India: HSA | Corporate & Commercial Monthly Newsletter | February 2024

Union Budget 2024 | Key highlights of the interim budget

Union Finance Minister Nirmala Sitharaman (FM) tabled the interim Union Budget for Financial Year 2024-25 before the Parliament on February 01, 2024. The full budget will be presented in July this year after the new government is formed post the Lok Sabha elections. The FM began the speech by summarizing the achievements and steps taken by the current government in the past 5 years, and stressed on inclusive growth & development, social justice, 'garib kalyan, desh ka kalyan', welfare of 'Annadata', empowering Amrit Peedhi – the Yuva, momentum for nari shakti, economic management, vision for 'Viksit Bharat', etc. The FM also stated that 3.4% of the GDP i.e. INR 11,11,111 crore would be utilized towards infrastructure development. Along with expansion of rail/metro and aviation sector, an ecosystem for electric vehicles and green energy would also be built.

Key estimates for FY 2024-25:

• Total receipts other than borrowings: INR 30.80 lakh crore
• Total expenditure: INR 47.66 lakh crore
• Tax receipts are estimated at INR 26.02 lakh crore
• Gross market borrowings through dated securities during 2024-25: INR 14.13 lakh crore
• Net market borrowings through dated securities during 2024-25: INR 11.75 lakh crore

Direct tax:

• No changes have been proposed to the current taxation structure
• Certain tax benefits given to start-ups and investments made by sovereign wealth or pension funds as also tax exemption on certain income of some IFSC units are expiring on March 31 2024. To provide continuity in taxation, the FM has proposed to extend the date to March 31, 2025
• FM has proposed to withdraw direct tax demand up to INR 25,000 pertaining to the period up to FY 2009-10 and up to INR 10,000 for FY 2010-11 to 2014-15. This is expected to benefit about a crore taxpayers

Indirect tax:

• No changes have been proposed to the current taxation structure, and the FM has proposed to retain the same tax rates for indirect taxes.
• The FM stated that the tax base of GST more than doubled and the average monthly gross GST collection has almost doubled to INR 1.66 lakh crore, this year.
• Additionally, it was also highlighted that the States' SGST revenue, including compensation released to states, in the post-GST period of 2017-18 to 2022-23, has achieved a buoyancy of 1.22.
• The FM stated that the Government has taken a number of steps to facilitate international trade. As a result, the import release time declined by 47% to 71 hours at Inland Container Depots, by 28 % to 44 hours at air cargo complexes and by 27% to 85 hours at seaports, over the last four years since 2019.

Other initiatives:

• 3 major economic railway corridor programs will be implemented: (1) energy, mineral and cement corridors, (2) port connectivity corridors, and (3) high traffic density corridors.
• To achieve 'net-zero' by 2070, the following measures will be taken: (1) viability gap funding will be provided for harnessing offshore wind energy potential for initial capacity of one giga-watt, (2) coal gasification and liquefaction capacity of 100 MT will be set up by 2030 (3) phased mandatory blending of compressed biogas in compressed natural gas for transport and piped natural gas for domestic purposes will be mandated and (4) financial assistance will be provided for procurement of biomass aggregation machinery to support collection.
• A provision of INR 75 crore as 50-year interest free loan is proposed this year to support milestone-linked reforms by the State Governments.
• Under the PM Awas Yojana, 2 crore more houses will be taken up in the next 5 years to meet the requirement arising from increase in the number of families.
• Through rooftop solarization, 1 crore households will be enabled to obtain up to 300 units free electricity per month.
• The Government plans to set up more medical colleges by utilizing the existing hospital infrastructure under various departments.
• Healthcare cover under Ayushman Bharat scheme will be extended to all ASHA workers, Anganwadi Workers and Helpers.
• The Government will further promote private and public investment in post-harvest activities including aggregation, modern storage, efficient supply chains, primary and secondary processing and marketing and branding.
• Implementation of Pradhan Mantri Matsya Sampada Yojana (PMMSY) will be stepped up to (1) enhance aquaculture productivity from existing 3 to 5 tons per hectare, (2) double exports to INR 1 lakh crore and (3) generate 55 lakh employment opportunities in the future.

SEBI | Fast-tracking public issuance and listing of debt securities and boosting investment by noninstitutional investors

In order to promote ease of doing business, the Securities and Exchange Board of India (SEBI) recently published a consultation paper containing proposed changes to Listing Obligations and Disclosure Requirements Regulations (LODR) and NCS Regulations as well as introduction of fast-track public issuance and listing of debt securities.

Key aspects:

• SEBI is considering reduction of the face value of debt securities, including Non-Convertible Debentures (NCDs) and Non-Convertible Redeemable Preference Shares (NCRPS) issued on a private placement basis to INR 10,000 from present INR 1 lakh, with a view to lowering the entry barrier for non-institutional investors (which constitute a large part of the investor base comprises of online bond platforms) for participating in the corporate bonds market. SEBI also pointed out that such NCDs and NCRPS shall be plain interest/dividend bearing instruments, having a simple structure (i.e. without any credit enhancements or structured obligations).
• Securitized Debt Instruments (SDIs) that are issued vide private placement and listed, can either have a face value INR 1 lakh or INR 10,000. It also proposed that for all issuances of SDI, such issuer shall appoint a merchant banker who will be responsible for carrying out due diligence for issuance of such privately placed SDIs and disclosures in the private placement memorandum.
• Instead of inserting the audited financials for last 3 FYs and stub period financials in the offer document, the same may be allowed to be provided as a QR code scanning of which opens the web-link to the financials on issuer's website.
• Given that the LODR already require financial results to be sent to the stock exchanges immediately and are published on entity's website in addition to the website of stock exchange, it was proposed that the requirement of publishing the financial results in the newspaper may be made optional.
• Another important proposition in the consultation paper is that of introduction of concept of fast-track public issuance and listing of debt securities, with the following features:
  • Extension of applicability of the General Information Document (GID) and Key Information Document (KID) concepts for introduction of a common document for both fast track public issues and private placements.
  • The need to seek comments from the public on a draft offer document for a fast-track public issue may be reduced to 2 working days.
  • The GID filed shall consist of all the disclosures as specified under Schedule I of NCS Regulations and the KID shall contain Part A – all disclosures that are relevant for a public issue but not in the GID and Part B – details of the offer of debt securities in respect of which the KID is being issued.
  • The issuers may be allowed to utilize the electronic modes including advertisement on issuer's website, stock exchange's website, and debenture trustee's website etc. to advertise the public issue.
  • The issue may be kept open for a minimum of 1 working day and a maximum of 10 working days. Further, in case of revision in the price band or yield, the extant bidding period may be extended by 1 more working day instead of 3 working days for a normal public issue.
  • The requirement of minimum subscription in the case of banks and entities in the financial sector may be removed. - The retention limit may be fixed at a maximum of 5 times of base issue size.
  • The timeline for listing may be specified at 'T+3', as opposed to 'T+6' for a regular public issue.

SEBI | Revision of the previous Circulars on upstreaming of clients' funds by stockbrokers or clearing members to clearing corporations

• The Securities and Exchange Board of India (SEBI) vide its Circular dated December 12, 2023, (December Circular) tweaked the framework requiring Stockbrokers (SBs) or Clearing Members (CMs) (hereinafter collectively referred to as Stakeholders) to upstream clients' funds to Clearing Corporations (CCs). The December Circular came after SEBI received representations from various Stakeholders i.e., SBs and Brokers' Associations citing certain operational difficulties in implementation of the framework stated in Circular released on June 08, 2023 and June 30, 2023 (June Circulars).
• The December Circular has been notified in supersession of the June Circulars and aims to balance the necessity of upstreaming clients' funds with operational efficiency. The revised framework (under the December Circular) introduces several key principles for upstreaming clients' funds and puts a clear emphasis on specific forms of upstreaming and eligibility criteria for collateral, which aligns with the goal of protecting investors' interests and to ease the compliance for the Stakeholders.

Background of June Circulars:

• SEBI had, vide its Circular dated June 08, 2023, mandated that no clients' funds shall be retained by the Stakeholders on the End of Day (EOD) basis and also mandated upstreaming of all client funds received by Stakeholders to CCs with a view to safeguard clients' funds placed with the Stakeholders.
• The June 08, 2023 Circular also mandated that clients' funds shall all be upstreamed by the Stakeholders to CCs only in the form of either cash, lien on Fixed Deposit Receipts (FDRs) or pledge of units of Mutual Fund Overnight Schemes (MFOS).
• The June Circulars, inter alia, prescribed for cut-off period for upstreaming of the clients' funds to CCs and the Stakeholders were directed to receive funds from clients beyond the prescribed cut-off time for upstreaming subject to the condition that there shall not be any further movement of funds from that account till the opening of upstreaming window on the next day.

To view the full article, click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.