May 18, 2024 | CA B K Goyal & Co LLP

Mid-year Update Report on the Global Economic Situation and Prospects for 2024

Economy / CA Bhuvnesh Goyal / May 18, 2024

Aspect Description Global Economic Growth Projection Predicted at 2.7% for 2024, up from the previous 2.4% forecast. India’s Growth Outlook Expected growth rates of 6.9% in 2024 and 6.6% in 2025. Role of Technological Breakthroughs Advancements in critical mineral processing offer new economic growth opportunities. Critical Minerals Definition Essential metallic or non-metallic elements for economic or national security. India’s Critical Minerals List Includes 30 minerals such as Antimony, Beryllium, and Cobalt. Challenges in Critical Mineral Investment Geographical concentration, supply chain vulnerabilities, and sustainability concerns. India’s Initiatives KABIL for overseas mineral sourcing, membership in MSP, and regulatory amendments for mineral exploration and use. United Nations Department of Economic and Social Affairs Report Highlights Global Economic Growth Projection: The world economy is anticipated to grow by 2.7% in 2024, surpassing the earlier forecast of 2.4%. India’s Growth Outlook: India is expected to achieve a growth rate of 6.9% in 2024 and 6.6% in 2025. Role of Technological Breakthroughs: Advancements in processing and utilization of critical minerals present new avenues for enhancing economic growth. Indian startup ecosystem is playing a major role in overall global economic growth of the world. This can be witnessed by looking at the recent data of company registration in Jaipur which reflects the growing culture of startups in India including tier 2 cities. Critical Minerals Overview Definition: Critical minerals encompass metallic or non-metallic elements vital for a country’s economic or national security. Country-specific Lists: Nations devise lists of critical minerals based on industrial needs and strategic supply risk evaluations. India’s List: India identifies 30 critical minerals including Antimony, Beryllium, Bismuth, Cobalt, Copper, Gallium, and Germanium. Challenges in Critical Mineral Investment Geographical Concentration: Resource concentration in certain regions like the Lithium triangle (Argentina, Chile, Bolivia) may result in supply chain vulnerabilities. Supply Chain and Security Concerns: Increasingly, policies in the critical mineral sector are influenced by supply chain and national security considerations, exemplified by the European Union’s Critical Raw Materials Act (2024). Sustainability Issues: Unsustainable mining and processing practices pose significant challenges. India’s Initiatives for Critical Minerals Khanij Bidesh India Limited (KABIL): Established to identify, acquire, process, and commercially utilize strategic minerals from overseas sources to ensure a stable supply in India. Mineral Security Partnership (MSP): India has joined the MSP led by the US to expedite the development of diverse and sustainable critical energy mineral supply chains globally. Mines and Minerals (Development and Regulation) Amendment Act, 2023: The Central Government is empowered to auction areas for critical and strategic mineral exploration and extraction.

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Concerns over functioning of Asset Reconstruction Companies (ARCs)

Asset Reconstruction Companies (ARCs) are specialized financial entities established under Section 3 of the SARFAESI Act, 2002, with the primary objective of acquiring and managing distressed assets from banks and financial institutions. However, recent scrutiny by the Reserve Bank of India (RBI) has unearthed several supervisory concerns regarding the functioning of ARCs, discussed during a conference themed ‘Governance in ARCs – Towards Effective Resolutions.’ Issues Identified with ARCs: Concerns Description Back-door entry to defaulting promoters Some ARCs facilitate the re-entry of defaulting promoters of insolvent companies, potentially undermining resolution efforts. Asset sales to entities with vested interests Instances of selling distressed assets to entities with pre-existing arrangements with defaulting promoters have been observed. Lengthy settlement processes ARCs often encounter delays in settling disputes with borrowers, prolonging the resolution timeline and impeding effective recovery. Focus on debt recovery over business revitalization The primary emphasis of ARCs appears to be on recovering debts rather than fostering the revival and sustainable growth of businesses. Lack of transparency and fairness Instances of non-transparent and discriminatory practices have been reported, raising concerns about the integrity of resolution processes. These issues also affect new upcoming entrepreneurs of India, specially from tier 2 cities of India where young entrepreneurs are promoting more and more companies which can be seen and observed by analysing the increased company registrations in tier 1, and tier 2 cities such as company registration in Jaipur and private limited company registration in Delhi. Measures Proposed to Enhance Governance: Institutional Culture: Foster a robust institutional culture that prioritizes integrity and ethical conduct in all operations. Transparency and Fairness: Adhere strictly to transparent and non-discriminatory practices, aligning with the Fair Practice Code (FPC) mandated by the RBI. Assurance Functions: Place significant emphasis on assurance functions such as risk management, compliance, and internal audit to ensure effective oversight. Regulation-Compliance Approach: Adopt a proactive “regulation plus” approach, striving for compliance with both the letter and spirit of regulatory requirements. These measures aim to address the identified supervisory concerns and enhance the effectiveness and integrity of ARCs in managing distressed assets and facilitating resolution processes.