The ‘strategic disinvestment’ is an acronym used to denote transfer of a sizeable portion of ownership and management control of the state in a public sector undertaking [PSU] to an investor [call him ‘strategic’ investor] by selling commensurate shares. In a transformative sense, the government could reduce its holding to below 51% so as to lead to relinquishment of its majority ownership and control, or privatization in plain words. The governments, the world over, have used this as an instrument to vacate areas of economic activity where they believe the state ought not to be involved in the very first place or after having operated for a certain period, currently feel it is no longer necessary. It is also used...
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Category: Fiscal deficit/subsidies
FM’s booster dose for corporate India
In a flurry of announcements made on September 20, 2019 [also described in media circles as a third budget in less than three months], the finance minister, Nirmala Sitharaman handed out a bonanza to the Indian corporate sector. The most pleasing announcement pertains to steep reduction in the rate of corporate tax for new entities incorporated from October 1, 2019 in manufacturing sector and start production by March 31, 2023 from existing 25% to 15%. After subsuming surcharge and cess, the effective incidence of tax will be lowered from existing 29.15% to 17.01% – a drop of 12%. Such companies won’t have to pay minimum alternate tax [MAT] [levied on book profit of firms which have no taxable profit courtesy,...
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GST math gone haywire
The Centre and States must introspect as to why despite the regime being in place for over two years, the desired buoyancy in tax revenue has not been achieved A major reason for the delay in taking up the Constitutional Amendment Bill for enactment of the Goods and Services Tax (GST) was the reluctance of the then United Progressive Alliance (UPA) Government at the Centre to agree to the demand of the States. The latter wanted compensation of the loss of revenue that would arise with its launch vis-à-vis the revenue they would get under the subsisting dispensation of excise duty, sales tax or value-added tax plus a host of other local taxes. This hesitancy came although the concept was first introduced...
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Much ado about surplus
The tussle over surfeit transfer has clipped the Centre’s wings as in future, being bound to the Economic Capital Framework, RBI will continue to keep a tight leash on funds On the face of it, the Reserve Bank of India’s (RBI) decision to transfer a whopping surplus of Rs 176,000 crore to the Government of India (GOI) for its accounting year July 2018-June 2019 gives the impression that the latter has got a bonanza. While, some argue that the Centre has “stolen” a humungous amount from India’s apex bank, which manages the currency and payment systems as also the borrowings of the Centre and States, others aver that this is easy money which the Centre will use for bridging its fiscal deficit....
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RBI surplus transfer – much ado about nothing
On the face of it, the decision of the Reserve Bank of India [RBI] – India’s apex bank which manages the currency and payment systems as also the borrowings of the Government of India [GOI] and of state governments besides supervising or regulating banks – to transfer a whopping surplus of Rs 176,000 crore to GOI for the year 2018-19 [for RBI, the accounting year is on July-June basis] gives an impression that the latter has got a bonanza. While, some argue that the centre has ‘stolen’ the money from the RBI [e.g. Congress], others aver that this is easy money which the centre will use for bridging its fiscal deficit. The reactions are exaggerated. First, of the total amount Rs...
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Bring transparency to the table
Extra-budgetary resources translate to about 2.3 per cent of the GDP. Had they been included, the FD for 2018-19 would have been 5.7 instead of 3.4 per cent All through its tenure beginning 2014, the Modi Government demonstrated a high degree of sensitivity to millions of poor and downtrodden and spent prodigious sums on providing basic amenities such as affordable housing, electricity, sanitation, toilets, fuel and liquefied petroleum gas (LPG), health care, education etc to improve their lot. In the last five years, it built 1.5 crore affordable housing units and nine crore toilets, gave 2.6 crore and seven crore electricity and gas connections respectively and assured free medical treatment up to Rs 500,000 that covered 10 crore families (or 50 crore...
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Merge all subsidies into DBT
At present, tens of millions persons [including undeserving] are getting a variety of subsidies from the government. These cost hundreds of thousand crore seriously impairing its ability to maintain fiscal deficit [excess of total expenditure over total revenue] within the target range mandated by the Fiscal Responsibility and Budget Management [FRBM] Act. The manner of administering these subsidies is marked by ‘adhocism’ and ‘arbitrariness’. It leads to mis-allocation of resources, promotes inefficiency in production, distribution and use, encourages misuse of funds, makes way for controls through the backdoor, enables bureaucrats to meddle in the affairs of the industry and creates fertile ground for nepotism and corruption. Even as Modi – government has vowed to make India a US$ 5 trillion...
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Funding welfare schemes – make it transparent
Modi – government deserves commendation for showing a high degree of sensitivity to the dire need for improving the living conditions of millions of poor and down trodden – residing in both rural and urban areas – by providing all basic amenities such as affordable housing, electricity, sanitation/toilet, fuel/gas, drinking water, health care, education etc. During the last 5 years, it has built about 1.5 crore affordable housing units, given 2.6 crore electricity connections, built around 9 crore toilets, given 7 crore gas connections and provided free medical treatment for expenses up to Rs 500,000/- [with an intent to cover 10 crore families]. Under Modi 2.0, the government has vowed to reach the target of 2 crore housing units by...
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A tightrope walk
Instead of mobilising funds through overseas sovereign bonds, the Government must focus on making its balance sheet more robust and improve the quality of fiscal discipline In the Union Budget presented on July 5, Finance Minister Nirmala Sitharaman proposed an “overseas sovereign borrowing plan” to partly fund an ambitious investment programme that will involve a mammoth spending of Rs 100,00,000 crore ($ 1.4 trillion) for the building of infrastructure to make India a $ 5 trillion economy by 2024-25. During the current year, the Government intends to raise $ 10 billion from this source. The contours of the plan are expected to be finalised by October. In sync with the character of the many infrastructure projects such as roads, highways/expressways, railways, ports,...
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Overseas sovereign borrowing – a double-edged sword
In the Union Budget presented on July 5, 2019, the government has come up with ‘overseas sovereign borrowing plan’ to meet the funding requirements of an ambitious investment program that involves a spend of Rs 100,00,000 crore [US$ 1.4 trillion] over the next 5 years to make India US$ 5 trillion economy by the year 2024-25. During the current year, it is aiming to raise US$ 10 billion from this source. For now, its intent is to go for US$ 3 – 4 billion the contours for which are expected to be finalized by September, 2019. Currently, there is surplus liquidity and benign interest rate environment in the international market [courtesy, the Federal Reserve of the USA keeping interest rate...
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