 365 days, the restriction on small shops is unfair.
The model bill will bring about uniformity in the legislative provisions, making it easier for states to adopt it and thereby ensure uniform working conditions across the country and facilitate the ease of doing business and generate employment opportunities.
As per the bill, the government will have powers to make rules regarding adequate measures to be taken by the employers for the safety and health of workers.

Implementation of Seventh Pay Commission

A big pay and pension hike that will benefit 47 lakh central government staffers and 53 lakh pensioners, and is also expected to spur demand and act as a stimulant for the economy was cleared by the Union Cabinet on Wednesday .
After taking into account dearness allowances at the prevailing rate, the salary and pension of all government employees will increase by at least 14.29% as on January 1, 2016, and could go up to 23% in upper brackets. The fiscal impact of the implementation of the Seventh Pay Commission's recommendation will be Rs.72,800 crore a year, and in the current fiscal year it is expected to be Rs. 84,933 crore.This includes the outgo on arrears with the implementation date being January 1, 2016.The government said it has planned for the outgo.
The Centre approved the recommendations of the Seventh Pay Commission on pay and pension, but deferred proposals on allowances that will be examined by a committee headed by finance secretary Ashok Lavasa. Pending the panel's decision, allowances will continue at existing rates. The pay commission called for scrapping of a large number of allowances, but employee unions had urged the government to review the recommendations.
Finance minister Arun Jaitley on Wednesday said the recommendations of the Seventh Pay Commission would be implemented with effect from January 1, 2016, and the arrears would also be paid in this year. The minimum pay has been increased from Rs.7,000 to 18,000 per month. Starting salary of a newly recruited employee at lowest level will now be Rs.18,000 whereas for a Class I officer it will be Rs.56,100. For a secretary level officer, the salary will increase from Rs.90,000 to Rs.2.25 lakh and for a cabinet secretary it will be Rs.2.5 lakh a month. The panel's recommendation of a fitment factor of 2.57 (the starting pay will be 2.57 times what was prevailing on January 1, 2006) will be applied across all pay scales. Gratuity ceiling has been raised from Rs.10 to 20 lakh.
The pay commission examined a total of 196 existing allowances and recommended that 51 of them be abolished and 37 be subsumed.
Lavasa said there was also a recommendation on so a recommendation on abolishing interest-bearing allowances. He said the government has accepted the recommendation of abolishing advances on motor cars and motorcycles, but interest-bearing house building loans and computers will continue.
The 7th Pay Commission headed by retired Justice A K Mathur had recommended a 23.55% increase in pay and allowances and a 24% rise in pensions for all central government employees. The increase of 23.55% included a 16% hike in basic pay and an increase of 63% in allowances. The pay panel is set up every 10 years. Jaitley said the pay commission had engaged IIM-Ahmedabad to compare the salaries of government employees and the private sector.
“Government salaries have to come up to a respectable level so that the government is able to attract the best talent. Not necessarily in civil services alone but also other services, and therefore irrevocable consequence of this would be a pressure on the Budget along with OROP recommendations,“ Jaitley said.