Tuesday, June 5, 2012

India’s Forex Reserves plunged by 1.74 Billion Dollar to 290 billion dollar

According to the data released by the Reserve Bank of India (RBI) on 2 June 2012, India’s foreign exchange reserve plummeted by 1.74 billion dollar to 290 billion dollar for the week ended 25 May 2012. The RBI data displayed a sharp decline in the country’s forex reserves for the fourth consecutive week. The forex reserves had dropped by 1.80 billion dollar, 1.37 billion dollar and 2.18 billion dollar, respectively, in the previous three weeks.
The drop in forex reserve is largely due to sale of dollar by the central bank to defend consistently falling rupee. The Indian rupee plunged to a record low in recent weeks and stood 55.54 against a dollar on 1 June 2012. The rupee fall for the nine consecutive weeks is the longest losing streak since the 2008 economic crisis. RBI had reportedly sold dollars to arrest the further fall of Indian rupee.
The value of gold reserves of the country for the week ended 25 May 2012 remained unmoved at 26.61 billion dollar.

Friday, June 1, 2012

National Telecom Policy (NTP)-2012 was approved by union cabinet

The Union Cabinet approved the National Telecom Policy -2012 (NTP - 2012) and also approved introduction of Unified Licence and authorised the Department of Telecommunications to finalise the new Unified Licensing regime with the approval of Minister of Communications & IT.
The salient features of the National Telecom Policy-2012 are as follows: 
The policy envisions providing secure, reliable, affordable and high quality converged telecommunication services anytime, anywhere for an accelerated inclusive socio-economic development. The main thrust of the Policy is on the multiplier effect and transformational impact of such services on the overall economy. 
The thrust areas of NTP - 2012 are

  • Increase rural teledensity from the current level of around 39 to 70 by the year 2017 and 100 by the year 2020
  • Repositioning of Mobile phone- as an instrument of empowerment
  • Broadband –“'Broadband For All” at a minimum download speed of 2 Mbps
  • Domestic Manufacturing- Making India a global hub
  • Convergence of Network, Services and Devices
  • Liberalisation of Spectrum- any Service in any Technology
  • Simplification of Licensing regime- Unified Licensing, delinking of Spectrum from License, Online real time submission and processing
  • Consumer Focus - Achieve One Nation - Full Mobile Number Portability and work towards One Nation - Free National Roaming
  • Resale of Services
  • Voice over Internet Protocol
  • Cloud Computing, Next Generation Network including IPV6

The policy seeks to provide a predictable and stable policy regime for a period of about ten years. Policy will be operationalised by bringing out detailed guidelines, as may be considered appropriate, from time to time. Implementation will enable smooth implementation of the policies for providing an efficient telecommunication infrastructure taking into account the primary objective of maximizing public good by empowering the people of India. The policy will further enable taking suitable facilitatory measures to encourage existing service providers to rapidly migrate to the new regime in a uniformly liberalised environment with a level playing field.

Growth Rate of Eight Core Infrastructure Industries dipped to 2.2% in April 2012

As per the official data released on 31 May 2012, the growth rate of eight core infrastructure industries dipped to 2.2 per cent in April 2012 from 4.2 per cent in April 2011. The eight core sectors — crude oil, petroleum refinery products, coal, electricity, cement and finished steel has a weight of 37.9 per cent in the Index of Industrial Production (IIP). The dip in the growth of the core sector industries was attributed to poor performance by sectors such as natural gas, crude oil and fertilizers.
The overall infrastructure sector growth for March 2012 was revised downwards to 2.2 per cent as compared to a healthier 6.5 per cent expansion witnessed in the same month last year. Also, the cumulative growth of infrastructure industries was found to have slipped to 4.4 per cent, which is significantly lower than the 6.6 per cent increase seen in 2010-11.
As per the data released by the CSO, natural gas and crude oil output during April 2012 fell by 11.3 per cent and 1.3 per cent, respectively. Petroleum refinery products and fertiliser production also witnessed negative growth rates, contracting by 2.8 per cent and 9.3 per cent in April 2012. Slowdown in electricity generation was also witnessed in April. Electricity generation grew at a lower pace of 4.6 per cent during the month as compared to 6.4 per cent in April 2011.
However, three sectors- coal, steel and cement were noted to have fared better as compared to 2011. While coal production went up by 3.8 per cent in April 2012 as compared to an increase of 2.7 per cent witnessed in April 2011, the output of steel and cement grew by a healthy 5.8 per cent and 8.6 per cent during April 2012 as compared to negative growth rates of (-) 2.9 per cent and (-) 0.1 per cent witnessed by the two sectors in the corresponding period of 2011.

India's Exports registered a Growth of 3.2 Per Cent in April 2012

According to data released by the Commerce Ministry in New Delhi on 1 June 2012 India's exports registered a growth of 3.2 per cent on year-on-year basis to 24.4 billion dollar in April 2012. Exports figure in April 2011 stood at 23.6 billion dollar. The slumping export figures are largely attributed to the slowing global demand of goods.
Imports during the same period witnessed a growth of 3.8 per cent to 37.9 billion dollar, creating a trade deficit of 13.4 billion dollar. In April 2012, the country's oil imports grew about 7 per cent to 13.9 billion dollar compared to the same period in 2011. Non-oil imports expanded 2 per cent on year-on-year basis to 24 billion dollar during April the first month of fiscal year 2012-13.
On an annual basis Indian exports expanded 21 per cent to 303.7 billion dollar in the fiscal year 2011-12. The imports during the same period grew 32.2 per cent to 488.6 billion dollar. The trade deficit for the full fiscal year was 184.9 billion dollar.
A higher trade deficit will have an adverse impact over already ailing Indian economy. The broadening trade deficit could worsen the current account balance of the country and further weaken the rupee.

India’s Fiscal Deficit eased to 5.7 in the Fiscal Year 2011-12

According to the figures released by Controller General of Accounts (CGA) on 31 May 2012, India’s fiscal deficit eased to 5.7 per cent of GDP, lower than 5.9 per cent projected in the revised estimates in the Budget.
Fiscal deficit, the difference between the government's total receipts and expenditure, capped at 5.09 trillion rupees in 2011-12. While the tax revenue receipts curbed to 6.31 trillion rupees against the projected figure of 6.42 trillion rupees, government’s expenditure both non-plan expenditure and plan expenditure also went down at 8.84 trillion rupees and 4.13 trillion rupees respectively. The revenue deficit was at 4.3% of GDP.
The government is working hard to curtail the broadening fiscal deficit and aiming to bring it down to 5.1 per cent in the fiscal year 2012-13. In order to meet its fiscal deficit target the finance ministry is eyeing to cut the subsidy bill to below 2 per cent of GDP in the fiscal year 2012-13and 1.75 per cent in the subsequent years. The slowing economy is making it difficult for the government to achieve its fiscal deficit target.
The gross domestic product (GDP) data released by the Central Statistical Organisation (CSO), had capped the GDP growth rate rate of India in 2011-12 at 6.5 per cent, as against the earlier estimate of 6.9 per cent.

Thursday, May 24, 2012

Government Announces New Expert Panel on Poverty Estimates

The State-wise poverty lines and poverty ratio for 2009-10 have been computed following the extant Tendulkar methodology.  Based on the said methodology the Planning Commission has released the estimates through a Press Note issued on 19th March, 2012.  As indicated in the Press Note, the poverty ratio in the country has come down from 37.2% in 2004-05 to 29.8% in 2009-10.  As a result, the number of poor persons in the country has reduced from 40.7 crore in 2004-05 to 35.5 crore in 2009-10.

The Tendulkar Committee, which submitted its Report in 2009, has incorporated adequacy of expenditure from the normative and nutritional viewpoint.  It stated “while moving away from the calorie norms, the proposed poverty lines have been validated by checking the adequacy of actual private expenditure per capita near the poverty lines on food, education and health by comparing them with normative expenditures consistent with nutritional, educational and health outcomes”.

Taking note of the various points of views and perspectives expressed in the public domain with respect to the need to revisit poverty estimates and related methodologies, Government has since decided to set up an Expert Technical Group to revisit the methodology for estimation of the poverty and identification of the poor.

The Technical Group comprising of eminent economists under the Chairmanship of Dr. C. Rangarajan, Chairman, Prime Minister’s Economy Advisory Council, is as under:

1.         Dr. C. Rangarajan, Chairman, Prime Minister’s
Economy Advisory Council                                         ….        Chairman

2.         Dr. Mahendra Dev, Director, Indira
Gandhi Institute of Development Research                           Member

3.         Dr. K. Sundaram, formerly Delhi School
of Economics                                                                     Member

4.         Dr. Mahesh Vyas, Centre for
Monitoring Indian Economy                                                 Member

5.         Dr. K.L. Datta, Ex-Adviser (Perspective Planning),
Planning Commission                                                          Member Convener


The Terms of Reference of the Expert Technical Group have been finalized as under:

1.         “To comprehensively review the existing methodology of estimation of poverty and examine whether the poverty line should be fixed solely in terms of a consumption basket or whether other criteria are also relevant, and if so, whether the two can be effectively combined to evolve a basis for estimation of poverty in rural and urban areas.

2.         To examine the issue of divergence between consumption estimates based on the NSSO methodology and those emerging from the National Accounts aggregates; and to suggest a methodology for updating consumption poverty lines using the new consumer price indices launched by the CSO for rural and urban areas state-wise.

3.         To review alternative methods of estimation of poverty which may be in use in other countries, including their procedural aspects; and indicate whether on this basis, a particular method can be evolved for empirical estimation of poverty in India, including procedures for updating it over time and across states;

4.         To recommend how the estimates of poverty, as evolved above, should be linked to eligibility and entitlements for schemes and programmes under the Government of India”.

Wednesday, May 23, 2012

India Overtook Spain to become the 11th Largest Insurance Market in the World

According to the report compiled by Swiss Re named World Insurance in 2010, and published on 6 July 2011, India overtook Spain to become the 11th largest insurance market in the world. Indian insurance market jumped up 10 places in the last decade. India’s market share increased because of the shrinkage in several European markets. USA is the largest insurance market in the world according to the report.

Swiss Reinsurance Company Limited is generally known as Swiss Re. It is a Swiss reinsurance company. The Company is headquartered in Zurich. Swiss Re was founded in 1863.

India's GDP Growth to make the Indian Banking Industry Third Largest in the World by 2025

A study titled Being five star in productivity — road map for excellence in Indian banking was released FICCI-IBA-BCG on 22 August 2011, the eve of IBA-FICCI annual banking conference. The theme for the banking conference was decided to be Productivity Excellence.

According to the study, India's gross domestic product (GDP) growth will make the Indian banking industry third largest in the world by 2025. The report chalked out an action agenda for banks, based on insights from an extensive productivity benchmarking exercise conducted across 40 banks.

The report highlighted that banks have to strive for excellence on five dimensions: branch sales and service, new channels, lean operations, organisation design and bad debt management.

The report stated that branches of banks can generate higher levels of revenue for the banks. Indian banks deploy 62 per cent of staff in customer facing roles as against the benchmark of 82 per cent observed by BCG globally.

Break-out growth in usage of new channels will characterise the next decade in Indian banking. Among the new channels, mobile phones, propelled by 3G and smart phone technology, will emerge as an undisputed winner by 2020 accounting for 20-30 per cent of total transactions. ATMs have seen exponential growth in usage but are far from maturity with just about 50 per cent adoption even in metros.  New channels will not only enhance the productivity but can be a source of new customer acquisition.

Indian banks, the report mentioned were to be doing well overall with industry cost-income ratio below 50 per cent.

However, there remained plenty of scope for betterment. On an average, Indian banks have about 20 per cent of staff deployed in back-office processing (for some banks, as high as 40 per cent) as against a global best of 10 per cent observed by BCG. Process re-engineering and operating model change if employed could help reduce costs, improve service, and contain operating risks.

Public sector banks were found to be under-investing in technology with spends at about 25 per cent of global benchmarks. An Indian banks average administrative overhead at about 11 per cent of the total staff is in line with what BCG has observed globally.

The banking industry was holding low headcount in HR and finance roles. Variable pay at 2 per cent of fixed compensation is far below the 12-15 per cent that is optimal for incentive compensation. The public sector as per the report urgently needed an adjustment in its compensation structure. The industry has an impressive bad debt performance and the bad debt levels in priority sectors of MSME and agriculture are significantly high.
The report suggested major overhaul of NPA management processes at banks. Some banks have alarmingly high NPA levels in relatively safe products such as home loans.

The report stressed on a whole new paradigm for risk management encompassing operating model, technology, experience and expertise retention, and minimum critical size of book.

Saturday, May 19, 2012

Union Cabinet approved 7.6 Billion Dollar TAPI Gas Pipeline Project

The Union Cabinet approved the 7.6 billion dollar TAPI gas pipeline project on 17 May 2012. The TAPI gas pipeline project which originates from the central Asian nation Turkmenistan and reaches to India via Afghanistan and Pakistan is also referred to as the “peace pipeline” as some of the countries that it passes through don’t enjoy good relationship with each other.
The TAPI gas project will have a total length of 1680 km. Of the total length 144km will be in Turkmenistan, 735km in Afghanistan, and 800km in Pakistan, bringing it to the India border. The pipeline, will be entirely functional in 2018 and supply gas over the next thirty years.
The pipeline would produce 90 million standard cubic metres of gas per day (mscmd).  Of the total gas pumped through it, India and Pakistan will get 38 mscmd each and Afghanistan the remaining 14 mscmd. At present India requires 176 mscmd of gas, of which a little more than one-sixth is imported. The country’s need of the gas might reach the level of about 400 mscmd by 2020.
The Indian government was pursuing a similar project with the Iran which was put on hold by the Indian government given the pressure from the USA. The TAPI gas project also involves Asian Development Bank which has bestowed financial assistance to the project.
The TAPI pipeline, was proposed in the early 1990s, but was delayed due to the political and economic hurdles involved into the project. Security of the pipeline has been the major issue of concern which passes through some of the most unstabled regions of Afghanistan and Pakistan, where the project may face the risk of sabotage. India joined the project in April 2008.

Tuesday, May 15, 2012

Insurance Penetration in the Country

The Insurance Regulatory and Development Authority (IRDA) has informed that the total insurance penetration, which is the ratio of insurance premium as a percentage of GDP has increased from 2.32 in 2000-01 to 5.10 in 2010-11. The life insurance penetration has decreased from 4.60 in 2009-10 to 4.40 in 2010-11, whereas the non-life insurance penetration has increased from 0.60 in 2009-10 to 0.71 in 2010-11.

The insurance penetration is impacted by several macro-economic factors such as growth, inflation, interest rates, small savings return and returns of competing financial products offered by banks and mutual funds.

The IRDA undertakes a sustained insurance education campaign under the brand name Bima Bemisaal. The campaign seeks to educate the uninsured and the insured about the need for insurance, rights, obligations of policyholders etc through various media channels viz. print, radio and television. IRDA also supports consumer bodies in conducting seminars and workshops on insurance in various parts of the country in order to create awareness about insurance. The Bima Bemisaal campaign is carried out in various Indian languages including Hindi, apart from English. IRDA has also brought out educational material for the public and policyholders. Further, to create awareness, IRDA over the last two years has started conducting yearly seminars exclusively on policyholder protection and welfare that brings together all stakeholders including consumer representatives.

Concern of Credit Rating Agencies on Indian Economy

India’s sovereign debt is usually rated by six major Sovereign Credit Rating Agencies (SCRAs) viz. Moody’s Investor Services, Standard and Poor’s (S&P), Dominion Bond Rating Service (DBRS), Fitch Ratings, Japanese Credit Rating Agency (JCRA) and Rating and Investment Information (R&I).

The assessment and ratings given by the various agencies differ from each other. In past two years, India’s credit ratings were either affirmed or upgraded by the above mentioned SCRAs. India received these assessments when many nations, including some of the strongest economies, were downgraded during the period.

In June 2011, DBRS upgraded the outlook on India’s rating and also appreciated the Government’s efforts towards fiscal consolidation. In their July 2011 report, Fitch affirmed the credit rating issued in the previous year and also appreciated the management of the economy stating that “India’s medium-term economic growth prospects remain strong, as potential GDP growth remains greater that 8%, well above the ‘BBB – ‘ range median’. In December 2011, Moody’s upgraded the rating on India’s sovereign debt in four segments. S&P, in its latest rating of India’s sovereign credit rating on 25th April 2012, affirmed its BBB (-) long term and A-3 short term sovereign rating of India.

However, all the SCRAs have note favourably commented on India’s fiscal deficit and debt. In their April 2012 report, S&P had revised the outlook on the long-term rating on India from Stable to negative. In its report, S&P also stated that the outlook has been revised “to reflect at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow”.

Government has taken not of the concerns expressed by various SCRAs and is taking necessary steps in this regard.

In particular, Government has taken note of S&P’s report released on 25th April, 2012. In this regard, Government is taking a number of measures with a view to reducing the current account deficit, improving growth prospects of the economy, and reducing the fiscal deficit.

The measures being taken include steps to restrict the expenditure on central subsidies to under 2% of GDP in 2012-13 and to further bring it down to 1.75% of GDP in the next three years. In addition, Government has made a determined attempt to come back to the path of fiscal consolidation by reducing the budgeted fiscal deficit to 5.1% of GDP in BE 2012-13 from 5.9% of GDP in RE 2011-12.

Reforms in PDS

Targeted Public Distribution System (TPDS) is operated under the joint responsibility of Central Government and State/Union Territory (UT) Governments. The Central Government is responsible for procurement, allocation and transportation of foodgrains upto the designated depots of Food Corporation of India. The operational responsibilities for lifting and distributing the allocated foodgrains within the States/UTs, identification of eligible Below Poverty Line (BPL) families, issuance of ration cards to them and supervision over distribution of allocated foodgrains to eligible card holders through the Fair Price Shops (FPSs) are of the State/UT Governments.

Suggestions are received from time to time to improve the functioning of TPDS. Strengthening and streamlining of TPDS is a continuous process. To improve functioning of TPDS, Government has been regularly requesting State/UT Governments for continuous review of lists of BPL and Antyodaya Anna Yojana (AAY) families, ensuring timely availability of foodgrains at Fair Price Shops (FPSs), ensuring greater transparency in functioning of TPDS, improved monitoring and vigilance at various levels and introduction of new technologies such as Computerisation of TPDS operations at various levels.

Government issues instructions and advisories to States/UTs for reforms in TPDS. This Department has also been regularly interacting with the States for successful and effective reforms of the TPDS. In the conference of State Food Secretaries & other officials on Best Practices and Reforms in TPDS held in July, 2010, measures being taken by States/UTs for streamlining the TPDS were shared amongst the participants. These, inter-alia, related to proper identification of beneficiaries, timely distribution of foodgrains, door step delivery of foodgrains, enhancing viability of Fair Price Shops (FPSs), enhancing storage capacities, use of technology based initiatives in TPDS, increasing public awareness, monitoring distribution of PDS commodities through social audit, etc. Regional Conferences were also held in February, 2011 with State/UT Food Ministers and Food Secretaries to review the implementation of TPDS. Further, a two day Conference on Targeted Public Distribution System and Storage with Food & Agriculture Ministers and Secretaries of States/UTs was held on 8th and 9th February, 2012 at New Delhi. The issues discussed in the Conference included stepping up of procurement activities, expeditious action to be taken for computerization of PDS and creation of storage capacity as well as time bound completion of existing projects.

National Food Security Bill has been introduced in Lok Sabha on 22.12.2011. Under the Bill, upto 75% of the rural population (with at least 46% belonging to priority households) and upto 50% of urban population (with at least 28% belonging to priority households) are proposed to be covered under TPDS. Priority households will be entitled to receive 7 kg of foodgrains per person per month at prices not exceeding Rs.3/2/1 per kg for rice/wheat/coarsegrains. General households will be entitled to receive not less than 3 kg of foodgrains per person per month at prices not exceeding 50% of Minimum Support Price (MSP) for wheat and coarsegrains and not exceeding 50% of derived MSP for rice. In order to enable Central and State Governments to perform the roles envisaged under the proposed legislation, provision for reforms in TPDS has also been made in the Bill.

Saturday, May 12, 2012

Rupay System

National Payment Corporation of India (NPCI) is an authorized entity under Payment and Settlement Systems Act, 2007. The Reserve Bank of India has granted approval of the NPCI for the following:

1) Public launch of RUPAY affiliated cards issued by banks (for use at ATMs and micro-ATMs).

2) Pilot launch of RUPAY affiliated Debit Card (issued by banks).

It is an approve card payment network like Mastercard and VISA.

As a further step towards Financial Inclusion, the Issue of RUPAY affiliated cards by banks will enable cashless transaction where such cards are used at Point of Sale (POS) and Micro ATMs.

Vidyanathan Committee

Based on the recommendations of the Vaidyanathan Task Force-II, the Government had approved the Revival Package for Long Term Cooperative Credit Structure (LTCCS) in February, 2009. A Task Force was constituted to examine the impact of the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), 2008 and the implementation of the revival package for the Short Term Cooperative Credit Structure (STCCS) in the 25 implementing States on the Revival Package for the LTCCS. The Task Force has submitted its report. The proposal is being finalized in consultation with concerned Ministries.

National Policy on Microfinance

Planning Commission had constituted a High Level Committee on financial sector reforms under the Chairmanship of Shri Raghuram G. Rajan, Professor, Graduate School of Business, University of Chicago in August, 2007. The Committee submitted the report in September, 2008.

The Committee observed that, “despite its success, the future growth of microfinance is constrained by a number of factors. An important issue is the ability of MFIs to raise financing. Given the large estimated demand for microcredit, MFIs need multiple sources of financing, apart from the traditional loan financing from banks. Other constraints include an unclear regulatory environment and the lack of well-developed management information systems and an adequate supply of trained management talent to facilitate sustainable scaling up.”

To provide a formal statutory framework for the promotion, development, regulation and orderly growth of the micro finance sector and thereby to facilitate universal access to integrated financial services for the unbanked population, the Department of Financial Services is formulating Micro Finance Institutions (Development and Regulation) Bill 2012.

Agriculture Development Bank


National Bank for Agriculture and Rural Development (NABARD) was established on 12 July 1982 by an Act of the Parliament for providing and regulating credit and other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting integrated rural development and securing prosperity of rural areas, and for matters connected therewith or incidental thereto.

NABARD provides refinance assistance under Sec.21 (i) of NABARD Act, 1981 for Short Term Seasonal Agricultural Operations (STSAO) purposes for a period not exceeding 8 months to Cooperatives, Regional Rural Banks (RRBs) and any other financial institutions approved by Reserve Bank of India. Further, in terms of Govt. of India’s instruction the Short Term refinance to Cooperative Banks, RRBs is being provided by NABARD at concessional rate of interest in order to enable them to provide crop loans upto Rs. 3 lakh for a period of one year to farmers at 7% p.a.

Khandelwal Committee Report

Government constituted a Committee on Human Resources issues of Public Sector Banks (PSBs) under the Chairmanship of Dr. A.K. Khandelwal, who has submitted its report. The Committee made 105 recommendations on matters related to Manpower and Recruitment Planning, Training, Career Planning, Performance Management, Reward Management, Succession Planning and Leadership Development, Motivation, Professionalisation of HR, Wages, Service Conditions and Welfare, etc. As 49 recommendations required further deliberations, the remaining 56 recommendations were forwarded to PSBs with the request that an HR Plan for each Bank be prepared and got approved by the respective Board of Directors. The representatives of Workmen Union/ Officer Association are on the Board of Directors of the Bank where a decision on various recommendations is taken.

Banks in Rural Areas

There are 93,659 branches of Scheduled Commercial Banks (SCBs) functioning in the country as on 31st March, 2012, out of which 34,671 branches are in rural areas and 24,133 are in semi-urban areas, which together constitute about 63% of the total bank branches.

During 2010-11, the SCBs opened 3,294 branches in rural/ semi-urban areas against 1,795 branches opened in urban/ Metropolitan areas of the country.

As per the extant Branch Authorization Policy of Reserve Bank of India (RBI), general permission has been granted to domestic SCBs (other than Regional Rural Banks) to open branches in centres with a population upto 99,999 and in all centres of the North-Eastern States and Sikkim, subject to reporting. In order to further expand the banking network, RBI has advised that while preparing their Annual Branch Expansion Plan, the Banks should allocate at least 25 percent of the branches proposed to be opened during a year in unbanked rural centres with population upto 9999.

Further, under the “Swabhimaan” financial inclusion campaign, banking facilities have been provided to over 74,000 villages having population over 2000.

Monday, May 7, 2012

Directorate General of Hydrocarbons (DGH) drafted Policy on Exploitation of Shale Gas

The Directorate General of Hydrocarbons (DGH) drafted a safe as well as encouraging policy on exploitation of shale gas that is seen as the new hope for fuelling India’s burgeoning appetite for hydrocarbons. DGF drafted the policy in the wake of the CAG’s strictures against the DGH and the Petroleum Ministry on violations in the KG-D6 contract.

The draft policy does not permit cost recovery and hence profit sharing — the two features that came under criticism by the CAG in its audit report. However it banks on production-linked payment (PLP) as the Centre’s share from the discovery.

The draft stated that the PLP would be a fixed percentage of revenue receipts from the shale gas or shale oil sold from the contract area, net of royalty on a monthly basis. Royalty would be in line with what is prescribed in the Oilfields (Regulation & Development) act. The PLP quoted at the time of the bidding for blocks assumes significance as it would carry the maximum 60 per cent weight for deciding the award of the block. The total investment quoted for completing the promised minimum work programme would get 40 per cent weightage. As a fiscal incentive, the contractor will be exempt from PLP payment for the first five years from the start of commercial production or from the date of entering the development and production phase, whichever is earlier.

The maximum period of PLP exemption would be 10 years from the date of signing of the contract and will not be extended under any circumstance since it is an incentive for faster development.

As per the policy, the explorer will be given the freedom to market shale gas within India on an arm’s length basis, with shale oil marketing following the prevailing norms of the New Exploration Licensing Policy. The other incentive proposed in the draft is customs duty exemption on the import of goods and materials for exploration and exploitation of shale gas or oil.

The blocks are to be awarded through open international competitive bidding with up to 100 per cent equity participation by foreign companies. The operating firm in a consortium would be the one which has minimum 25 per cent equity. The contract would be for 30 years with the first five years kept for exploration, appraisal and evaluation of the prospect and its feasibility.