Articles

HALF-MEASURES WILL NOT YIELD RESULTS

The Government must end the piecemeal approach on attracting FDI in the country’s various growth sectors. It must allow 100 per cent FDI in multi-brand retail In the Union Budget of 2016-17, Union Minister for Finance Arun Jaitley announced that “100 per cent foreign direct investment would be allowed through FIPB (Foreign Investment Promotion Board) route in marketing of food products produced and manufactured in India”. This paved the way for FDI in multi-brand retail in food, which accounts for a major slice of MBR business in India. This is a U-turn in the Bharatiya Janata Party’s stance of 2012, when on the floor of Parliament, it had opposed the proposal of the then UPA dispensation to allow 51 per...
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Grant full autonomy

REJUVENATING PSU banks Last year, a Reserve Bank of India (RBI) committee headed by P Nayak made sweeping recommendations aimed at bringing about structural reforms of public sector banks (PSBs) to enable them meet expanding requirements of an economy on accelerated growth trajectory and improve its competitiveness among the comity of world nations. The committee recommended (i) setting up of an autonomous Bank Boards Bureau (BBB) with a mandate to select the top management; (ii) setting up of a bank investment company (BIC) where all government shares in PSBs will be vested and (iii) divestment of its shareholding in all PSBs to below 50%. BBB was contemplated as an interim arrangement precursor to the BIC. The most crucial of these...
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It’s all just power play

Electricity boards and consumers are being systematically short-circuited by the robbing-Peter-to-pay-Paul policy Tata Power Ltd bagged a 4000 MW ultra mega power project based on imported coal in Mundra, Gujarat, under tariff-based competitive bidding to supply power at fixed tariff of Rs. 2.26 per unit all through the project’s operational life. Likewise, Adani Power (APL) bagged a UMPP to supply to Gujarat and Haryana at Rs. 2.35/Rs. 2.94 a unit. In April 2013, the Central Electricity Regulatory Commission (CERC) allowed compensatory tariff(CT) of Rs. 0.524 per unit to TPL for all its buyers. APL was allowed CT at Rs. 0.851 per unit and Rs. 0.364 per unit for supplies to Gujarat and Haryana, respectively. The CT was meant to neutralise...
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Burden on shareholders

In the Union Budget for 2016-17, Finance Minister Arun Jaitely proposed that if the dividend income earned by a resident individual, HUF (Hindu Undivided Family) or firm exceeds Rs 10 lakh, it will be taxed at the rate of 10% in the hands of the recipient. This is over and above the dividend distribution tax (DDT) currently paid by firms at 16.99% (inclusive of surcharge and education cess] of the dividend amount so declared, distributed or paid. With the grossing up [as per Finance Bill, 2014, dividend paid is grossed up with income distributed for computing DDT), the effective tax rate is even higher at 20.47%. The policy in regard to tax on dividend income had a chequered history with...
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LOOKING AFRESH AT FARM SECTOR

The Modi Government has taken a slew of measures to double farmers’ income by 2022. However, for these efforts to succeed, State Governments must cooperate, as the real action can only take place at the ground level Prime Minister Narendra Modi’s objective to double farmers’ income by 2022 is being looked upon with scepticism. Critics argue that this will require an agricultural growth of more than 10 per cent per annum, at a time when growth in agriculture has collapsed to less than half a per cent per annum. Critics also argue that the minimum support price has risen only marginally (around four per cent) under the Modi dispensation. Both arguments are flawed. First, a number of States such as...
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FDI policy for e-commerce, just a cosmetic change

The problem lies in the government de facto shutting the door for FDI in multibrand offline retail. The department of industrial policy and promotion (DIPP)—the nodal authority for issues relating to foreign direct investment (FDI)—has notified guidelines for FDI in e-commerce. Under these, 100% FDI through the automatic route will be allowed in the ‘marketplace’ format of e-commerce retailing, but not in the ‘inventory-based’ model. Under a marketplace model, an e-commerce entity provides an IT platform on a digital and electronic network to act as a facilitator between buyer and seller. The company may provide support services to sellers in terms of warehousing, logistics, order fulfillment, call centre, payment collection and other services. Post-sales, delivery of goods to the customers...
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Good move, hasty retreat

TAX ON EPF WITHDRAWAL The 2016-17 budget proposal to tax 60% of withdrawal from EPF (employees provident fund) and other superannuation funds faced flak from all quarters forcing Finance Minister Arun Jaitley to withdraw it lock stock and barrel. How could the Narendra Modi government, which is committed to the welfare of every section of the society, contemplate such a move in the very first place? Was it really targeted against the salaried class? Was it a right step but not properly piloted? Jaitley had proposed tax on 60% of withdrawal from accumulations in EPF account (contributions plus interest accrued) from April 1, 2016. However, the money would be exempt from tax if re-invested in purchase of annuity plan. He...
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WHY THIS PRICE RISE IN NATURAL GAS?

A return to global market-based pricing of gas will hurt fertilisers and power. The Government must, therefore, reconsider its decision to raise the price of natural gas In October 2014, the Modi Government had issued guidelines to fix the price of all domestic gas based on weighted average of gas prices prevailing in four international locations. This led to consternation among producers who say that, at existing administered price ($3.82 per million British thermal unit from October 1, 2015, which will fall to $3.15 in April), production from difficult fields won’t be viable. The Government then promised to consider a ‘premium’ price for deep water blocs, ultra-deep water blocs, which present challenging geological environment. In May 2015, the Union Ministry...
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DBT for fertilisers is a hoax

Prime Minister Narendra Modi is perceived to be a crusader when it comes to plugging leakages from the subsidy distribution pipeline. Prime Minister Narendra Modi is perceived to be a crusader when it comes to plugging leakages from the subsidy distribution pipeline. He has amply demonstrated this in the case of LPG (liquefied petroleum gas), wherein the government implemented direct benefit transfer (DBT) and saved about R15,000 crore annually. However, when it comes to fertilisers, similar initiatives are conspicuous by their absence. During 2015-16, out of an allocation of R73,000 crore on fertiliser subsidy, as much as R50,300 crore was on urea. The subsidy is administered through manufacturers who are directed to sell urea at a fixed uniform maximum retail...
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Why a price stimulus for gas?

A return to global markets-based pricing will hurt the fertiliser and power sectors In his Budget speech, finance minister Arun Jaitley lamented the situation of “rising demand, near-stagnation in production and consequent rapid increase in import” in the case of gas. He argued that there was need to incentivise gas production from deep water, ultra-deep water and high-pressure-high-temperature areas. “A proposal is under consideration for new discoveries and areas which are yet to commence production, first to provide calibrated marketing freedom; and second, to do so at a pre-determined ceiling price to be discovered on the principle of landed price of alternative fuels”. Finance ministry U-turn The concern expressed in the speech is not new. The government was mindful of...
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