In the budget for 2016-17, finance minister, Arun Jaitely had announced 100% foreign direct investment [FDI] in food retail. However, this is subject to the condition that the retailer will sell only food procured from farmers in India and processed locally. Even as the guidelines in this regard are yet to be notified, meanwhile as per reports, the government is considering a proposal to allow 100% FDI in all goods ‘manufactured domestically’. The policy will be applicable to both offline [brick-and-mortar retailers] and online [e-commerce companies]. The idea is seriously flawed. To put things in perspective, let us capture the broad contours of existing policy dispensation in regard to FDI in retail. For this purpose, retail is classified in two...
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Category: Foreign investment & other inflows
Rajan’s legacy continues
Much like his predecessor, RBI Governor Urjit Patel too sees interest rate as a potent instrument of reining in inflation. In the first monetary policy review under the Monetary Policy Committee (MPC) dispensation announced on October 4, 2016, Reserve Bank of India Governor Urjit Patel had reduced the policy rate (interest rate at which RBI lends money to commercial banks) by 0.25%. He had then maintained an ‘accommodative’ policy stance thereby alluding to apex bank intent for reducing it further. However, in the second policy review announced on December 7, Patel has dashed this hope by keeping the repo rate unchanged. Concurrently, he has also revised downwards its earlier estimate of GDP for 2016-17 from 7.6% to 7.1% now factoring...
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Monetary policy – Patel still under Rajan’s shadow
In the first monetary policy review under the MPC [Monetary Policy Committee] dispensation announced on October 4, 2016, the governor, Urjit Patel had reduced the policy rate [interest rate at which RBI lends money to commercial banks] by 0.25%. He had then, maintained an ‘accommodative’ policy stance thereby alluding to apex bank intent for reducing it further. However, in the second policy review announced on December 7, 2016, Patel has dashed this hope by keeping the repo rate unchanged. Concurrently, he has also revised downwards its earlier estimate of GDP for 2016-17 from 7.6% to 7.1% now factoring in the effect of demonetization of 1000/500 currency notes announced by prime minister on November 8, 2016. Put together, the two statements...
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Crippled at Bombay House
GOOD CORPORATE GOVERNANCE The revelations made by Cyrus Mistry, ex-Chairman, Tata Sons (letter dated October 25, 2016) immediately following his dismissal point towards a new low in corporate governance in India. If it can happen in one of India’s leading conglomerates which has a turnover of close to Rs 7,00,000 crores, market capitalisation of Rs 8,50,000 crores, operations in more than 100 countries and has about 7,00,000 employees on its rolls, this speaks volumes about the extent of degeneration that has set in corporate board rooms. What is so disconcerting about the recent events at Bombay House? The most worrying point is the brazen muscle-flexing by Tata family-owned trusts (they have 66% share in Tata Sons) which reduced its head...
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Poorly enforced contracts shatter Modi’s dream
On assumption of office, prime minister, Modi made a huge commitment to substantially improve the ease of doing business in India. He set a very ambitious target of catapulting India’s ranking in this regard to amongt top 50 countries. That was in the mid – 2014. Two-and-a-half years since then, India continue to languish at number 130 out of 189 countries in the ease of doing business as per World Bank’s Doing Business Report 2016 [a mere 4 places up from last year’s adjusted ranking of 134]. When, seen in the backdrop of far reaching reforms implemented by NDA – government [all aimed at achieving the goal set by Modi] in almost all areas of governance, this is a big...
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Service tax demand on OVL – wholly unwarranted
The tax department is reported to have slapped service tax demand of over Rs 6,100 crore [Rs 2,816.31 crore for April 1, 2006 to March 31, 2010 and Rs 3,286.36 crore for April 2010 to March 2015] on ONGC Videsh Ltd [OVL] – an overseas arm of central government undertaking viz., Oil and Natural Gas Corporation [ONGC]. Including interest and penalty, the liability will be much higher. This has caused much consternation at a time when OVL is already financially stressed. OVL had reported a net loss of Rs 2,093.5 crore in 2015-16 fiscal against a net profit of Rs 1,904.2 crore in 2014-15 despite increase in production of oil and gas. Such humongous demand will seriously impair return from...
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Policy mess getting worse
FDI IN RETAIL : While the Centre wants to welcome FDI, it does not want to displease its core constituency of traders, opposed to FDI per se. The government has set up a committee under the Niti Aayog CEO to look into all issues including the Foreign Direct Investment (FDI) norms pertaining to the fast growing e-commerce industry. Since much of e-commerce is in retail, and trade via this route is a portion of overall retail wherein also contentious issues relating to FDI are involved, it would be apt if the committee examines investment norms in a holistic framework covering both online and offline. At present, the retail sector in India is hamstrung by a policy maze which gives too...
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Advancing budget date – freedom from British legacy
The news of Modi – government seriously pursuing changing the date of presentation of Union Budget from the last day of February [a practice continued from the British era] to last day of January is music to the ears of every one who has lived with the pains and nuances of the extant dispensation. The last time India de-linked from the vestiges of colonial raj [though that was more symbolic] was also under NDA – government then led by Vajpayee. In 2000, it switched over to presenting the budget at 11 AM instead of customary 5 PM on last day of February [a follow-up to presentation of British budget earlier in the day]. Reform is in DNA of NDA Such...
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FDI in retail – policy mess getting worse
The government has substantially liberalized the policy environment relating to foreign direct investment [FDI] thereby bolstering the prospects of increasing foreign fund inflows. But, that is hardly true for investment in retail which is the fastest growing sector. The biggest stumbling bloc is the policy maze which gives too many confusing signals and gives scope for varied interpretations. Even worse, it gives too much of ‘discretion’ to the bureaucrats in deciding as to who would be allowed and on what terms. It tantamount to bringing the license raj through the back door. For the purpose of FDI, the retail sector has been divided in to several classes which is completely out of sync with international practice of treating retail as...
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Seize the moment
STRATEGIC DIVESTMENT : Unwillingness to go for strategic sale would be a tactical blunder. So far, the outcome on this front has been rather disappointing In its previous incarnation under A B Vajpayee, the BJP-led NDA dispensation (1998-2004) had vigorously pursued “strategic” disinvestment of Union government’s shares in public sector undertakings (PSUs), some of the high profile cases being Modern Food Limited (MFL), Hindustan Zinc Limited (HZL), Bharat Aluminium Company (BALCO) etc. The UPA government which took charge in 2004, abandoned this route. The present NDA regime under Modi may have resurrected the idea. Looking at the budget for current and previous year, it would appear so. For these years, Finance Minister Arun Jaitley provided for Rs 28,500 crore (2015-16)...
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