OROP, 7th pay factored in FY16 fisc deficit target: Jayant Sinha

One Rank One Pension (OROP) and 7th pay commission were fully factored into the government’s 3.9 percent fiscal deficit target for FY16, said Jayant Sinha, minister of state for finance, in an interview to CNBC-TV18, ahead of the India Investment Summit, set to kick off on Thursday. 

“OROP was a promise we had made and have fully delivered on. We have worked towards providing a fair and balanced package,” Sinha said. 

On what the government hopes to achieve through the investment summit and the National Investment & Infrastructure Fund (NIIF), Sinha said it aims to attract the biggest global pension and sovereign wealth funds and provides a platform for India to showcase the headway made with respect to infrastructure. 

“Through the summit we will look at partnerships between foreign companies and the Indian government, “he said, adding that the NIIF initiative has seen lot of interest and so far about 75 applications have been received for the post of CEO for NIIF. 

Sinha said the government is looking to create funds to kick-start the Make in India initiative in Hi-tech manufacturing and to boost India’s renewable energy programme. 

A memorandum of understanding (MoU) has been signed with Russia for Hi-tech manufacturing, he added. 

Referring to the mounting pain of stressed assets in the Indian banking system, Sinha highlighted that the government is working very closely with the Reserve Bank of India (RBI) to deal with the situation and will support banks with respect to capital to reduce their non-performing assets. 

He also stated that there are many sectors which require industry-wide measures and that the government has already undertaken measures in textiles, steel and sugar sectors. Below is the transcript of Jayant Sinha’s interview with Shereen Bhan on CNBC-TV18. 

Q: Before I talk to you about the India Investment Summit that kicks off tomorrow, a quick comment as far as the One Rank One Pension (OROP) payments are concerned, we understand now that the government has finally cleared the OROP payment. What is this going to mean as far as the fiscal deficit is concerned and the fiscal consolidation roadmap, because there are concerns of the implications of the Seventh Pay Commissions, the OROP on the fisc? 

A: The OROP was a promise that we had made and it is a promise that we have fully delivered on. Obviously there were a low of nuances and issues that we had to work through and we have gone through a series of consultations with our ex-servicemen, respecting of course, their great service to the nation and everything that we have done. So, we wanted to ensure that they got a fair and balanced package and that is the package that is being delivered right now. Now, with respect to the fiscal consolidation roadmap, we have said all along that the Honourable Finance Minister has said this, that both the Seventh Pay Commission as well as OROP was fully factored into our thinking when we laid out the roadmap of 3.9 percent, fiscal deficit this year and then 3.5 percent fiscal deficit thereafter and then 3 percent the following year. So, all of that was factored in. 

Q: So, no slippage expected, especially over next year? 

A: Now you are asking me about the Budget. 

Q: We are in the Budget quarantine, so I will stay away from that, but let me ask you about the India Investment Summit tomorrow. What do you really hope to achieve at the end of all of this and what does it mean now as far as operationalising the National Investment and Infrastructure Fund (NIIF) is concerned? We know that you have been talking or at least been speaking of interest from sovereign wealth funds, from pension funds, but what is it finally going to boil down to? How many memorandums of understanding (MoU) can we finally expect to be signed tomorrow? 

A: We will have to wait and see how many MoUs we ultimately sign. There is a great deal of interest and the idea for the India Investment Summit was three fold. First, we obviously wanted to put our top policy makers, our top decision makers in front of some of the largest and most active pension funds sovereign wealth funds, we will be doing that, we will be going through in a very open and frank way, discussing all of the different things that we have underway right now as far as infrastructure is concerned. So, that was one very important objective. 

The second very important objective, as you are pointing out, is to talk about NIIF, what we have accomplished so far, the kinds of funds that we will have under that fund of funds, and how it will operate and the fact that it will at arm’s length from government, operated commercially, established in Mumbai. So, we really want to be able to share all of that with our colleagues that are coming from overseas. So, that was the second objective. The third objective of course, is to see what might be possible, because of a number of players being there in terms of either partnerships among the players or with the government, other things that we can do on a co-investment basis, viability gap funding that potentially can be established, whether we can do things as far as our debt is concerned. All of those other issues, we would like to explore and see whether there are any innovative out of the box partnerships that might be possible. 

Q: Speaking of partnerships, one MoU has already been signed ahead of the Summit kicking off tomorrow and that is with Rusnano of Russia. But, in terms of priorities, because you are looking at step down funds we had spoken about the steel sector and perhaps, how the NIIF may in fact play a role in trying to alleviate the pain as far as the steel sector is concerned and there is a bunch of other infrastructure sectors that are in severe pain at this point in time. So, if we talk about step down funds, what could be the priorities there that you would like to tackle first up? 

A: There are three that are already in the pipeline and are moving along quite well. One of course is the MoU we signed yesterday with our friends in Russia and that is looking at high tech manufacturing and what we can do to further support Make in India. So, that is clearly one fund that we will be creating to be able to really get Make in India going and high tech manufacturing going. The second fund that we have spent quite a bit of time thinking about already is the stressed assets fund, and there has been a lot of discussion about non-performing assets (NPA) and what we are doing about it. But one of the very important elements of dealing with the NPA situation is to have a source of long-term stable equity risk capital that can get into some of these stalled projects and be able to provide the equity support that they need. So, that is a second fund that we are looking at. A third fund that we are looking at is in the renewable area. Obviously, there are very ambitious targets that we have established for renewable, for India’s energy needs and so that is a third area that we are looking to see whether we can get a fund started, an AIF started operating within the NIF fund of funds to really take forward investments in the renewable area. 

Q: You talked about NPAs and stressed assets, and at this point in time, that continues to be the number one concern, not just for the banking sector, but for the economy as a whole. The RBI governor has said that perhaps, it would create or ring alarm bells if we were to put up that data publicly and perhaps, the situation is worse than what we think it is, but it can be dealt with. In your assessment today, is the picture looking far worse on the NPA front? 

A: The picture is very well in hand. 

Q: It may be very well in hand. You may have the ability to be able to deal with it. But, is it far worse than what you were expecting. 

A: No, you have obviously seen the reports as have I on various numbers about the NPAs. The very important take away on this, and this is what I have been emphasising on this, the governor has been emphasising this as well, that as of now, there is about Rs eight lakh crore of stressed assets in the system. And the very important take away in this is that that number has stabilised, so we know roughly... (Interrupted) 

Q: But there has actually been a reversal if you go by the RBI’s commentary yesterday. 

A: No, I think we are very much on the same page with the RBI since in Indradhanush which was 7-8 months ago, we have been working very closely with RBI and the banks through their asset quality review, through the stressed asset they have done, we know what the stock of stressed assets is. As I said, it is about Rs eight lakh crore and obviously we now have to put in place two parallel processes. One process which is already underway and governor has discussed that is the provisioning that needs to happen as far as the banks are concerned, so that they strengthen their balance sheets. In parallel, the other process that is underway is the workout process and in the workout process we look at the stock of stressed assets and we see what are the best recovery measures, the best workout measures to ensure that these projects are viable, that these projects are in strong hands, that they have ample both equity and debt support and that we can take them forward. So, it is parallel process that is underway right now. Through all of this, as far as the banks are concerned, we are providing the support to the banks, as far as capital is concerned and as well as mechanisms are concerned. We have been working with RBI to strengthen the Joint Lenders’ Forum (JLF) process, the corporate debt restructuring (CDR) process, the special drawing rights (SDR) process, obviously longer term, there is the bankruptcy code that is coming in. But as far as the workout process is concerned, we have equipped the banks with the tools to be able to go through the workouts, the results are in front of you, we know that the stock of stressed assets is Rs eight lakh crore, we have an understanding of how much capital is required to be able to do sufficient provision and stay within the Basel III requirements. That is well within the Indradhanush requirements that we had laid out of Rs 70,000 crore support from the government – Rs 1.8 lakh crore in total – and with that capital at hand, the banks’ provisioning, the workout process underway, as I said, we have a very clear picture on how to handle this.

Read more at: http://www.moneycontrol.com