The day September 23, 2020 the monsoon session of Parliament ended abruptly, Modi – government passed three bills on labor reforms enshrined in three labor codes viz. The Industrial Relations Code, 2020; The Occupational Safety, Health and Working Conditions Code, 2020; and The Code on Social Security, 2020 in Rajya Sabha (these were passed by Lok Sabha on the previous day). Along with The Code on Wages, 2019 passed by the Parliament last year, these four reform of labor laws are being bandied as the most crucial second-generation reforms that will make it easier to do business, improve competitiveness of Indian industry, make India a manufacturing hub and pursuing “Make in India”. This is a bold move when viewed in...
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Category: Economic outlook
Don’t bank on banks
There’s no pressing need for a firm hit by the crisis to rush to banks for relief. To enjoy the fruits when the going is good and come to the bank or Govt for help when in crisis is unacceptable On March 27 the Reserve Bank of India (RBI) Governor, Shaktikanta Das, announced a comprehensive action plan to resuscitate the economy devastated by the Coronavirus. 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. Among others, this included a three-month moratorium on payment of instalments in respect of all term loans outstanding on March 31. On May 22, Das announced extension of...
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GST: More than three years on, several problems remain
Billed as a ‘transformative’ reform, the Goods and Services Tax (GST) is now more than three years old. It is time to take stock. GST is a single nationwide tax that subsumes within it more than a dozen taxes of the pre-GST era, namely central excise duty (CED), service tax, sales tax/value added tax (VAT) besides a host of local taxes such as octroi, purchase tax, turnover tax, etc. The old regime was afflicted with several anomalies. First, each state was free to impose as many taxes and fix the rate for each item as it wished. This not only resulted in multiplicity of taxes but also vast variation in the rate across states. For instance, on natural gas, VAT...
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Banking on banks for bail-out
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...
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Open doors for trade
The Govt should shed its current protectionism. Instead, it should go for an open trade policy by slashing import duties and eliminating non-tariff barriers While presenting the Union Budget for 2020-21, Finance Minister Nirmala Sitharaman had renewed the commitment of the Modi Government to “Make in India.” She saw this as the most crucial component of the strategy to make India a $5 trillion economy by 2024-25. To achieve this, she targetted doubling of exports from the current over $500 billion to $1 trillion (that includes an increase in farm exports from $40 billion to $100 billion). Faced with a whopping contraction in the Gross Domestic Product (GDP) by close to 25 per cent during the first quarter, a continuing...
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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...
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The GST quagmire
The Centre and States must try to fix all void in GST implementation to achieve buoyancy in tax revenue, thereby obviating the need for continuing with the compensation mechanism Faced with a dwindling tax revenue since the last financial year of 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 the Finance Commission’s devolution formula) vis-à-vis a given benchmark, has been a bone of contention between the Centre and the States. It has acquired gargantuan dimensions during the current year with the Coronavirus pandemic forcing a collapse of businesses, cutting across almost all sectors (barring...
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GST – still work in progress
Billed as a ‘transformative’ reform of post-independent India, the Goods and Services Tax (GST) has completed three years since it was launched by Prime Minister, Narendra Modi on July 1, 2017. It is time to take stock and see whether there has been any tangible progress in terms of achieving its underlying objectives. GST is a single nation-wide tax that subsumes within it more than a dozen taxes of the erstwhile dispensation prior to July 1, 2017 viz. central excise duty (CED), service tax, sales tax/value added tax (VAT) besides a host of local taxes such as octroi, purchase tax, turnover tax and so on. At the outset, let us take a look at major anomalies afflicting the old regime....
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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...
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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...
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