In a flurry of announcements made on September 20, 2019 [also described in media circles as a third budget in less than three months], the finance minister, Nirmala Sitharaman handed out a bonanza to the Indian corporate sector. The most pleasing announcement pertains to steep reduction in the rate of corporate tax for new entities incorporated from October 1, 2019 in manufacturing sector and start production by March 31, 2023 from existing 25% to 15%. After subsuming surcharge and cess, the effective incidence of tax will be lowered from existing 29.15% to 17.01% – a drop of 12%. Such companies won’t have to pay minimum alternate tax [MAT] [levied on book profit of firms which have no taxable profit courtesy,...
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Agri-credit not going where it should
Successive governments have show-cased loans from scheduled commercial banks [SCBs], state cooperative banks [SCBs], district cooperative banks [DCBs] and regional rural banks [RRBs] [also referred to as institutional loans] to farmers at concessional rate of interest as demonstration of their commitment to help them increase their income from agricultural and allied operations. Modi – government has often proclaimed this as one of the potent instrument of doubling farmers’ income by 2022. The total amount of agricultural credit increased from about Rs 915,000 crore during 2015-16 to Rs 1065,000 crore during 2016-17 and further to Rs 1170,000 crore during 2017-18. As per directives of the Reserve Bank of India [RBI], farmers get short-term crop loans up to Rs 300,000 at subsidized...
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GST math goes haywire
One of the reasons for inordinate delay in taking up the constitutional amendment bill for enactment of the Goods and Services Tax [GST] was the reluctance of the then UPA – government at the centre to agree to the demand of the states for compensation of the loss of revenue that would arise with its launch vis-à-vis the revenue they would get under the subsisting dispensation of excise duty, sales tax or value added tax [VAT] plus a host of other local taxes. Modi – government by agreeing to this demand achieved a fair degree of success in building consensus among all the states. Within two years of taking charge in 2014, it was able to steer through the constitutional...
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Fertilizers – disjointed policies, contrary signals
Modi – government is running in its sixth year [five years of the first term and first of Modi 2.0]; we are yet to see a coherent announcement on reforms in the fertilizer sector forget giving a ‘stable’ and ‘predictable’ policy badly needed to give a clear-cut signal to various stakeholders for taking decisions with regard to investment, innovation, imports, logistics and use etc. All that we see is exhortation from the Prime Minister himself made in bits and pieces from the public platform. Let us pick up some of most crucial ones. First, in the 38th edition of “Mann ki Baat” delivered on November 26, 2017, Modi exhorted farmers to take a pledge for reducing consumption of urea [the...
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Reforming agri-markets – a hoax
An inter-ministerial panel for rural and agriculture sectors has identified trade barriers within the mandi system [mandi is state-run market yards known as agricultural produce marketing committees (APMCs)] that continue to hurt traders dealing in food commodities, which, in turn, affects farmers. The panel cites this as a major factor responsible for lower farm income. Arguing that farmers need freer access to markets for selling their produce , it has recommended removal of the inter-state mandi tax [levy collected from traders when agri-products are sold from one state to another] and replacing it by a single pan-India mandi tax. It has also mooted a pan-India licence valid across all mandis [a total of 585 in 16 states and two union territories]. The panel...
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Growth pangs in auto – avoid GST rate cut
The deceleration in GDP [gross domestic product] which started in the second quarter of financial year [FY] 2018-19 and has continued till the first quarter of current year with the rate of growth plunging to 5 year low of 5% has led to consternation in industry and trade circles leaving a sizeable section of the fraternity worried that this trend might continue till the end of the year. This will mean further aggravation of the income and employment concerns. The government has rightly gone into introspection mode and has demonstrated its willingness to respond to the situation. The finance minister, Nirmala Sitharaman has held a series of consultations with industry and trade and come up with a number of measures...
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Rate cut transmission – benchmarking alone won’t help
On September 4, 2019, the Reserve Bank of India [RBI] has made it mandatory for all banks to link new floating-rate loans – to retail customers and micro, small and medium enterprises [MSMEs] – to an external benchmark. The external benchmark could be the repo rate [rate of interest that the apex bank charges on money lent to banks – also known as ‘policy rate’], yields on 3-6 month treasury bills as published by the Financial Benchmarks India Private Ltd [FBIL] or any other benchmark rate published by FBIL. The decision will be applicable to all fresh loans under ‘floating rate’ given from October 1, 2019. Borrowers with a floating rate loan who are eligible to pre-pay without pre-payment charges...
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PSBs – capital erosion continues unabated
During her second interactive session with the media on the state of the Indian economy and measures to give a boost, finance minister, Nirmala Sitharaman announced a number of bold reforms in the banking sector with major focus on consolidation of 10 public sector banks [PSBs] into 4 big entities – an overarching objective being to make them globally competitive and act as a foundation for achieving US$ 5 trillion milestone. Sitharaman informed about a substantial reduction in their gross non-performing assets [GNPAs] from 11.6% of total loans as on March 31, 2018 to 10.3% on March 31, 2019 [courtesy, huge recovery of over Rs 300,000 crore made possible largely by concerted action under the Insolvency and Bankruptcy Code (IBC)...
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Reform PPAs, stop fleecing consumers
The government has set up a committee to reform power purchase agreements [PPAs] [it is a contract between generators and power distribution companies (PDCs) setting the terms of electricity purchase by the latter from the former even as the tariff is approved by the state electricity regulatory commission (SERC)] in a manner as to make power available at ‘competitive price’ and give relief to consumers. The move looks laughable when seen in juxtaposition with the extant tariff policy environment as also the position on ground zero with regard to the architecture of PPAs already signed. On tariff policy, under directions from the state governments [they own and control PDCs], PDCs sell electricity to certain category of households and farmers at...
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RBI surplus transfer – much ado about nothing
On the face of it, the decision of the Reserve Bank of India [RBI] – India’s apex bank which manages the currency and payment systems as also the borrowings of the Government of India [GOI] and of state governments besides supervising or regulating banks – to transfer a whopping surplus of Rs 176,000 crore to GOI for the year 2018-19 [for RBI, the accounting year is on July-June basis] gives an impression that the latter has got a bonanza. While, some argue that the centre has ‘stolen’ the money from the RBI [e.g. Congress], others aver that this is easy money which the centre will use for bridging its fiscal deficit. The reactions are exaggerated. First, of the total amount Rs...
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