Long-awaited Reform: Execs
Modi felt that since the price of refined products had been deregulated, state firms should have more freedom in purchasing crude oil. Oil industry executives said this was a long-awaited reform. They said state firms such as Indian Oil, Hindustan Petroleum and Bharat Petroleum have been stifled by the antiquated norms and tendering system for spot purchases. This puts them at a disadvantage compared to private refiners such as Reliance and Essar as well as international companies. Companies are now empowered to evolve their own policies for buying crude oil. “We now have the much-needed flexibility to negotiate. In the oil market, you need the freedom to take quick decisions to capture good opportunities,” a director at a state-run company said. The Union cabinet approved a recommendation of the Fourteenth Finance Commission (FFC) to give more fiscal room to states subject to them meeting some conditions. The commission had suggested additional headroom to a maximum of 0.5% over and above the normal limit of 3% in any given year to the states that have a favourable debt-GSDP and interest payments-revenue receipts ratios in the previous two years to meet specific development needs. This window is available over the five-year award period of the commission ending 2020. It will give states room to raise additional funds for their development needs.
The states will also need to have zero revenue deficit in the year they want this additional room and the preceding years, which will ensure funds are used for development needs.
There will not be any fiscal implication for the Centre but “the state will get additional space to raise borrowings, which may result in much-needed government expenditure for capital projects/infrastructure,” the government said in a statement. The Cabinet Committee on Economic Affairs (CCEA) also cleared conversion of Bank of Baroda’s .₹ 29.91 crore working capital loan to Andrew Yule into equity, which clears the way for disinvestment of the Kolkata-based company.
Shares of the company closed at .₹ 24.50, up 12.90% on the BSE.
The conversion of loan to equity would help lower debt- servicing costs, resulting in improved profitability and liquidity of Andrew Yule in the coming years, a government statement said. The CCEA also approved a .₹ 1,622-crore highway in Karnataka under the flagship National Highways Development Project (NHDP).
The cabinet approved an increase in funding support for exports to Iran to .₹ 3,000 crore through the Export Development Fund ( EDF) of the Exim Bank from .₹ 900 crore earlier.