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...
More
Comments are closed
Category: Fiscal deficit/subsidies
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...
More
Comments are closed
Bite the BIC bullet
The ailments afflicting PSBs won’t go away so long as majority ownership and control remain with the Government. There is a dire need to unshackle them and grant autonomy to the management The Reserve Bank of India (RBI) has recommended to the Centre a reduction in shareholding of the latter in six top Public Sector Banks (PSBs), namely the 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 per cent in the next 12-18 months. At a recent meeting with the Ministry of Finance (MOF), the RBI had argued for reduction in stake to 26 per cent. But, observing that this might...
More
Comments are closed
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...
More
Comments are closed
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...
More
Comments are closed
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...
More
Comments are closed
The GST indemnity riddle
Even as States expect full and timely compensation for the shortfall in their tax revenue, vis-à-vis a given benchmark, the Union Govt has been making short payment and that too after a time lag The dwindling tax revenue of both the Centre and States since the financial year (FY) 2019-20 has led to a piquant situation. Even as States expect “full” and “timely” compensation for the shortfall in their tax revenue (their own collection plus the amount received as their share in indirect tax collected by the Centre as per the Finance Commission’s devolution formula) vis-à-vis a given benchmark, the Union Government has been making short payments and that too, after a time lag. The compensation to States is intertwined...
More
Comments are closed
Fuel prices – on the escalator
During the last three weeks or so, the oil marketing public sector undertakings (PSUs) viz. Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) have increased the retail price of petrol and diesel continuously almost every day. The cumulative increase works out to about Rs 9 per liter petrol and Rs 11 per liter in case of diesel. As a consequence, the current price of both the fuels in Delhi is about Rs 80.5 per liter. In April/May, petrol was selling at Rs 71 per liter whereas diesel price was Rs 69 per litre. The prices of petrol and diesel are deregulated [petrol since June 2010 and diesel since October 2014]. The oil...
More
Comments are closed
GST – the compensation riddle
In view of the dwindling tax revenue (courtesy, reduction in their own collection as well as their share in taxes collected by the Centre as per the Finance Commission devolution formula), even as the states are demanding full compensation for the shortfall from the union government, the latter has not only been making short payment but the amount is released after considerable time lag. For instance, the compensation for October/November, 2019 about Rs 34,000 crore was released in February/April, 2020. The economic devastation triggered by a prolonged lockdown has only made matters worse. With states revenue virtually drying up during the first two months of current financial year (the trend is expected to continue through most of the year), while...
More
Comments are closed
Corporate India – tax all @15%
A major factor affecting the competitiveness of Indian industries and India’s ability to attract foreign investment for long has been the high rate of corporate tax. In 2018-19, the rate of tax on domestic companies was 30%; including surcharge and cess, the effective incidence worked out to 34.9%. Given that the corporate tax rate in other countries viz. US (21%), OECD average (21.4%), China (25%), Vietnam (20%), Thailand (20%), Singapore (17%) etc, was much lower, this made India a sort of outlier when seen from the perspective of a potential investor looking for investment opportunities. Though, the Income Tax (IT) law provides for a spate of exemptions and incentives which facilitates reduction in the tax liability, the effective incidence continues...
More
1 comment