In the Union Budget for 2021-22, the Finance Minister, Nirmala Sitharaman has proposed setting up of a bad bank. Crafted as an asset reconstruction company (ARC), it will bundle up all the non-performing assets (NPAs) of banks, buy these at a negotiated (albeit discounted) price and sell them to investors such as alternate investment funds (AIFs) etc by putting a turnaround plan in place. An asset management company (AMC) will work on the details. The banks plan to transfer nearly Rs 200,000 crore of bad loans to the ARC. In return, the ARC will provide 15% upfront cash to banks, and issue security receipts (SRs) for the remaining 85%, to be guaranteed by the Government. The ARC will require a capital infusion of...
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Category: Economic outlook
CPSU privatisation an uphill task
The Centre should de-bureaucratise the process of running PSUs. This should be done even before privatisation is taken up Under a big bang approach to privatisation announced in the Union Budget, Finance Minister Nirmala Sitharaman has divided the Central Public Sector Undertakings (CPSUs) in two broad categories i.e. strategic and non-strategic. Whereas the former is broken up into four subgroups: Atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services, the latter includes all other sectors such as hotel and tourist services, industrial and consumer goods, trading, marketing and so on. As per the plan, all PSUs in non-strategic sectors will be privatised and all loss-making enterprises in this category will be closed....
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Privatization – An uphill task
Under a big bang approach to privatization announced in the Union Budget for 2021-22, the Finance Minister, Nirmala Sitharaman has divided the Central Public Sector Undertakings (CPSUs) in two broad categories viz. “strategic” and “non-strategic”. Whereas, the former is broken up into 4 sub-groups viz. atomic energy, space and defense; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services, the latter includes all other sectors such as hotel and tourist services, industrial and consumer goods, trading and marketing and so on. As per the plan, all PSUs in non-strategic sector will be privatized. All loss making enterprises in this category will be closed. In the strategic sector too, the Government will be open to privatization...
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Fiscal deficit target goes for a toss
An offshoot of the economic crisis triggered by the pandemic is manifest in the Centre coming out with the ‘real’ state of its finances. In the Budget presented on February 1 by Finance Minister Nirmala Sitharaman, the revised estimate (RE) for fiscal deficit in 2020-21 is put at 9.5% of GDP. This is almost three times the budget estimate (BE) of 3.5%, which itself was 0.5% higher than the 3% threshold required by the Fiscal Responsibility and Budget Management (FRBM). It was justified by her as due to “far-reaching structural reforms with unanticipated fiscal implications.” The slippage is not just due to a shortfall in tax collection and non-tax revenue, especially proceeds from disinvestment, but also due to inclusion in...
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The Govt should avoid a Catch-22 situation
Team Modi should legitimise direct selling by foreign companies in Indian retail — not just online but also offline — without any riders In view of the complaints by the Confederation of All India Traders (CAIT) regarding blatant violation of the Foreign Direct Investment (FDI) policy and the Foreign Exchange Management Act (FEMA), 1999, by Amazon and Walmart-owned-Flipkart, Union Commerce Minister Piyush Goyal alluded to it while issuing a clarification to ensure that the e-commerce sector works “in the true spirit of the law.” Earlier in December 2020, the Ministry of Commerce had asked the Reserve Bank of India (RBI) and the Enforcement Directorate (ED) to take necessary action against these global e-commerce giants. The above actions may not enthuse when viewed...
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Reinvigorating growth: Where is the money?
The FM wants to boost growth, but it will be at the cost of fiscal de-stabilisation. One is not sure whether a sustained, rapid surge will come as a huge resource gap remains Taking a cue from the prescription that the Chief Economic Advisor (CEA), Krishnamurthy Subramanian gave in the Economic Survey: 2020-21 that “the Government should come up with more fiscal measures for short-term support to the economy and businesses”, Finance Minister (FM) Nirmala Sitharaman has gone ahead with some “big bang” measures. She has not just attempted to give a boost to industries and businesses in the short-term but has also given an indication of her intent to put them on a high growth trajectory in the medium to...
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Paratroop reforms on the ground
Of crucial importance is the need to actually execute reforms and make them work on ground zero. Unfortunately, this is not happening Unlike the Economic Survey for 2019-20, which was prepared keeping in mind the ambitious target of achieving a $5 trillion economy by 2024-25, this time around, the overarching theme revolves around demonstrating how brilliantly the Government has managed the Coronavirus pandemic. Through lucid elaboration on the details and modeling with facts and figures — using international as well as inter-State comparison within India, Chief Economic Adviser (CEA) Krishnamurthy Subramanian has given ample justification for the “early” and “stringent” lockdown from March and thereafter calibrated lifting of restrictions from June onward. Tacitly, he has also admitted that this led to compression...
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Tax Talk: Govt must get serious on bringing gas under GST
It will, of course, cause a revenue shortfall for states, but that can be dealt with by hiking the rate of GST compensation cess In these circumstances, it is unlikely that they would let any of these products be taxed at a much lower rate—an inevitability if they are brought under GST. ———————————————— The ministry of petroleum and natural gas (MoPNG) has taken on board a proposal—mooted by the industry during recent pre-budget discussions—to bring natural gas within the ambit of the Goods and Services Tax (GST). This will ensure a uniform tax on gas throughout the country and lower its price for both industrial and domestic use, which may help increase its share in India’s energy mix from the...
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To avoid cartelization – allow FDI in retail
Based on complaints submitted by the Confederation of All India Traders (CAIT) to the Union Commerce Minister Piyush Goyal in the recent past for blatant violation of FDI (foreign direct investment) Policy and Foreign Exchange Management Act (FEMA), 1999 by Amazon and Walmart-owned-Flipkart, the Department for Promotion of Industries and Internal Trade (DPIIT) of the Ministry of Commerce has written letters in December, 2020 to the Reserve Bank of India (RBI) and the Enforcement Directorate (ED) asking them to take necessary action against these global e-commerce giants. This communication from the DPIIT may not enthuse when viewed in the backdrop of numerous such representations made in the past by CAIT as also other associations of small traders and businesses such...
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India must stand its ground
All objections raised by the USTR on the DST levied by India on foreign tech firms are baseless. The Govt must not yield to the pressure tactics of the US administration by withdrawing the tax In its findings on the Section 301 probe conducted under the US Trade Act, 1974, the US Trade Representative (USTR) has inter alia concluded that India’s digital services taxes (DST) or the so-called equalisation levy (EL) at the rate of two per cent, unfairly targets US companies. The USTR raised three aspects that, it alleges, are inconsistent with global tax principles: First, the levy on US companies has extra-territorial application; second, DST is a tax on the firm’s revenue, not its income; and third, it subjects US...
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