Here we will be discussing topics like monetary reforms, banking reforms, fiscal reforms and other issues.
1. Monetary Policy Committee
The RBI Act was amended in the last budget which paved the way to the Monetary Policy Committee. The MPC consists of three representatives from the RBI including the Governor while there would also be three Government nominees. It would be responsible for controlling money supply in the economy by fixing the interest rate of the RBI. The Urjit Patel Committee under RBI had recommended for strict inflation targeting by setting the CPI at 4% with a band of plus or minus 2 percentage points.
2. Deepak Mohanty committee on financial inclusion
RBI had constituted the said committee for recommendations on medium-term path for financial inclusion. Here are the important recommendations:
3. Improving financial transactions
Electronic transactions have helped in elimination of intermediaries, faster delivery, lesser transaction cost and all the more convenience of beneficiaries/customers. It has also helped in the reduction of black money in the economy. Here are latest instruments of e-transactions.
- Bharat Bill Payment System - The BBPS is a centralised bill payment system that will allow you to use a single website or outlet to pay all your monthly or repetitive bills such as mobile phone and electricity. The National Payments Corporation of India (NPCI) has been designated as the authorized Bharat Bill Payment Central Unit (BBPCU) to set the standards for BBPS processes.
- RupeePayment or RuPay - India’s own card payment network like the VISA or MasterCard. It was launched by the NPCI with an intention of integrating the payment systems across India. Around 1.45 lakh ATMs and 8.75 lakh PoS (Point of Sale) terminals across the country accept the card. It will also be accepted on 10,000 e-commerce websites.
- Unified Payment Interface - The product will enable money transfers – both ‘Push’ and ‘Pull’ through smart phones through the use of virtual address and the customers need not provide detailed account/beneficiary details.
4. Payment Banks in India
RBI had given licenses to payment banks that are not full fledged banks. Payments banks can collect deposits of up to Rs.1 lakh, provide payments and remittance services and distribute third-party financial products like mutual funds, insurance etc. They won’t be able to give loans and issue credit cards, but can provide debit cards and Internet banking services. Recently India Post also got such a license.
5. Relaxation of banking licenses
The RBI has relaxed some of the criteria for establishing banks to bring more groups or individuals to the fore. According to a draft the minimum capital requirement is Rs 500 Crore. Professionals with minimum experience of 10 years and large non-banking finance companies can set up banks, but industrial houses and conglomerates that have more than 40% of total business from non-financial activities will be barred from promoting banks.
6. Pradhan Mantri Mudra Yojana and MUDRA Bank
The aim of the programme is to ensure the credit availability for the MSMEs. The MUDRA Bank would re-finance Micro Financial Institutions/Non Banking Financial Institutions who would then give loans to MSMEs. The interventions have been named 'Shishu', 'Kishor' and 'Tarun' to signify the stage of growth and funding needs of the beneficiary micro unit/entrepreneur.
7. Rising NPAs in banks
A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installment of principal has remained ‘past due’ for a specified period of time i.e. 90 days. The Public Sector banks with Stressed Assets of 10-11 % of the total are bearing the greater burden. The RBI has ordered the banks to do a strict Asset Quality Review (AQR) and the proportion of stressed assets of PSBs is assumed to mount to one-fourth of the total. This has reduced the lending capacity of banks. The Government has constituted the Banking Boards Bureau (BBB) under former CAG Vinod Rai to address this issue. The BBB would act as an interface between the Government and the banking administration.
8. Mission Indradhanush to revamp PSBs
The mission involves many elements like appointments, board of bureau, capitalisation, de-stressing, empowerment, framework of accountability and governance reforms. The banks require higher provisioning in line with the Basel III norms. Provisioning is to be increased to 15% by March 31, 2017 according to RBI order. This requires capital infusion by the Government.
9. The Goods and Services Taxes Bill
The GST is a system of uniform taxation on goods and services. It envisages a well-designed destination based value added tax on all goods and services. It would comprise of a GST Council headed by the Union Finance Minister and represented by his counterparts in the States. It would be adopting a floor rate plus band system rather than fixing rigid rates. Thus States would have slight flxibility in fixing tax rates. The states would be compensated for any loss in tax revenue for a 5 year period.
10. The 14th Finance Commission - the changed tax division pattern
Share of net-tax revenue to states increased to 42% from 32%. But the plan-transfers that are scheme based or grant based would decrease. It would result in greater untied funds for state thus leading to better financial autonomy. But the total allocation (statutory grants plus scheme based allocations) among the states would remain almost the same. The various criteria for the fund transfer, according to the Finance Commission are i) per capita income, ii) area, iii) population (according to 1971 Census), iv) demographic change (according to 2011 Census), and v) forest cover.
11. Redefining the concept of GDP in India
The base year has been changed from 2004-05 to 2011-12. Value addition (Gross Value Added) has been captured rather than growth in volumes to compute GDP growth. Further the computation of GVA has been done at market rates. Comprehensive coverage of sectors like corporate houses, the financial market, local bodies and autonomous institutions. At least a few economists within and outside India have been skeptical about this procedure.
12. Fiscal consolidation in India
Experts have raised the requirement for an Independent Fiscal Council to evaluate budget announcements and forecasts and assess if the intended provisions are feasible. Since the Fiscal Responsibility and Budget Management law came into effect, there have been four pauses in the deficit targets enshrined in it and a few occasions where the targets have been flouted. The union government monitors fiscal targets of the states but nobody oversees its own fiscal decisions. The Government has appointed a panel headed by N.K Singh to review the FRBM Act. It has recommended to replace fixed figures of fiscal deficit by a range.
13. NITI Aayog for new planning framework
It would consist of both medium term and long term plans. The NITI Aayog has suggested in doing away with the plan and non-plan distinction for expenditure classification. Instead, Revenue -Capital distinction is to be the basis of expenditure classification
14. Reforming Tax Administration
The Government is to consider the recommendations of the Tax Administration Reforms Commission headed by Dr. Parthasarathy Shome. Its important recommendations were merging the Central Board of Direct Taxes (CBDT) with the Central Board of Excise and Customs (CBEC), broadening India’s use of the Permanent Account Number (PAN) system, improving services to taxpayers and ending retrospective taxation. Based on these, the Government has announced the constitution of a common tax policy unit that will take a holistic view of direct and indirect tax policies
15. Measures to curb black money and tax evasion
According to Black Money Act, 2015, failure to declare foreign assets or income would result in a penalty of three times the tax payable and also imprisonment. India joined the Multilateral Competent Authority of Agreement (MCAA) on the Automatic Exchange of Financial Account Information which has 59 members. This ensures automatic and systematic sharing of information, unlike the earlier procedure where information pertaining to specific individuals was given, that too when there is a suspicion.
16. Transfer pricing issue
Multi National Corporations like Vodafone, Shell, Cairns have been shifting their profits to escape from taxation in India. They sell the shares of a company among sister-companies which is registered in tax havens. According to an amendment brought into Income Tax Act in 2012, such transfers are subject to capital gains tax and are to be considered in the same way as transfer of shares between two unrelated companies. But the MNCs have countered and they have got reprieve from the Supreme Court of India. Consequently, the Government has clarified that it would not venture into retrospective taxation which was making the foreign corporations reluctant to invest in India.
17. Arresting the rush for gold
Indians have a typical appetite for gold. Gold is considered by many as a good choice of investment on account of its surging value. The high import of gold has resulted in the increasing Current Account Deficit (CAD) in India. The Government has introduced the following programmes to arrest the rush for gold and to turn the huge quantities of gold in bank lockers to productive investments:
- Gold monetisation scheme - Gold is deposited (minimum quantity of 30 gms) in banks in the form of a fixed deposit and interest is accrued from it. On maturity, the depositor will have the option to either take it in gold or equivalent rupee terms which he/she has to declare while opening the account.
- Sovereign Gold Bond Scheme - Under this scheme Government bonds linked to prevailing gold rates are issued. The tenure of the bond is for a minimum of eight years during which the investor would gain interest. The minimum investment in bond is amount equivalent to two grams of gold.
18. Competitive devaluation of currency
Countries like China has been devaluing their currency in order to make it more competitive compared to other currencies and in turn increase the exports from that country. Generally the currencies have floating exchange rates that are determined by the market forces of supply and demand. The emerging market countries often have a managed exchange rate to create stability in the value of their currencies.
Next: Science & Technology
Monetary and banking reforms
1. Monetary Policy Committee
The RBI Act was amended in the last budget which paved the way to the Monetary Policy Committee. The MPC consists of three representatives from the RBI including the Governor while there would also be three Government nominees. It would be responsible for controlling money supply in the economy by fixing the interest rate of the RBI. The Urjit Patel Committee under RBI had recommended for strict inflation targeting by setting the CPI at 4% with a band of plus or minus 2 percentage points.
2. Deepak Mohanty committee on financial inclusion
RBI had constituted the said committee for recommendations on medium-term path for financial inclusion. Here are the important recommendations:
- Augmenting the Government social cash transfer
- Sukanya Shiksha Scheme - account opening for females belonging to low income groups
- Aadhaar linked accounts under the Jan Dhan Yojana
- Use of mobile technology to improve last mile connectivity and delivery
- Digitisation of land records
3. Improving financial transactions
Electronic transactions have helped in elimination of intermediaries, faster delivery, lesser transaction cost and all the more convenience of beneficiaries/customers. It has also helped in the reduction of black money in the economy. Here are latest instruments of e-transactions.
- Bharat Bill Payment System - The BBPS is a centralised bill payment system that will allow you to use a single website or outlet to pay all your monthly or repetitive bills such as mobile phone and electricity. The National Payments Corporation of India (NPCI) has been designated as the authorized Bharat Bill Payment Central Unit (BBPCU) to set the standards for BBPS processes.
- RupeePayment or RuPay - India’s own card payment network like the VISA or MasterCard. It was launched by the NPCI with an intention of integrating the payment systems across India. Around 1.45 lakh ATMs and 8.75 lakh PoS (Point of Sale) terminals across the country accept the card. It will also be accepted on 10,000 e-commerce websites.
- Unified Payment Interface - The product will enable money transfers – both ‘Push’ and ‘Pull’ through smart phones through the use of virtual address and the customers need not provide detailed account/beneficiary details.
4. Payment Banks in India
RBI had given licenses to payment banks that are not full fledged banks. Payments banks can collect deposits of up to Rs.1 lakh, provide payments and remittance services and distribute third-party financial products like mutual funds, insurance etc. They won’t be able to give loans and issue credit cards, but can provide debit cards and Internet banking services. Recently India Post also got such a license.
5. Relaxation of banking licenses
The RBI has relaxed some of the criteria for establishing banks to bring more groups or individuals to the fore. According to a draft the minimum capital requirement is Rs 500 Crore. Professionals with minimum experience of 10 years and large non-banking finance companies can set up banks, but industrial houses and conglomerates that have more than 40% of total business from non-financial activities will be barred from promoting banks.
6. Pradhan Mantri Mudra Yojana and MUDRA Bank
The aim of the programme is to ensure the credit availability for the MSMEs. The MUDRA Bank would re-finance Micro Financial Institutions/Non Banking Financial Institutions who would then give loans to MSMEs. The interventions have been named 'Shishu', 'Kishor' and 'Tarun' to signify the stage of growth and funding needs of the beneficiary micro unit/entrepreneur.
7. Rising NPAs in banks
A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installment of principal has remained ‘past due’ for a specified period of time i.e. 90 days. The Public Sector banks with Stressed Assets of 10-11 % of the total are bearing the greater burden. The RBI has ordered the banks to do a strict Asset Quality Review (AQR) and the proportion of stressed assets of PSBs is assumed to mount to one-fourth of the total. This has reduced the lending capacity of banks. The Government has constituted the Banking Boards Bureau (BBB) under former CAG Vinod Rai to address this issue. The BBB would act as an interface between the Government and the banking administration.
8. Mission Indradhanush to revamp PSBs
The mission involves many elements like appointments, board of bureau, capitalisation, de-stressing, empowerment, framework of accountability and governance reforms. The banks require higher provisioning in line with the Basel III norms. Provisioning is to be increased to 15% by March 31, 2017 according to RBI order. This requires capital infusion by the Government.
Fiscal reforms
9. The Goods and Services Taxes Bill
The GST is a system of uniform taxation on goods and services. It envisages a well-designed destination based value added tax on all goods and services. It would comprise of a GST Council headed by the Union Finance Minister and represented by his counterparts in the States. It would be adopting a floor rate plus band system rather than fixing rigid rates. Thus States would have slight flxibility in fixing tax rates. The states would be compensated for any loss in tax revenue for a 5 year period.
10. The 14th Finance Commission - the changed tax division pattern
Share of net-tax revenue to states increased to 42% from 32%. But the plan-transfers that are scheme based or grant based would decrease. It would result in greater untied funds for state thus leading to better financial autonomy. But the total allocation (statutory grants plus scheme based allocations) among the states would remain almost the same. The various criteria for the fund transfer, according to the Finance Commission are i) per capita income, ii) area, iii) population (according to 1971 Census), iv) demographic change (according to 2011 Census), and v) forest cover.
11. Redefining the concept of GDP in India
The base year has been changed from 2004-05 to 2011-12. Value addition (Gross Value Added) has been captured rather than growth in volumes to compute GDP growth. Further the computation of GVA has been done at market rates. Comprehensive coverage of sectors like corporate houses, the financial market, local bodies and autonomous institutions. At least a few economists within and outside India have been skeptical about this procedure.
12. Fiscal consolidation in India
Experts have raised the requirement for an Independent Fiscal Council to evaluate budget announcements and forecasts and assess if the intended provisions are feasible. Since the Fiscal Responsibility and Budget Management law came into effect, there have been four pauses in the deficit targets enshrined in it and a few occasions where the targets have been flouted. The union government monitors fiscal targets of the states but nobody oversees its own fiscal decisions. The Government has appointed a panel headed by N.K Singh to review the FRBM Act. It has recommended to replace fixed figures of fiscal deficit by a range.
13. NITI Aayog for new planning framework
It would consist of both medium term and long term plans. The NITI Aayog has suggested in doing away with the plan and non-plan distinction for expenditure classification. Instead, Revenue -Capital distinction is to be the basis of expenditure classification
14. Reforming Tax Administration
The Government is to consider the recommendations of the Tax Administration Reforms Commission headed by Dr. Parthasarathy Shome. Its important recommendations were merging the Central Board of Direct Taxes (CBDT) with the Central Board of Excise and Customs (CBEC), broadening India’s use of the Permanent Account Number (PAN) system, improving services to taxpayers and ending retrospective taxation. Based on these, the Government has announced the constitution of a common tax policy unit that will take a holistic view of direct and indirect tax policies
Other economic issues
15. Measures to curb black money and tax evasion
According to Black Money Act, 2015, failure to declare foreign assets or income would result in a penalty of three times the tax payable and also imprisonment. India joined the Multilateral Competent Authority of Agreement (MCAA) on the Automatic Exchange of Financial Account Information which has 59 members. This ensures automatic and systematic sharing of information, unlike the earlier procedure where information pertaining to specific individuals was given, that too when there is a suspicion.
16. Transfer pricing issue
Multi National Corporations like Vodafone, Shell, Cairns have been shifting their profits to escape from taxation in India. They sell the shares of a company among sister-companies which is registered in tax havens. According to an amendment brought into Income Tax Act in 2012, such transfers are subject to capital gains tax and are to be considered in the same way as transfer of shares between two unrelated companies. But the MNCs have countered and they have got reprieve from the Supreme Court of India. Consequently, the Government has clarified that it would not venture into retrospective taxation which was making the foreign corporations reluctant to invest in India.
17. Arresting the rush for gold
Indians have a typical appetite for gold. Gold is considered by many as a good choice of investment on account of its surging value. The high import of gold has resulted in the increasing Current Account Deficit (CAD) in India. The Government has introduced the following programmes to arrest the rush for gold and to turn the huge quantities of gold in bank lockers to productive investments:
- Gold monetisation scheme - Gold is deposited (minimum quantity of 30 gms) in banks in the form of a fixed deposit and interest is accrued from it. On maturity, the depositor will have the option to either take it in gold or equivalent rupee terms which he/she has to declare while opening the account.
- Sovereign Gold Bond Scheme - Under this scheme Government bonds linked to prevailing gold rates are issued. The tenure of the bond is for a minimum of eight years during which the investor would gain interest. The minimum investment in bond is amount equivalent to two grams of gold.
18. Competitive devaluation of currency
Countries like China has been devaluing their currency in order to make it more competitive compared to other currencies and in turn increase the exports from that country. Generally the currencies have floating exchange rates that are determined by the market forces of supply and demand. The emerging market countries often have a managed exchange rate to create stability in the value of their currencies.
Next: Science & Technology
No comments:
Post a Comment