The disruption caused by the pandemic is a thing of the past as tax collection rebounded during 2021-22 In its 47th meeting, the GST (Goods and Services Tax) Council held on June 28/29, 2022, at least a dozen finance ministers and other ministers of the states demanded that compensation for losses due to implementation of the GST should be extended. In the follow up to the unveiling of the GST by the Modi government, ‘The Constitution (One Hundred and First Amendment) Act, 2016’, that introduced the GST from July 1, 2017, the Union government also introduced ‘The GST Compensation Act, 2017’. It provides for compensation to the States for five years (2017-18 to 2021-22) for the loss of revenue. The...
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Category: Economic outlook
Financial discipline a must for states
The Centre has to crack the whip on growing trend of states going for excessive borrowings else it could lead to a major financial crisis In recent years, indiscriminate borrowings by entities of the state governments, leveraging guarantees, has raised alarm bells. In June, 2022, the Reserve Bank of India (RBI) lambasted banks, mostly public sector banks (PSBs), for lending to such entities based on the escrow of the states’ future revenue streams or using collectorates and courts as security. The RBI sought a review of such lending practices by the bank boards and reported compliance by September, 2022. The Union Finance ministry was more emphatic, seeking an end to the practice. The warning is a follow up to a...
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India faces sharp fiscal deficit slippage
International crude and fertiliser prices disturbed Government’s budget calculations; welfare expenses are adding to fiscal stress The Modi government has taken a number of measures, including tax cuts and increase in subsidy, to give protection to consumers from the steep rise in international prices of fuel, fertilisers, and food. But it could come at a huge cost in terms of impairing the Centre’s ability to achieve the fiscal deficit (FD) target of 6.4 per cent of the gross domestic product (GDP) set for the current financial year (FY). Before analysing the numbers for the current FY, let us see how things panned out during 2021-22 when India was confronted with rising international prices of the aforementioned commodities. During 2021-22, thanks...
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Control mindset hurts privatisation process
The strategic sale of BPCL couldn’t be carried out because the Government wants to regulate fuel prices After over three years of having initiated the sale of its entire 53.29 per cent shareholding in Bharat Petroleum Corporation Limited (BPCL)—a Central public sector undertaking (PSU) in the sector of refining and marketing of petroleum products—the Government has decided to put it on hold. What could be the reason behind this move? Adopted a big-bang approach to privatisation (when government sells its majority stake in a PSU and transfers control to a private entity) in the Budget for 2021-22, Finance Minister Nirmala Sitharaman had divided Central PSUs in two broad categories—i.e. strategic and non-strategic. The former is subsumed under four subgroups: atomic...
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Govt faces a dilemma over e-commerce
Any tweak in policy will upset foreign investors, while the status quo will hurt small traders Ever since Indian retail was opened to foreign direct investment (FDI)—albeit through the so-called marketplace model in 2016—foreign giants like Amazon and Walmart-owned-Flipkart have been embroiled in protracted legal battles. In a public interest litigation (PIL) filed in early 2018, the Retailers Association of India (RAI) had alleged violation of FDI norms in e-commerce. On October 31, 2018, the Enforcement Directorate (ED) had informed the Delhi High Court (DHC) that it was investigating violation of the Foreign Exchange Management Act (Fema) against Amazon, et al, but the proceedings are stuck. In another petition filed before the Competition Commission of India (CCI), the All-India Online...
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RBI hikes repo rate but more is needed
While there is no guarantee that the RR hike will tame inflation, we can’t rule out the risks to growth Normally, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducts a review once in every two months based on which the RBI makes policy announcements at the beginning of each of the following months viz. February, April, June, August, October, December. Deviating from this practice, in early May 2022, Governor Shaktikanta Das announced changes in the important monetary policy instruments. Das increased the policy repo rate (interest rate at which the RBI lends to banks) or RR from 4 per cent to 4.4 per cent. He also increased the cash reserve ratio (percentage of a bank’s total...
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RBI changes gear, finally
Normally, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducts a review once in every two months based on which the RBI makes policy announcements at the beginning of each of the following months viz. February, April, June, August, October, December. Deviating from this practice, in early May, 2022, Governor Shaktikanta Das announced changes in the important monetary policy instruments. Das increased the policy repo rate (interest rate at which the RBI lends to banks) or RR from 4 percent to 4.4 percent. He also increased the cash reserve ratio (percentage of a bank’s total deposits that it needs to maintain with the RBI as liquid cash; the bank does not earn interest on this liquid...
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Fuel tax cuts: Easier said than done
It would be fair to keep the fuel tax rates in a lower slab, say, 18 per cent, but the Centre and States would start wobbling at the very idea To rein in the inflationary pressure, on May 21, 2022, the Narendra Modi Government announced reduction in the central excise duty (CED) on petrol and diesel by `8 per litre and `6 per litre, respectively. The cuts are significant but, given the magnitude of the challenge, these won’t be enough. Let us do a fact check. In May 2014 (when Modi took charge), CED on petrol was `9.8 per liter and on diesel `3.8 per liter. By March, 2020 (this was when the Covid-19 pandemic struck), already the Government had...
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Fuel tax – more cuts needed
To rein in the inflationary pressure, on May 21, 2022, Modi – government announced reduction in in the central excise duty (CED) on petrol and diesel by Rs 8 per litre and Rs 6 per litre respectively. The cuts are significant but given the magnitude of the challenge, these won’t be enough. Let us do a fact check. In May 2014 (when Modi took charge), CED on petrol was Rs 9.8 per liter and on diesel Rs 3.8 per liter. By March, 2020 (this was when Covid – 19 pandemic struck), already the government had hiked these to Rs 20 per liter on petrol and Rs 16 per liter on diesel. During 2020, it was further increased on petrol by...
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Strengthening IBC framework, really?
Faced with ballooning NPAs, the Modi government enacted the IBC in 2016 While putting on hold its plans to implement the so-called “fresh-start process” for indebted poor people under the Insolvency and Bankruptcy Code (IBC), the government wants to first focus on bolstering the IBC architecture to yield quick resolution of toxic assets. The reference here is to the delay in completion of the corporate insolvency resolution process (CIRP) as well as the low amount realised by creditors from their non-performing assets (NPAs) — a fancy nomenclature for bad loans. Let us capture a few basics. Faced with ballooning NPAs, the Modi government enacted the IBC in 2016. This legislation overrides all other subsisting laws and gives a strong handle...
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