Unlike his predecessors (read: Raghuram Rajan: 2013 – 2016 and Urjit Patel: 2016 – 2018) who used changes in the policy rate – interest rate charged by the Reserve Bank of India (RBI) on loans it gives to banks – primarily as an instrument of targeting inflation, the incumbent governor, Shaktikanta Das has used it mainly for spurring economic growth but without much success. Das – a former economic affairs secretary – who took charge in December 2018 after untimely exit of Urjit Patel handed out a cumulative reduction of 1.35% during 2019. As a consequence, the rate was down to 5.15%. In the wake of deadly Corona virus, just after the first phase of lockdown announced by Prime Minister,...
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Category: Economic outlook
A ‘bad bank’ is a bad idea
With the Govt having recapitalised PSBs with Rs 2,65,000 crore in the last three financial years alone, it makes no sense to pump in more of the taxpayers’ money into NPAs Even as the efforts made by the Narendra Modi Government — including an asset quality review (AQR) by the Reserve Bank of India (RBI), enactment of the Insolvency and Bankruptcy Code (IBC), amendment of the Banking Regulation Act (BRA) and massive capital infusion in public sector banks (PSBs) — were beginning to yield results in terms of reduction in non-performing assets (NPAs), the crisis triggered by Covid-19 has turned the clock back. According to a report by India Ratings and Research (Ind-Ra), the impact of the pandemic and the associated policy...
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The case for a 15% tax rate for India Inc
A uniform tax rate of 15% (17.1% with add-ons) will, among other things, minimise tax litigation that arises largely due to multiple interpretations of a plethora of exemptions and deductions in tax legislation. Besides that, exemptions/incentives make the Indian law cumbersome to a point whereby it makes any prospective investor scary. A major factor affecting India’s ability to attract foreign investment for long has been the high rate of corporate tax. In 2018-19, the rate of tax on domestic companies was 30%. Including surcharge and cess, the total tax incidence is 34.9%. This made India an outlier as the corporate tax rate in other countries is much lower; for example, the US (21%), the OECD average (21.4%), China (25%), Vietnam...
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FDI through front door
The Govt must allow 100 per cent FDI in retail as this will level the playing field for all, eliminate discretion of bureaucrats whose writ is all-pervasive and help small traders On April 22, the California-based US internet giant, Facebook, announced its decision to buy 9.99 per cent stake in Jio Platforms Limited (JPL) paying more than Rs 43,450 crore. JPL is a 100 per cent subsidiary of Reliance Industries Limited (RIL) and has in its fold a wide spectrum of businesses such as wireless broadband, home broadband, enterprise broadband, narrowband, internet-of-things businesses, a bouquet of digital applications, e-commerce and so on. This was followed by a flurry of investments with big names such as General Atlantic, Silver Lake, Qualcomm, Intel,...
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Bad bank – a bad idea
Even as the efforts made by Modi – government including an asset quality review (AQR) by the Reserve Bank of India (RBI), enactment of the Insolvency and Bankruptcy Code (IBC), amendment of the Banking Regulation Act (BRA), massive capital infusion in public sector banks (PSBs) etc were beginning to yield results in terms of reduction in non-performing assets (NPAs) – a euphemism for loans turning bad – the crisis triggered by Covid – 19 has turned the clock back. According to a report by India Ratings and Research (Ind-Ra), the impact of Covid-19 and the associated policy response is likely to result in an additional Rs 167,000 crore of debt from the top 500 debt-heavy private sector borrowers turning NPAs between...
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FDI in retail – bring from the front door
On April 22, 2020, the California based US Internet giant Facebook announced its decision to buy 9.99% stake in Jio Platforms Limited (JPL) paying more than Rs 43,450 crore. JPL is a 100% subsidiary of Reliance Industries Limited (RIL) and has in its fold a wide spectrum of businesses such as wireless broadband, home broadband, enterprise broadband, narrow-band, internet-of-things businesses, a bouquet of digital applications, e-commerce etc. This was followed by a flurry of investments with big names such as General Atlantic, Silver Lake, Qualcomm, Intel, Vista, Google etc bringing in cumulative investment of over Rs 100,000 crore taking the total to Rs 150,000 crore. In lieu of this capital infusion, they get aggregate shareholding of 30% or Rs 5000 crore...
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Scams – why there is no check
Any promise to act against corrupt politicians, bureaucrats, dubious businessmen and others who misappropriate precious resources is always welcome by the people. This was an overarching factor that catapulted Narendra Modi (he made grandiose promise to eliminate corruption and scams) to the seat of power in 2014 and for a second term in 2019. In case however, the required action is missing, they feel cheated; the pain is even more when the country is hard pressed for resources as during the current year. In an affidavit filed in the Supreme Court (SC) on July 6, 2020, the Union government has suggested ‘there was a trend of people accused in high-value economic offences approaching the SC directly – instead of an...
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SC will have to solve the telco mess
A cue is available from the stance taken by SC itself in case of unpaid dues from public sector undertakings (PSUs) such as Gas Authority of India (GAIL), etc. The licence fee and SUC is charged as a percentage of service provider’s adjusted gross revenue (AGR)—8% and 3-5% respectively. During the last three years or so, the telecom industry has been enduring an unprecedented crisis, with most of the companies having huge debt in their books and not generating adequate cash flows for servicing the loans. The crisis was aggravated by an order of the Supreme Court (SC) on October 24, 2019, directing telecom firms to pay ‘unpaid’ dues towards licence fee and spectrum usage charges (SUC). The licence fee...
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Tackling bank frauds
An overarching promise, Prime Minister, Narendra Modi had made at the time of taking charge for his first term beginning May, 2014 was to root out nepotism and corruption in all matters of governance – be it in various ministries/department or its agencies including public sector undertakings (PSUs) including banks. Modi’s clarion call to all in this regard was encapsulated in the euphemism he often used viz. ‘naa khaoonga, naa khaane doonga’ (neither, I will take bribe, nor allow anyone else to take). To be fair to Modi, his commitment to this overarching principle is reflected in all his policy decisions, administrative actions, delivery of services and overall governance in every sphere. That he has made an mark in dealing...
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The GST indemnity riddle
Even as States expect full and timely compensation for the shortfall in their tax revenue, vis-à-vis a given benchmark, the Union Govt has been making short payment and that too after a time lag The dwindling tax revenue of both the Centre and States since the financial year (FY) 2019-20 has led to a piquant situation. Even as States expect “full” and “timely” compensation for the shortfall in their 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, the Union Government has been making short payments and that too, after a time lag. The compensation to States is intertwined...
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