Category: Growth & employment

Fiscal slippage real worry, not growth

At this critical juncture when the next general election is just about a year away and in a month from now, Modi – government will be presenting its last full fledged budget, prime minister faces two major challenges viz: deceleration in GDP [gross domestic product] and slippage in fiscal deficit. After registering fairly impressive growth during the first three years of its stint [2014-15: 7.5%/2015-16: 8.0%/2016-17: 7.1%], the current year is expected to end with a significantly lower growth of 6.5%. Though, according to the chief statistician, the figure may be revised a bit upward [on receipt of more data], that may not alter the position drastically. However, the government is not unduly perturbed. In fact, from its perspective, the...
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GST – flip flop over inclusion of oil and gas

Once again, there are reports alluding to the possibility of the GST Council – all powerful body mandated to decide on tax rates, inclusions/exclusions, exemptions etc – taking up for consideration inclusion of natural gas within the ambit of GST. The prefix ‘once again’ has a loaded connotation. Even prior to launch of the Goods and Services Tax [GST] on July 1, 2017, finance minister, Arun Jaitely had given a hint that this would be considered in the 18th meeting of the Council to be held just before the launch. But, that was not to be. Six months since then, we are still hearing about its likely consideration! The issue needs to be seen in a much larger perspective. Natural...
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Removing judicial hurdles to accelerate growth

Recently, the Union Cabinet approved amendments to the Specific Relief Act, 1963, and a Bill viz. The Specific Relief [amendment] Bill, 2017 was introduced in the parliament on December 22, 2017. It deals with specific fulfillment of a contract as part of the Government’s ease of doing business policy. The amendments proposes that after two parties enter into an agreement and one of them breaks the contract, the affected party will have the freedom to get the contract executed by a third party. Also, the affected party can get costs and other expenses recovered from the party which broke the agreement [under the existing law, the courts grant monetary compensation in exceptional circumstances]. In case, the contract relates to infrastructure...
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Demonetization – were banks used to convert black into white?

Dwelling on the success of demonetization [announced on November 8, 2016], Prime Minister Modi informed the nation from the ramparts of historic Red Fort on August 15, 2017 that the government had cancelled the registration of over 200,000 shell companies [nick name for entities which are engaged in laundering black money]. He reiterated this on October 5, 2017 in his speech at the annual function of the Institute of Company Secretaries of India [ICSI] alluding to the axe falling on another about 100,000 such companies. These companies were identified while examining data on deposits made post-demonetization using advanced data analytics technique. Taking the process forward – in its all out war against black money and corruption – the government had...
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Taking on willful defaulters – Modi’s knock-out punch

The union government has promulgated an ordinance seeking to amend the Insolvency and Bankruptcy Code [IBC] – a law that was passed by the parliament last year aimed at faster and time-bound resolution of non-performing assets [NPAs] of commercial banks nearly 75% of which are with public sector banks [PSBs]. The resolution process involves the lender [read: bank] – under directions from the Reserve Bank of India [RBI] – making a reference of defaulting borrower to the National Company Law Tribunal [NCLT] which appoints interim resolution professional [IRP] for conducting the process. Under it, potential bidders make a bid for the company and the amount thus realized is used to pay back the loan. The process involves banks taking a...
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Fiscal glide path, to change or not – Jaitely’s dilemma

Having stuck to the fiscal consolidation road-map for three consecutive years beginning 2014-15 and put up a brave front in regard to remaining on course during the current year at least until recently, finance minister has now alluded to what he termed as ‘changing the glide path to meet the challenges emerging from structural reforms’. The statement was made at Morgan Stanley investor meet in Singapore. However, in the wake of Moody’s Investors Service revising India’s sovereign rating from Baa3 to Baa2 and outlook from ‘positive’ to ‘stable’, Jaitely has retracted from the above and exuded confidence that the government will stick to fiscal consolidation road-map. Yet, it is necessary to analyze the reasons for his discomfiture and assess whether...
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GST – single rate, key to harnessing its potential

In its meeting held on November 9/10, 2017, GST Council has brought about a major restructuring of GST architecture. It has moved 180 items from the 28% slab [178 to 18% and 2 to 12%] leaving only 50 items in the highest slab. Besides, there has been some shuffling of items in other slabs: 19 items from 18% [13 to 12% and 6 to 5%]; 8 items from 12% to 5% and 6 items from 5% to zero. The exodus of items en mass from the 28% slab – a large number of these being items of common use such as detergents, soaps, shampoos, chocolates, nutrition food etc shows that there was something fundamentally wrong in designing architecture in the...
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Demonetization – Modi changed goal post, really!

The opposition parties observed November 8 – the day demonetization was announced by Prime Minister, Modi last year – as a black day. It has castigated the government for changing the goal post if only to camouflage its alleged failures. A senior member of the Congress observed that increase in search and seizure, de-registration of shell companies, increase in the number of persons filing income-tax returns, digitalization etc have nothing to do with demonetization. They aver that the original objective of the exercise was only to destroy the black money which has not been achieved. Nothing could be farther from the truth. True, the government had estimated that Rs 300,000 crores won’t come back to the system thereby representing a...
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Subsidy reforms: even Modi won’t take that risk

Recently, Delhi Chief Minister Arvind Kejriwal vehemently opposed the hike in fares for travel by Metro Rail and offered to share the financial burden equally with the Union government to ensure that commuters are not affected. About three years ago, he had decided to give heavily subsidised power to households consuming up to 400 units a month. Then, too, he vowed to bear its financial burden out of the state budget. Kejriwal is not alone in giving subsidies using taxpayers’ money. During the last five decades of governance – be it at the Centre or in the states – successive political establishments have built a super-structure of subsidies, such as on fertilisers, food, kerosene, LPG, irrigation, power, credit, seeds, etc....
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RBI OBSESSION WITH INFLATION HINDERING RECOVERY

The Reserve Bank of India has yet again cautioned the Government against excessive public expenditure as it could lead to fiscal consolidation and prove to be inflationary In its fourth bi-monthly monetary policy review for the current year (announced on October 4), the Reserve Bank of India (RBI) has kept the policy rate (rate at which the central bank lends money to commercial banks) unchanged at 6.0 per cent. This has come as a rude shock to industries and businesses especially the small and medium enterprises (SMEs) which were anxiously looking forward to a cut for giving a much-needed fillip to growth. The SMEs are at the core of Prime Minister Narendra Modi’s agenda for promoting growth, creating jobs and increasing income....
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