India News Wrap: February 12

In this section, ASG covers a few relevant developments and announcements of the last two weeks, with insights on their implications for businesses. 

Economic Update

20 cities win the Smart City challenge, investments to flow in

The NDA government, in its pursuit of world-class infrastructure in India, announced the first 20 winners of the Smart City competition in the last week of January. The winners, led by Bhubaneswar with Pune and Jaipur in second and third places respectively, were chosen from a list of 97 cities that had submitted proposals and described plans for “smart” interventions to address infrastructure and service deficits. Together, they account for 35 million people. The selected cities will each receive Rs 200 crore ($30 million) in the first year and Rs 100 crore ($15 million) every subsequent year for four years from the central government. Special purpose vehicles are likely to be developed to deploy these funds. The projects proposed by the cities are meant to improve urban planning and address city-specific concerns of sewage, traffic, infrastructure and manpower that afflict most urban areas. While making the announcement, Union Urban Development Minister Venkaiah Naidu expressed hope that staggered investments in the first phase will help these cities and towns develop into major consumer hubs. Given India’s relatively low (but rising) urbanization rate – 31%, against China’s 54% and Brazil’s 90% –  and the state of urban decay in most cities and towns, the Smart City program offers a major opportunity to help metropolises buttress and upgrade basic infrastructure.

Political Update

Preparations underway for ‘Make in India’ week            

Preparations are in full swing for the “Make in India” week, the Indian government’s event aimed to showcasing manufacturing and industry.

The theme of the event, which is to be inaugurated on February 13 by Prime Minister Narendra Modi, is “innovation, design and sustainability”. The week will be dotted with several activities, including the Asia Business Forum, sectoral meetings, country sessions, as well as government and business meetings.

Opportunities in various sectors including automobiles, defense, aerospace, food processing, chemicals, electronics, information technology, pharmaceuticals, textiles, and infrastructure will be highlighted and discussed in seminars. The states of Maharashtra, Gujarat, Chhattisgarh, Andhra Pradesh, Tamil Nadu, Punjab, and Haryana will display their strengths as investment destinations. Heads of government from Europe and the Middle East, along with financial, trade and investment ministers from Southeast and East Asia are expected to attend.

This is yet another indication of the Modi government’s eagerness to attract investment, fuel manufacturing-led growth, and engage with the private sector.

India and France sign $15 billion worth of deals               

India and France deepened their strategic partnership during President Francois Hollande’s three-day visit to India in January. The two countries signed deals worth an estimated $15 billion, with French companies committing to investments of $10 billion over the next five years.

Highlights from the trip:

  • MoU on purchase of 36 Rafale aircraft (financial aspects of the deal remain to be worked out)
  • Agreement between Airbus and Mahindra to manufacture helicopters in India
  • Shareholding agreement on JV between Alstom and Indian Railways for production of 800 electric locomotives in Bihar
  • JVs and letters of intent between renewable energy companies
  • MoU between AFD (the French development bank) and the state governments of Chandigarh, Maharashtra and Puducherry for technical assistance on the “Smart Cities” program
  • Announcement of collaboration on construction of six nuclear power reactors
  • While it remains to be seen whether the MoUs will translate into actual investments, there is great enthusiasm from both sides about the steadily growing ties between the two countries.

Congress-BJP relations strained after crises in Arunachal Pradesh, Hyderabad

Two domestic events have escalated tensions between the ruling party, the BJP, and the Congress, the main opposition party, creating further ambivalence about the fate of the Goods and Services Tax (GST) bill. Arunachal Pradesh, a sensitive border state, has become the latest political battlefield, with the dispute now in the Supreme Court. The Supreme Court has put both the Centre and the state’s governor on notice, and has asked them to explain why President’s Rule, a constitutional provision that allows the state government to be suspended and the state to be placed under the direct rule of the Centre, was recommended. The Congress, which was in power in the state, has also accused the governor of partisanship and of acting on behalf of the BJP. This fracas has further poisoned already bitter relations between the government and the opposition, whose support the former needs to pass crucial legislation, such as the GST bill, in the Upper House of Parliament, where it is in a minority.

The suicide of a young Dalit (low caste) PhD scholar at Hyderabad Central University has not helped. The alleged involvement of both the Union Human Resource Development (HRD) minister and the Union Labour minister in the suicide – the labor minister wrote a letter urging his HRD counterpart to punish students from a Dalit association for an earlier incident – has encouraged the Congress-led opposition to demand the resignations of both ministers.

Just ahead of a crucial Budget session of Parliament, the vitiated atmosphere between the two parties may have a negative bearing on the possibilities of economic reform.

Policy updates

Bureaucratic reshuffle:

Some top ranking bureaucrats appointed by this government after it assumed power have been moved out from key positions as they were unable to match the government’s expectations. This reflects the administration’s commitment to closely watch the performance of civil servants and hold them accountable. Earlier last year, Shankar Agarwal, the urban development secretary handling the Modi government's ambitious program of developing 100 smart cities and several other key initiatives, was shunted out due to a number of delays in rolling out the smart cities initiative. Another big departure from the past is the government’s apparent intent to post the best person for the job in crucial sectors, even if he or she is not one of the most senior bureaucrats.

Power tariff

The cabinet approved a new power tariff policy to promote clean energy, regulate discoms better and roll out investments.