The Union government has invariably rode piggy back on profit-making public sector undertakings (PSUs) and public sector banks (PSBs) to boost its non-tax revenue (using a variety of means such as high dividend/special dividend, divestment of its stake at premium, etc) for the purpose of keeping the fiscal deficit within the set target. However, little is known about a subtle role that the Reserve Bank of India (RBI) plays in helping the central government in its fiscal consolidation drive. It does so by transferring huge surpluses to the centre year after year. During the last three years — 2015-16, 2016-17, 2017-18 — it transferred Rs 65,900 crore, Rs 40,600 crore and Rs 58,000 crore, respectively. Unlike a PSU/PSB, the RBI...
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Category: Deccan Herald
RBI has put growth on backburner, yet again
The decision of the Reserve Bank of India (RBI) last month to increase the repo rate or the policy rate (the rate at which the RBI lends money to commercial banks) from 6% to 6.25% has led to widespread disappointment, especially in industry and trade circles. In 2016, the union government had put in place an institutionalised framework, the Monetary Policy Committee (MPC), to formulate monetary policy and determine the key interest rates. The committee consists of six members drawn from different fields, including the RBI governor, who is also the MPC’s chairperson. With this, the process was expected to become more informed and objective — free from the idiosyncrasies of the governor, who had the sole authority under the...
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Fuel price reduction: the ball is in the states’ court
The steep increase in the prices of petrol and diesel, by over Rs 3.5 per litre each, after the assembly elections in Karnataka has yet again built up pressure on the Narendra Modi government to reduce excise duty on fuel. Between November 2014 and January 2016, excise duty on petrol went up from Rs 9.48 per litre to Rs 21.48 per litre; on diesel, the increase was even sharper, from Rs 3.56 per litre to Rs 17.33 a litre. That coincided with a steep decline in the international price of crude oil from $117 per barrel in November 2014 to a low of $27 per barrel in January 2016. Thereafter, crude price moved up gradually to $40 per barrel by...
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Walmart’s backdoor entry into Indian retail
Walmart, the $500 billion retail giant, has acquired 77% stake in Flipkart, a leading Indian brand in e-commerce segment, with an investment of $16 billion. The balance 23% will be with minority investors, including Alphabet (a subsidiary of global internet giant Google) which will invest $1.5 billion. Walmart is not new to the Indian market. It came to India initially in 2007 in the “wholesale cash and carry” business viz sale to wholesalers and other bulk buyers (including institutional agencies) under a joint venture (JV) arrangement with Bharti Retail. This was under the then FDI (foreign direct investment) policy which allowed foreign investor 51% stake in this business. In 2012, the then UPA-II government liberalised the policy to allow 100%...
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Farm price, market assurance will bloat fiscal deficit
Stung by depressed price-realisation by farmers, much below the minimum support price (MSP), and with impending general elections next year, the Narendra Modi government announced in the Union Budget for 2018-19 that henceforth, they will be assured MSP which is at least 1.5 times the cost of production. Mere assurance of a remunerative price is of no use unless the farmer is able to sell his entire produce at this price. Keen to ensure that this happens, the government asked NITI Aayog to come up with suggestions. The latter prescribed three alternatives, namely: market assurance scheme (MAS) or price deficiency payments or incentives to private sector to buy farmers’ produce at MSP. Under MAS, agencies of the state buy the...
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Govt’s fertiliser DBT neither direct nor full benefit
The Cabinet has approved direct benefit transfer (DBT) of fertiliser subsidy. However, the subsidy will continue to be routed through fertiliser manufacturers. They will receive 100% of the subsidy amount after fertiliser is delivered to the farmer and his identity, namely Aadhaar (and other details such as plot size, crop, nutrient use), is captured on the electronic point of sale (e-PoS) machine. At present, manufacturers sell urea at the maximum retail price (MRP), which is controlled by the Union government at a low level, and get subsidy reimbursement on unit-specific basis under the new pricing scheme (NPS). On the other hand, manufacturers of non-urea fertilisers are theoretically given ‘uniform’ subsidy (on per nutrient basis) under the nutrient-based scheme (NBS). However,...
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Fiscal roadmap abandoned midstream
In his budget speech for 2016-17, finance minister, Arun Jaitley had announced the government’s intent to review Fiscal Responsibility and Budget Management (FRBM) Act with a view to make the target flexible to make it range bound instead of a fixed number as had been the position hitherto under the extant Act in vogue since 2003. Accordingly, a committee under NK Singh was set up to examine this issue besides revamping of the Act. The committee recommended a fiscal deficit target of 2.5% of gross domestic product (GDP), revenue deficit of 0.8%, a combined centre-state debt ceiling of 60% and a central debt ceiling of 40% by fiscal 2022-23, under a six-year medium-term fiscal roadmap. It also recommended a fiscal...
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GST Council should drop idea of 1% tax on online sales
The decision of the GST Council, the all-powerful body to decide the tax architecture and rates on various items, to require e-commerce companies to levy 1% tax on all transactions made on their platforms has led to widespread consternation. So much so, it was forced to defer its implementation indefinitely. But the idea is not new. Even under the erstwhile state sales tax/VAT (value-added tax) dispensation, the Karnataka commercial taxes department had directed e-commerce companies to deduct 1% of the money payable to the merchant towards tax and remit the same to the department. The merchant/dealer, in turn, could claim credit or refund on this amount while discharging his liabilities. The move was triggered by tens of thousands of dealers...
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Soil health: change NPK balance through incentives
Delivering the 38th edition of his ‘Mann ki Baat’, Prime Minister Narendra Modi said, “Can our farmers take a pledge to bring down urea use by half by 2022? If they use less urea in agriculture, the fertility of the land will increase. The lives of farmers will start improving.” Modi made the statement in the backdrop of ‘World Soil Day’ on December 5 and the deteriorating health of soil the world over, a key factor contributing to this being the excessive use of urea. The positive correlation between excessive use of urea and the erosion in soil health is an incontrovertible fact proven by several studies and finds repeated reference in official documents, including the Economic Survey that is...
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Anti-profiteering Authority: an unworkable mechanism
In mid-November, the Union Cabinet approved setting up of a National Anti-profiteering Authority (NAA) under the Goods and Services Tax (GST) so as to ensure that the benefit of lower taxes reaches consumers. If a consumer feels that the reduction in the incidence of tax under GST is not being passed on, she can register a complaint with the authority. The anti-profiteering mechanism provides for setting up of a ‘screening committee’ at the state-level and a ‘standing committee’ at the national level. The complaints will be first sent to ‘screening/standing committee’, depending on whether it is of local nature or of national import. If the complaint has merit, the respective committee would refer the case for further investigation to the...
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