July 2019


Media coverage in India this month focused on the first budget presented by the new government, the successful launch of India’s second lunar mission, Chandrayaan-2 and the amendments to the Insolvency and Bankruptcy Code approved by the Union Cabinet.


Government Presents the Union Budget for 2019-2020

Earlier this month, Finance Minister Nirmala Sitharaman presented the first budget of the new Modi government.  The state focus of the budget was to balance the short- to medium-term objectives of the economy while establishing a blueprint for long-term growth. Various media publications weighed in on the implications of the budget for the Indian economy.

A column in The Hindu commended Mrs. Sitharaman on her maiden budget stating that she sought to tackle several pain points in the economy through incremental steps rather than opting for one or more spectacular announcements.  “One of the biggest announcements she made was of a ₹70,000 crore capital infusion in public sector banks to be used as growth capital, now that the legacy issues plaguing the sector have been addressed. She also announced a slew of measures to ease the liquidity and regulatory problems affecting the Non-Banking Financial Company (NBFC) sector, a key pain point in India’s economy at the moment. The budget incorporated a number of positive tax reforms such as lowering the corporate tax rate for companies with an annual turnover of less than ₹400 crore and increasing the surcharge to be paid by high net-worth individuals earning more than ₹2 crore a year. It also finally provided relief for start-ups from the undue pain of the ‘angel tax’. In a move that spooked bond markets, Ms. Sitharaman announced that the government would be increasing its external borrowing program since India’s external debt to the GDP was below 5% and among the lowest globally.”

The Hindustan Times was also complimentary of the budget, and in particular its focus on boosting investment to create a virtuous cycle to power growth. “The Union Budget for 2019-2020 followed the prescription detailed in the Economic Survey presented on Thursday… It did this by announcing several measures to boost private investment even as it prioritised its own spending in the creation of rural and urban infrastructure that could drive growth, and without rolling back any of the farm and middle-class friendly measures announced in the interim budget in February… India’s investment challenge needs to be seen across two dimensions: the source of funds; and the ability to attract them, which is a function of rules and regulations and the ease of doing business. On the sourcing front, the government, by announcing the radical move of seeking external sovereign debt – has lowered the threat of its own borrowing program crowding others out of the market, effectively freeing up domestic savings for investment… The government has also made efforts to attract more investment – by tweaking foreign direct investment (FDI) rules in sectors such as aviation, insurance, media segments, and single-brand retail; liberalizing some norms for Foreign Portfolio Investors; announcing efforts to deepen the bond market and broaden the equity market.”

In contrast, an op-ed in Livemint was critical of budget proposals to raise the public float of listed companies, tax on stock buybacks and increase in surcharge on high-income earner, arguing that these measures could result in multinational companies delisting their companies from Indian stock exchanges besides weighing down the Indian stock market and negatively impacting returns of overseas funds investing in India. “While increasing public float in listed companies to 35% from 25% may prompt many multinational companies to delist their companies from Indian stock exchanges, stock buybacks may fall out of favour because of the 20% tax. The increase in surcharge on income tax for the ultra-rich will lead to a steep rise in the tax incidence for investors, as the effective long-term capital gains (LTCG) tax rate would rise to as high as 14.25%… The pressure on Indian promoters would also continue as the top BSE 500 companies alone would need to sell shares worth ₹3.17 trillion to meet the proposed public float norm. Many of the companies that would need to increase their public float are large information technology firm.”


India Successfully Launches the Country’s Second Lunar Mission, Chandrayaan-2

The Indian Space Research Organisation (ISRO) launched its second lunar mission, which is expected to touch down on the Moon’s south polar region on September 7th.  If successful, India will join the US, Russia and China as only the fourth country in the world to land a spacecraft on the moon.  Media houses unanimously applauded the successful launch of Chandrayaan-2, with several publications describing the launch as another milestone in the country’s space exploration programme.

The Hindustan Times stated that the successful launch of Chandrayaan-2 boosts India’s aim of becoming a major space powerhouse, particularly in light of the fact that its mission is considered highly complex. “India’s aim of becoming a major space powerhouse got a lift-off on Monday as it launched its second lunar mission that, if successful, will make it only the fourth country to land a spacecraft on the moon, and the first to explore its south pole… The indigenously designed spacecraft — comprising an orbiter, a lander and a rover — is expected to touch down on the moon’s surface in the early hours of the morning of September 7. The rover, called Pragyan, will examine the lunar surface, search for water, and probe craters and traps that could untangle key questions about the history of the solar system…  Isro chairperson K Sivan said the GSLV Mark III “over-performed”, injecting the spacecraft into an orbit 6,000km higher than the intended original, giving the satellite team time and fuel for necessary manoeuvres… Isro is already working towards its next milestone in the first half of 2020: a solar mission called Aditya L1 to study the external layers of the sun. The Prime Minister has announced a manned space mission by 2022.”

The Economic Times provided an in-depth analysis on the advanced engineering that is expected to power the Chandrayaan-2 as it attempts to successfully land on the Moon. “Its integrated module, which comprises technology and software developed across the country, includes ISRO’s most powerful launch vehicle to date and a wholly-indigenous rover. Some of the advancements on the spacecraft include a lander capable of ‘soft landing’ on the lunar surface, an algorithm wholly developed by India’s scientific community and a rover capable of conducting in-situ payload experiments…  Chandrayaan-2’s rover is a six-wheeled robotic vehicle named ‘Pragyan’, which translates to ‘wisdom’. It can travel up to 500 metre and leverages solar energy for its functioning. It can only communicate with the lander. The Chandrayaan-2 orbiter will be capable of communicating with Indian Deep Space Network (IDSN) at Byalalu as well as the Vikram lander. The mission life of the orbiter is one year, and it will be placed in a 100×100 km lunar polar orbit…  The rocket Geosynchronous Satellite Launch Vehicle-Mark III (GSLV Mk-III), carrying Chandrayaan-2, is India’s most powerful launcher to date. It is capable of launching four-tonne class of satellites to the Geosynchronous Transfer Orbit (GTO), according to the Indian Space Research Organisation (ISRO). On entering the Moon’s sphere of influence, on-board thrusters will slow down the spacecraft for lunar capture.”

Finally, a column in Livemint highlighted how unlike other moon missions, the Chandrayaan-2 is extremely cost-effective, with a total estimated cost of US$140m.  “If all goes as planned, India will become only the fourth country after the US, Russia and China to make a soft landing on the Moon. The lander, Vikram, will separate from the obiter on 7 September and make a touchdown on the lunar surface…  Unlike other moon missions, the Chandrayaan-2 weighing 3.8 tonnes is extremely cost-effective, with a total estimated cost of ₹978 crore— ₹603 crore for the space segment and ₹375 crore for the launch. The space segment includes an orbiter, a lander and a rover (Pragyan). Chandrayaan-1, with an orbiter and an impactor, cost only ₹386 crore. By comparison, Chandrayaan-2 is cheaper than the $165 million (₹1,105 crore) it cost to make the 2014 Hollywood sci-fi film Interstellar… This is the first time that a spacecraft that has been indigenously developed by Isro would set foot on lunar soil. Both the lander and the rover have been designed and fabricated by Indian scientists with contribution by various research institutes.”


Government Approves Amendments to the Insolvency and Bankruptcy Code (IBC)

The Union Cabinet approved amendments to the Insolvency and Bankruptcy Code (IBC), placing a greater emphasis on more time-bound resolutions and laying down voting rules of the financial creditors.  The Indian media reacted positively to the announcement stating that amendments would improve the debt resolution process besides aiding the decision-making in the case of bankrupt entities.

An article in The Hindustan Times explained that the proposed amendments are aimed at speeding up the bankruptcy resolution process in the country.  “The eight amendments to the Insolvency and Bankruptcy Code (IBC) will also aid decision-making in the case of bankrupt entities such as property developers, which have a large number of creditors, including homebuyers…  One of the key amendments proposed is to make explicit the rights of financial creditors, who have not voted in favour of a rescue plan, as well as that of operational creditors. The amendments specify that they will get a share of proceeds from the sale of the debtor company or its liquidation as per the hierarchy specified in IBC… Another key amendment is to specify that the bankruptcy resolution or liquidation arrived at under IBC is binding on central, state and local governments, to whom the bankrupt firm may owe dues. This will prevent state authorities including income tax officials from questioning a rescue plan adopted in a court-monitored process.”

Business Today also focused on the expected impact of these amendments on the timeliness of bankruptcy proceedings. “The Union Cabinet cleared seven amendments to the Insolvency and Bankruptcy Code (IBC) during its meeting on Wednesday which will allow the government to stick to strict timelines, and simultaneously, maximise the value of an insolvent entity from the resolution plan as a going concern. Most important among these amendments, Cabinet cleared that the resolution process has to be completed within 330 days, including litigations and other judicial process. Presently, the resolution plan for an insolvent company has to be cleared within 270 days. The courts, however, did not account for the time spent on legal proceedings by various parties in this time frame. Thus, promoters contesting for control of their insolvent companies and defending their case aggressively lead to delay in the resolution process… Another crucial amendment to the IBC approved by the Cabinet mandates that the bankruptcy resolution or liquidation decided under the bankruptcy framework is binding on central, state and local governments, to whom the insolvent company owes dues.”

Finally, an op-ed in  Livemint praised the proposed amendments, stating it should help protect the rights of secured creditors. “The legislation was getting mired in frustrating legal delays and bizarre judgments, threatening to scare off global investors from a $200-billion-plus bad-debt clean-up. The last straw was the recent order by the insolvency tribunal judges in the $6 billion sale of Essar Steel India Ltd. to ArcelorMittal. The judges ruled that secured creditors would have no seniority over unsecured creditors and suppliers. The tweak it proposes “to fill critical gaps in the corporate insolvency resolution process” will explicitly hand power over distribution of proceeds to creditors’ committees… As for urgency, delay tactics by large business families loath to lose their prized assets have pushed bad-debt resolutions such as Essar to more than 600 days; the intent was to wrap up cases in 270 days… The government is now proposing to streamline the decision-making: If half of the creditors present and voting say yes, plans will move forward. Those not in favour will receive what they would’ve gotten – according to seniority – in liquidation.”