The Reserve Bank of India recently liberalised the end-use provisions of external commercial borrowing (ECB) to permit it for general corporate use subject to approval.
Under approval, eligible Indian borrowers can, for general corporate use, now opt for ECBs from a foreign equity holder company with a minimum average maturity of seven years, subject to these conditions: Minimum paid-up equity of 25 per cent held directly by the overseas lender and repayment of the principal shall commence only after completion of the minimum average maturity of seven years; no prepayment would be allowed before maturity; the requirement of seven years’ maturity period should be viewed in the context of the RBI’s desire to encourage only serious players for this facility.
This is a major step in facilitating cost-efficient funding for Indian corporates to meet the cost of salary, establishment and so on. The measure is also expected to increase foreign currency inflow.
The Ministry of Corporate Affairs has notified September 12, 2013 as the effective date for 98 sections of the Companies Act, 2013. It means that the corresponding sections of the previous Company law shall cease to operate. The underlying assumption is that these 98 sections are perfect substitutes.
So, essentially, law practitioners, accountants and auditors are bound to look at both laws until the entire new law comes into force. The Ministry has issued draft rules for nine chapters of the new Companies Act, inviting public comments until October 19, 2013.
This would prove challenging for companies that close their books by December 31, 2013, as well as their auditors, in the absence of a clarification.
CFO: Tough at the top
The past few years have seen business models in India undergo a dynamic shift and, concurrently,the role of the chief financial officer, or CFO, has expanded beyond financial and accounting functions. Now, the new Companies Act defines the CFO as one of the Key Managerial Personnel, empowering as well as making him/her accountable.
The CFO is seen as a catalyst in the strategic risk management process and expected to keep the board up-to-date on this. A survey of 136 CFOs by Deloitte India found that while the steward and operator roles (combined) take up nearly 49 per cent of their time, the strategist role averages only 27 per cent.
CEOs now expect the CFO to focus on the strategist and catalyst role, beyond traditional duties, in the capacity of steward and operator. Given the new definition of ‘internal financial controls’ and the new responsibilities of directors, the CFO should prepare for the new world of class action suits, restatements, and so on.
Telecom needs a more positive signal
The Telecom Regulatory Authority of India has recommended lowering the reserve price of mobile phone spectrum by more than a third for the upcoming auction after the two previous auctions witnessed uninterested participation from the industry.
Spectrum cost being a future investment, and with the stretched balance sheets of telcos, fresh capital is increasingly becoming scarce. Operators are shying away from buying new spectrum unless they are in dire need of it. Not to forget the saturated voice market and the ferocious competition.
Given the depreciating rupee and the high equipment cost for nationwide rollout of 2G/ 3G/ 4G services, TRAI’s recommendation is definitely being welcomed by operators and other associations, and ultimately the end-consumer.
The Government should learn from the past experience of 2G spectrum auctions. As telecom is a catalyst for the growth of other sectors and GDP, the Government should judiciously set fair and realistic pricing for future auctions to ensure the government and operators benefit mutually. The need for spectrum is high due to the ever-increasing subscriber base and the services required. The ultimate beneficiaries are the users and the economy at large, as mobile proliferation directly boosts GDP growth.
The Government should simultaneously attempt bold measures such as “zero” bid price, revenue share and so on.