To stay the course of fiscal discipline, Modi will have to stop routing subsidy via low prices and start making direct transfers to beneficiaries that need them the most In the first two years of its stint, the Modi Government has stuck to the fiscal consolidation road-map, achieving fiscal deficit target for both 2014-15 and 2015-16. It did so even while pumping huge funds into building roads, highways, irrigation, agriculture and railways and without compromising on its commitments to welfare programmes. Two major driving forces merit attention: First, foreign direct investment reforms, improved ease of doing business, and fast-track approvals for stuck projects has accelerated GDP growth and resultant buoyancy in tax receipts. Second, rationalisation of subsidies, plugging leakages in...
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News & Media
GST will boomerang on fertilisers
Even if the lower end of 12% is applied to fertilisers, it would be double the existing duty Given the critical role of fertilisers in ensuring food security, for decades, the government has followed a policy of controlling their prices at low level—unrelated to cost of supply—and reimbursing the excess as a subsidy to the manufacturers. The Goods and Services Tax is being billed as transformative reform that has the potential to drastically reduce transaction costs — owing to elimination of cascading effect of tax-on-tax and withdrawal of a host of local levies— and substantially increase efficiency across the supply chain as interface with multiple authorities over a number of geographical locations gets eliminated. For the fertiliser industry, however, the...
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Effective implementation key
MOMENTOUS REFORM On August 3, 2016, Rajya Sabha (RS) passed the 122nd constitution amendment bill (already cleared by Lok Sabha last year) paving the way for the Goods and Services Tax (GST). This is a ‘transformative’ reform that will convert the Indian Union of 29 states in to a seamless national market enabling free movement of goods and services as a single uniform tax replaces a plethora of existing taxes. Promising multiple benefits for producers, exporters, businesses, consumers and governments via increasing efficiency in supply chain, reducing transaction cost, improving ease of doing business, tax buoyancy and stemming evasion and black money, GST will lay the foundation for putting India on double digit growth trajectory in the next couple of...
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Seize the moment
STRATEGIC DIVESTMENT : Unwillingness to go for strategic sale would be a tactical blunder. So far, the outcome on this front has been rather disappointing In its previous incarnation under A B Vajpayee, the BJP-led NDA dispensation (1998-2004) had vigorously pursued “strategic” disinvestment of Union government’s shares in public sector undertakings (PSUs), some of the high profile cases being Modern Food Limited (MFL), Hindustan Zinc Limited (HZL), Bharat Aluminium Company (BALCO) etc. The UPA government which took charge in 2004, abandoned this route. The present NDA regime under Modi may have resurrected the idea. Looking at the budget for current and previous year, it would appear so. For these years, Finance Minister Arun Jaitley provided for Rs 28,500 crore (2015-16)...
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Agri ministry defies govt
While the intent of the government is to give a big push to commercialisation of GM crops, the agriculture ministry is against it. In December 2015, the Union Agriculture Ministry had issued a Cotton Seed Price Control Order under which it fixed the price of cotton seed sales all over the country at a uniform level and max trait fee (royalty) payable to the technology provider (TP). Given that the genetically modified (GM) Bt cotton accounts for 98% total cotton seeds used in India, the decision was directed primarily at this segment. The ministry also ordered a probe by the Competition Commission of India (CCI) – in to alleged ‘monopolistic’ practices by the Mahyco Monsanto Biotech (India) Private Limited (MMBL)...
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REVIVING INDIA’S FERTILISER PLANTS
Efforts by successive Government’s to achieve self-sufficiency in the production of fertilisers have failed. The Modi Government should broaden its options and look for expansion of existing units or set up joint ventures abroad The Coal India Limited (CIL) and the National Thermal Power Corporation limited (NTPC) signed a joint venture agreement to revive the Sindri (Jharkhand) and Gorakhpur (Uttar Pradesh) plants of the Fertiliser Corporation of India (FCIL), at an estimated cost of about Rs 18,000 crore, over the next four years. CIL and NTPC operate in coal and power sectors respectively and both have their plates full to meet their commitments in those areas to help India achieve the growth target. But, given fertiliser is a different cup...
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Soft on borrowers
STRESSED ASSETS SCHEME : A close look at the scheme reveals that this is nothing but skulduggery and playing with jargons to make it look robust. Even as the Reserve Bank of India (RBI) has become increasingly tough with public sector banks ordering them to clean up their balance sheets by March 2017, it continues to treat the defaulting borrowers (who were responsible for their proliferating non-performing assets in the first place) with kid gloves. First, it was a scheme nick-named 5/25 introduced in December 2014, under which maturity of loans given to infrastructure companies could be extended up to 25 years. Six months later, this was followed by a scheme for “Strategic Debt Restructuring” (SDR). Under SDR, banks can...
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PLUGGING FOR THE POOR IN A WELFARE STATE
The Modi Government has sought to plug the leakages in the welfare delivery mechanism. It must now sustain the momentum to achieve double-digit growth rates Three decades ago, Prime Minister Rajiv Gandhi estimated that only 15 paise out of every rupee meant for the poor actually reached them because of leakages in the delivery system. This was a tacit admission that brazen loot of public money was happening but nothing was being done to curb it. Successive political establishments happily recalled the statement but never introspected on its seriousness. In his two years in office, Prime Minister Narendra Modi not only analysed the modus operandi of how the resources meant for the poor was being misappropriated, but also galvanised the...
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Time to shut door
P-NOTES REGIME : Why have a system where everyone is dissatisfied? Modi should crack the whip by saying “no” to foreign investment via ODIs/P-notes. Early last month, the Narendra Modi government revised the India-Mauritius DTAA (double taxation avoidance agreement) to withdraw exemption from tax on capital gains made by foreign investors from sale of shares of Indian companies from April 2019. That was a major attempt to kill the incentive for rounding tripping of Indian black money through that tax haven jurisdiction. The tax treaty with Singapore is being re-negotiated on the same lines. Now, the Securities and Exchange Board of India (Sebi) – the national regulator for investment in Indian stocks – has taken the fight against money laundering...
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Exclude the better-off
FOOD SUBSIDY The National Food Security Act (NFSA) enacted by the then UPA – government in 2013 guarantees availability of 5 kg of cereals per person per month at Rs 3 per kg rice, Rs 2 per kg wheat and Rs 1 per kg coarse cereals to 67% of India’s population (75% rural & 50% urban). The cost of making food available being substantially higher, this entails massive subsidy payment. Subsidy is financial supports given by government to enable a person buy a commodity which he cannot afford with his limited income. Prudence demands that this should be given for a temporary period to avoid perennial burden on the exchequer. This period should be used to enable him earn more...
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