On March 27, 2020, the Reserve Bank of India (RBI) governor, Shaktikanta Das announced a comprehensive action plan to resuscitate the economy devastated by the Corona virus. Apart from measures to increase availability of credit and reduction in the cost of capital, the plan sought to ease the stress of loan repayments on businesses and individuals. Amongst others, this included 3-month moratorium on payment of installments in respect of all term loans outstanding on March 31, 2020. On May 22, 2020, Das announced extension of the moratorium for three months till August 31, 2020. To ease the burden of payment on those who availed of working capital facilities, the governor allowed them to convert accumulated interest for the deferment period...
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Scrap priority sector lending
Faced with contraction in GDP (gross domestic product) growth by a whopping 23.9% and credit growth at a low of 6.7% during the first quarter of current financial year (FY), on September 4, 2020, the Reserve Bank of India (RBI) has brought about changes in the norms for priority sector lending (PSL). The commercial banks, including foreign banks, are required to mandatorily earmark 40% of the adjusted net bank credit for PSL. Regional rural banks (RRBs) and small finance banks (SFBs) are required to allocate 75% of adjusted net bank credit (ANBC) to PSL. Within the over 40% limit for PSL, there are sub-limits; for instance, agriculture gets 18% of the ANBC. Although, PSL guidelines do not lay down any...
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Discoms – don’t handle with kid gloves
Reportedly, the ministry of power (MOP) is working on new ‘reform-linked distribution scheme’ with a two-fold objective of (i) overhauling the power distribution sector and (ii) building robust supply infrastructure. Involving total capital outlay of Rs 312,000 crore, the scheme will be funded by the union government and states in the ratio of 60:40 respectively. While, 60% of the proposed investment or about Rs 180,000 crore will come as Central grant, the balance will be borne by states. This umbrella scheme will subsume all existing schemes such as Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power Development Scheme (IPDS) into itself. DDUGJY is aimed at metering every rural household and improving electricity infrastructure in villages. IPDS targets improvement in...
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GST – still work in progress
Billed as a ‘transformative’ reform of post-independent India, the Goods and Services Tax (GST) has completed three years since it was launched by Prime Minister, Narendra Modi on July 1, 2017. It is time to take stock and see whether there has been any tangible progress in terms of achieving its underlying objectives. GST is a single nation-wide tax that subsumes within it more than a dozen taxes of the erstwhile dispensation prior to July 1, 2017 viz. central excise duty (CED), service tax, sales tax/value added tax (VAT) besides a host of local taxes such as octroi, purchase tax, turnover tax and so on. At the outset, let us take a look at major anomalies afflicting the old regime....
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GST shortfall – bailing out states
Faced with dwindling tax revenue since last financial year 2019-20, the issue of ‘full’ and ‘timely’ compensation for the shortfall in states’ tax revenue (their own collection plus the amount received as their share in indirect tax collected by the Centre as per Finance Commission devolution formula) vis-à-vis a given benchmark has been a bone of contention between the central government and the states. It has acquired gargantuan dimensions during the current year with Corona pandemic forcing collapse of businesses cutting across almost all sectors (barring essential items) in turn, leading to steep fall in tax collection of both the Centre and states. The compensation to states is intertwined with the Goods and Services Tax (GST) in vogue since July...
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AGR dues – let the rider pay
The turbulence in the telecommunication sector in India refuses to subside. First, it was the mayhem triggered by Reliance Jio (RJio) which in a brazen display of ‘predatory’ pricing offered ‘free’ and ‘unlimited’ voice calls and rock bottom data tariff from the word go (its services were launched in September 2016). This forced incumbent operators viz. to reduce tariff to match RJio pushing majority of them into red. Many downed shutters while others were bought over. Next was an order of the Supreme Court (SC) on October 24, 2019 directing telecom firms to pay ‘unpaid’ dues towards license fee and spectrum usage charges (SUC). The license fee and SUC is charged as a percentage of service provider’s adjusted gross revenue...
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For Atmanirbhar Bharat, go for open trade policy
The ‘Make in India’ reverberated all through the speech of Prime Minister Narendra Modi during his Independence Day address on August 15, 2020. Even before the Corona pandemic, in the Union Budget for 2020-21, Finance Minister, Nirmala Sitharaman proclaimed the commitment of Modi government to this laudable goal. This is the most crucial component of the strategy to make India a US$ 5 trillion economy by 2024-25. Faced with a whopping contraction in GDP (gross domestic product) by close to 25% during the first quarter, continuing slide during the second quarter and projected decline for the whole of current year by 5% – 6.5%, US$ 5 trillion target may have lost much of its sheen for now. Nonetheless, the government...
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Honoring the honest
Dubbed as a transformative tax reform, on August 13, 2020, Prime Minister Narendra Modi launched a ‘Transparent Taxation – Honouring The Honest’ platform via video conferencing. The main aim of this reform is best captured in the following statement by Modi during his address while launching the platform:- “The honest taxpayers play a crucial role in national development. When, the life of an honest taxpayer is simplified, he progresses which leads to progress of the nation too.” The resources garnered by collecting tax from the people who regularly pay tax due from them as per the laws of the land (call them honest tax payers) are the bedrock of any country’s development. This is more so for India where the...
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PSBs – give charge to a holding company
Reportedly, the Reserve Bank of India (RBI) has recommended to the Government of India (GOI) reduction in the shareholding of the latter in six top public sector banks (PSBs) viz. State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Canara Bank, Union Bank of India (UBI) and Bank of India (BOI) to 51% in the next 12-18 months. In a recent meeting, the RBI had suggested reduction in GOI stake to 26% in PSBs. But, for now, its recommendation is to cut the stake to 51%. Given its precarious financial position (courtesy, Covid – 19), the union government is exploring all possible avenues for increasing revenue. In this larger perspective, it is looking to monetize its...
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Privatization – unshackle the process
The finance minister, Nirmala Sitharaman has recently announced the broad contours of Modi government’s plans on privatization of the Central public sector undertakings (CPSUs). A CPSU is defined as an undertaking in which the Government of India (GOI) has shareholding of more than 50% and by virtue of this exercises majority ownership and control (currently, there were 249 operating Central PSUs as on March 31, 2019). Its privatization means the shareholding of GOI will be brought down to below 50%. Which of the CPSUs will be privatized? To determine this, the undertakings will be divided in to two broad categories viz. ‘strategic sector’ and ‘non-strategic’. Whereas, all undertakings in the non-strategic sector will be privatized, in the strategic sector too, the...
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