Indian Finance Minister Arun Jaitley on Monday (27 July) said that the government will take a view on the draft Indian Financial Code, which proposes to dilute powers of the RBI (Reserve Bank of India) chief, after receiving comments from stakeholders. "FSLRC has made its recommendations, which have been made public for comments. After the comments are received, it is only then that the government will take a view," he told reporters here. The draft had proposed taking away Reserve Bank chief's authority to veto the interest rate decision of the central bank's monetary policy committee. The revised draft of Indian Financial Code (IFC) also proposed that the committee would have four representatives of the government and only three from the central bank, including the 'RBI Chairperson'. The draft talks of 'RBI Chairperson' and not 'RBI Governor'. RBI is headed by a Governor, at present. The revised draft of IFC, released by the Finance Ministry last week, is based on the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC), headed by Justice B N Srikrishna. The IFC, which is conceived as an overarching legislation for the financial sector, proposes a monetary policy committee which will be entrusted with the task of deciding the key policy rate and chasing the annual retail inflation target to be decided by the government in consultation with RBI. Further, it said the RBI "must constitute a Monetary Policy Committee to determine by majority vote on the Policy Rate required to achieve the inflation target". At present, the RBI Governor consults a Technical Advisory Committee, but does not necessarily go by the majority opinion while deciding on the monetary policy stance.(PTI)
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Revenue Secretary Shaktikanta Das said on Friday (24 July) the government would decide in the next 10 days its position on the legal dispute with foreign investors over a controversial tax. Das made the comments on the same day a specially appointed government panel issued its recommendation over how to resolve the stand-off over the so-called minimum alternate tax (MAT). The government has sought to retrospectively impose MAT on foreign investors, sparking a legal row. The Supreme Court is due to hold next month a hearing about the legality of the tax. (Reuters)
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The government will sell a 5 per cent stake in state-run Power Finance Corp Ltd on Monday (27 July) in a stock market transaction that could raise up to $267 million for the central government, as per the current market value. New Delhi will sell about 66 million shares of the company and the base price for the auction will be set on Saturday, said a government notice to the exchanges on Friday (24 July). Power Finance shares ended 0.2 per cent lower on Friday at Rs 259.55. The Power Finance share offering is part of the government's budget target to raise as much as $11 billion from divestment of its stake in state-run companies. The government has missed its divestment target for the last five years in a row. The proceeds from the asset sale programme are critical for Finance Minister Arun Jaitley's plan to narrow the fiscal deficit to 3.9 per cent of gross domestic product in the 2015/16 fiscal year that began in April.(Reuters)
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Proposals from a government panel reviewing monetary policy rattled markets on Friday (24 July), as foreign and domestic traders said a move to increase the government's weight in decision-making could undermine the Reserve Bank of India's independence. Under the panel's latest proposals, published late on Thursday and part of a broad and lengthy financial overhaul, the government would appoint four out of seven positions on a planned monetary policy committee. The Reserve Bank of India (RBI) would appoint three — one more than under earlier plans, but still less than the government. Under the proposal, the RBI governor also has no veto power, though he did under an earlier iteration of the plan. "The government appointing the majority of the external members in the monetary policy committee will dilute the independence of the RBI," said Rupa Rege Nitsure, chief economist at L&T Finance Holdings, who worked on a central bank report on monetary policy published in 2014. "In a political economy set up, it is difficult to have intellectual independence." Traders said they worried that if the proposed changes were implemented it could hurt the RBI's ability to push ahead with policies like inflation targeting, which has helped contain endemic price rises. "After buying into India given the way RBI has managed inflation, forex market, foreign investors will be worried about the credibility of the decision-making process if the government has a bigger say than the RBI," one foreign bank trader said. Government officials directly involved with the drafting process, however, played down market concerns. They said the draft was not final, and the RBI would respond in time. The proposals, from the Financial Sector Legislative Commission (FSLRC), are a revised version of a previous report that was published in 2013. RBI Governor Raghuram Rajan said that report was "schizophrenic", and would turn the RBI into a "paper tiger". The RBI targets consumer price index inflation at 6 per cent by January 2016 and 4 per cent by March 2018. Sticky retail prices and concerns over an inadequate monsoon have kept the central bank cautious, even as the government badly needs lower rates to accelerate economic growth. The RBI has cut interest rates by 75 basis points this year. "There has been no formal discussion with the RBI on this report," said the government official. "The RBI will be formally consulted when we start drafting the bill."(Reuters)
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Sutanu Guru explains how economic reforms actually started in the 1980s Most young Indians would have no memories of July, 24, 1991. That was when Dr Manmohan Singh presented his first Union Budget as Finance Minister. The consensus now is that the 1991 Budget is both a milestone and a watershed that showcases how a "socialist" and "controlled" economic regime called the "license-permit raj" gave way to liberal economic policies. There are many myths surrounding that Budget; as there are many facts too. One myth is that India had experienced no "economic reforms" or seen no liberal economic policies till the 1991 Budget. That is indeed a myth as facts point otherwise. Here is a list of some sectors, now called verticals, that actually saw reforms and liberal policies long before Dr Singh presented his "historic" Budget. In Januray 1982, the late A. R Antulay was forced to resign as the chief minister of Maharashtra because of the notorious "cement scam" exposed by The Indian Express. In those days, the cement industry was tightly controlled and regulated and both individuals as well as builders needed to apply for a "quota" for cement to be allocated. Inevitably, this had seeded mammoth corruption and a flourishing black market for cement. While the government controlled price for a bag was Rs 40, the black market price was in excess of Rs 150. It was alleged that Antulay was collecting cash in return for cement quotas from builders. This scam did ensure a chief minister lost his job. But it also prompted the then Indira Gandhi government at the centre to do something unusual. It announced that it was completely deregulating the cement industry where market forces, rather than the state would determine prices and production. Numerous cement plants came up across the country and the black market vanished in just a few years. It took more than 15 years then for the "market" pride of cement to reach the "black market" price of 1982. This one decision to deregulate provided proof that markets perform better than government bureaucrats. The year 1982 also saw two other policy moves that transformed the respective industries. India hosted the 1982 Asian Games and colour TV made its appearance. The government announced a policy whereby private companies were given full freedom to import, assemble, manufacture and market colour TV sets in India. This literally gave birth to the consumer electronics revolution in India that is still going on. Brands like Onida, Videocon and BPL became household names. There was another industry that was transformed in 1982. Till then, the two-wheeler market in India was dominated completely by Bajaj Auto, with a few other ailing state run units and some private players like LML trying to play catch up. The government announced a policy that allowed joint ventures between Indian companies and foreign automobile companies to manufacture and market two wheelers in India. In 1982, a consumer had to wait for about three years to get delivery of a Bajaj scooter after paying the full amount in advance. How things changed. All four Japanese auto majors, Yamaha, Suzuki (which had already started making the Maruti cars in a separate joint venture), Kawasaki and Honda signed up with Indian companies. The game changer was the venture between Honda and Hero, then a small company making bicycles and mopeds. Hero has gone on since then to become the largest motorcycle company in the world and India is now certainly emerging as a a manufacturing and export hub for automobiles and auto components. One argument of the "socialists" who opposed the entry of private and foreign investment was that the move would lead to a massive loss of jobs and widespread unemployment. This argument was used as a handy tool by employees of the Indian postal department to vehemently protest the decision of the then Rajiv Gandhi government to allow private companies to launch courier services. There were widespread protests and strikes. But look at the courier industry. Since then, it has become one of the largest source of employment for -semi skilled and skilled- Indian youth. No postal department employee has lost his or her job. But literally millions of jobs have been added directly and indirectly by large and small courier companies across India. In effect, 1991 and the Dr Singh Budget remains a landmark. But the fact is that liberal economic policies were being implemented systematically since 1982. Dr Singh made it "official" in 1991!
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Those holding undisclosed foreign assets have been given a one-time window to come clean. But will they? asks Sunil Dhawan The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015 is giving a one-time compliance opportunity for a limited period to persons who have any foreign assets which have not been disclosed for the purposes of Income-tax. In an earlier report, Assocham had put the amount of black money stashed abroad to the tune of nearly $2 trillion or Rs 120 lakh crore. It’s more than what India’s GDP was in 2013-14 when it stood at Rs 114 lakh crore or $1.9 trillion. Compliance WindowAs of now, the last date to come clean and make a declaration before the designated Principal Commissioner or Commissioner of Income Tax (PCIT/CIT) is 30th September, 2015 and by 31st December, 2015, the tax and penalty needs to be paid. To disclose unaccounted foreign income and assets, one has to fill FORM 6 which is available at income tax department website. Filing option is both offline and online by using digital signature. What’s The Penalty?The penalty is a flat rate of 30 per cent of the value of such undisclosed asset. In addition, the discloser would also be liable to pay penalty at the rate of 100 per cent of such tax (i.e., a further 30 per cent of the value of the asset). Therefore, in total the penalty comes to a total of 60 percent of the value of the undisclosed asset declared by him. The valuation of assets would be an interesting element in this saga. According to Amol Mishra, Head of Tax, myITreturn, an authorized e-return intermediary, “The value of such assets has to be determined on the basis of valuation report or FMV computation done by authorized valuers.” NRI earlier now resident: There may be instance when a person held NRI status earlier but now is a resident. The Act is clear on it too and necessitates them to pay up. Amol informs, “ If a person is a resident (as per provisions of Income-tax Act) in the year in which he had acquired undisclosed foreign assets out of undisclosed income chargeable to tax in India, he is required to file a declaration. The declaration should be made by such person of all undisclosed foreign assets acquired from undisclosed income chargeable to tax under the Income-tax Act for any assessment year prior to assessment year 2016-17. So the disclosure may be required, if the NRI was resident in India during one or more of such Assessment year/s and any foreign income has not been disclosed in Income-tax return or has escaped assessment under Income-tax Act, during such assessment year/s.” Will the plan work? How successful this one-time window would be to bring in the humongous amount of black money back in to the country remains to be seen. Mishra says, “It is difficult to estimate numbers at this moment. Taxpayers will go through the scheme, opt for expert advice and then decide on disclosures… Seeing the nuances involved and the implications of the provisions of this Act, we will allow filing of Form 6 only with the assistance of our experts.”
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Non-resident Indians (NRIs) can invest in National Pension System (NPS) to get a social security cover, pension regulator PFRDA’s Chairman Hemant Contractor said on Wednesday (22 July).While RBI has communicated to PFRDA about NRIs being eligible to make such investments, the government will shortly come out with a clarification on Foreign Exchange Management Act (FEMA) guidelines to facilitate non-resident Indians to invest in National Pension System (NPS), he said. “There was some ambiguity about whether to add NPS as eligible investment by NRI. So, we took up the matter with RBI and very recently they have given this clarification that NPS like insurance and mutual fund could also be eligible investment for NRIs,” Contractor said at an event organised by PFRDA here. “…the government will shortly be coming out with clarification to that effect in the FEMA guidelines” he said. Highlighting the importance of NPS scheme for Non-Resident Indians (NRIs), he said such residents especially living in the Middle-East are not having any mandatory social security benefit. This window would provide NRIs to save money for their old age, he said adding that they would also enjoy the tax break as prescribed. The Pension Fund Regulatory and Development Authority (PFRDA) is in talks with lenders such as SBI, HDFC Bank, Canara Bank, Indian Bank and several other south India-based banks to tap potential of NRIs. “We have started talking to bankers about attracting NRIs to enroll for NPS scheme. We see NRIs as very attractive market for NPS. We would like to push for NPS for the NRIs,” he said. The move will also help to increase the subscriber base and expand the pension corpus in the private sector.The current corpus under the National Pension System is Rs 91,000 crore.(PTI)
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The landmark bill on Goods and Services Tax (GST) on Wednesday (22 July) won majority support of the Rajya Sabha Select Committee, which endorsed almost all the provisions while also agreeing to demands of parties like TMC for a five-year compensation to states. The committee, headed by BJP’s Bhupender Yadav, in its report submitted to the House suggested changes in clauses pertaining to compensation and levy of 1 per cent additional tax by the states on inter-state supply of goods. The report, however, is marked by dissent notes from Congress, AIADMK and Left parties, which have expressed their opposition to the GST Constitution Amendment Bill in the existing form. The bill, which has already been approved by Lok Sabha, will now have to be taken up for passage in the Upper House. As it is a Constitution Amendment Bill, the bill has to be approved by two-third members in the Rajya Sabha. The ruling BJP government does not have a majority in Rajya Sabha and will have to depend upon support of regional parties and allies for passage of the bill. The committee has suggested that the provision in the bill that provided Centre “may” compensate states for a period up to five years for any revenue loss is substituted by a commitment for compensation for five years. In a clause relating to levy of 1 per cent additional tax by states, the committee suggested that the levy should only on “all forms of supply made for a consideration”. It, however, retained the representation of the Centre and States at the proposed level at one-third and two-third despite demand to reduce Centre’s representation to one-fourth. “Administratively we are taking all steps both Centre and states to meet April 2016 deadline. Effort would be to have reasonable rate of GST so that GST experience is a successful experience for the whole country,” Revenue Secretary Shaktikanta Das said. On the specific point of levy of 1 per cent additional tax by states, the Committee said, “additional tax in its present form is likely to lead to cascading of taxes”. The committee recommended that in the bill should define the word supply as “all forms of supply made for consideration”. As regards taxation of petroleum products, the Committee endorsed the provisions of the GST Constitution Amendment Bill under which a decision on taxation would be taken by the GST Council. To increase the resources of states, the Committee suggested that the “band” rate should be defined in the Act itself. The proposal would provide option to states to levy additional taxes within the band on specified goods and services to raise additional resources to meet local needs. On compensation to the states for revenue loss following implementation of the GST, the Committee suggested that the Bill should clearly provide for compensation for a period of five years. As per the current compensation mechanism decided by the Centre, the Union Government will give 100 per cent compensation for first three years of GST implementation and thereafter 75 per cent and 50 per cent in the fourth and fifth year. The report of the Rajya Sabha panel had three dissent notes by Congress, AIADMK and Left Parties. In their dissent notes, Madhusudan Mistry and Bhalchandra Mungekar (both Congress) and Mani Shankar Aiyar (nominated) said that the Bill “is pitted with compromises, exclusions and exceptions that make it impossible for us to extend our support to the Bill...” AIADMK in its dissent note demanded that petroleum should be kept out of GST and the representation of the states in the GST Council be reduced to one-fourth from one-third. The GST Council is entrusted with the task of overseeing its implementation, besides deciding on rates and exemptions. The Left parties raised concerns about the dominant role of Centre in the GST Council and said “GST should not be in the interest of corporate who want a free flow of goods and services”.(PTI)
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