Thursday, 12 March 2015

Daily News Mail - News of 12/03/2015

IMF forecast India growth rate at 7.2% this fiscal
  • The International Monetary Fund (IMF) has forecast India will grow 7.5% in 2015-16, up from 7.2% in the current year, a projection less optimistic than that of the Modi government.
  • In the Union budget 2015, the government estimated growth of up to 8.5% in 2015-16.
  • The Indian economy is the bright spot in the global landscape, becoming one of the fastest-growing big emerging market economies in the world, the IMF said in an official statement. The report stressed the urgency of certain key reforms, including the bottlenecks in the energy, mining and power sectors; infrastructure gaps, land acquisition processes and environmental clearances.
What's the coal scam about?
  • The coal scam, or what’s popularly called the coalgate, first came to light when India’s audit watchdog, The Comptroller and Auditor General of India, raised the issue of inadequacies in the allocation of coal blocks from 2004 onwards. It created a political storm, as the loss to the exchequer was initially pegged at over Rs. 10 lakh crore. The final report scaled it down to Rs. 1.86 lakh crore.
  • CAG’s criticism was that though the government had decided to allot coal blocks through a system of competitive bidding, what it ended up following was a method that was opaque and subjective. Further, its point was, there was no legal impediment in introducing a more transparent process. Last year, the Supreme Court ruled that coal blocks allocated by the government between 1993 and 2010 were illegal.
Fixing the PDS

The report of the Shanta Kumar Committee on food management - 'High Level Committee (HLC) for Restructuring of Food Corporation of India (FCI)' has been submitted to the Prime Minister's Office (PMO). But it is increasing unlikely that report will be accepted in full. The Union Food Minister has either turned down or expressed reservation on implementation of many of the reforms-oriented suggestions.

Some of its cogent(logical) recommendations are:
  • Reducing the number of people covered under the food security law from 67% to 40% of the population;
  • Expediting the direct cash transfer of food subsidy to the beneficiaries; and
  • Lowering of mandi taxes on foodgrain to a uniform 3 to 4% in all states.
Committee recommendation on procurement related issues:
  • FCI should hand over all procurement operations of wheat, paddy and rice to Andhra Pradesh, Chhattisgarh, Haryana, Madhya Pradesh, Odisha and Punjab as they have sufficient experience and reasonable infrastructure for procurement.
  • FCI procurement should focus on eastern belt, where farmers do not get minimum support price.
Committee recommendation on stocking and movement related issues:
  • FCI should outsource its stocking operations to various agencies such as Central Warehousing Corporation (CWC), State Warehousing Corporation (SWC), Private Sector under Private Entrepreneur Guarantee (PEG) scheme.
  • It should be done on competitive bidding basis, inviting various stakeholders and creating competition to bring down costs of storage.
  • Movement of grains should be containerized in order to reduce transit losses. While, railways should have faster turn-around-time by having more mechanized facilities.
The Ministry is also non-commital on downsizing of the unwieldy Food Corporation of India (FCI) by outsourcing its key functions to the states or to the private sector.

Limiting benefits under the food security law to 40% of the population - a suggestion that has been rejected outright - makes sense. The committee reckons that this would be sufficient to reach out to all those below the poverty line (BPL) and, in fact, some others as well. This could help the government save around Rs 30,000 crore in food subsidy, easing pressure on fiscal management. The surprising part is that though the ministry concedes that cash transfer of subsidy is a better mechanism than delivering food in kind, yet it is apprehensive of implementing it - except on a pilot basis in two Union territories of Puducherry and Chandigarh. It is believed to have expressed concern about what would happen to the grain procured by the government agencies if the subsidy is delivered in cash. But the implementation of the report's full package of measures - including reduced procurement and regular disposal of the procured grain in the market - would automatically stop the accumulation of excessive stock. It would also keep food prices stable all year round.

The food ministry's announcement that the FCI would stop buying wheat and rice in Haryana from this year and in Punjab from next year does not indeed mean much. The FCI's share in grain procurement in these states is already no more than 10% to 12%, with the rest being mopped up(mop up - to clean up with a mop, a sloppy mess made by someone or something) by the state agencies. In most other grain-surplus states, too, a sizable part of the marketed grains are bought by the local agencies under the decentralised grain procurement scheme that began over a decade ago. Thus, on the whole, the food ministry seems to be needlessly wary of change that is imperative(of vital importance, crucial) to revamp the food management system.

GST Bill : One Tax, One market, win-win for all

What is GST?

GST will be an unified tax levied by the government that will subsume a large number of central and state taxes on the supply of goods and services. GST is a value-added tax and will be destination based (the tax will be levied on the basis of the place of consumption not production).

Why is GST beneficial?

According to the Constitution, both the Centre and states are authorised to collect taxes and frame rules. Therefore, businesses that produce their products in one state and sell in another end up paying a number of taxes, which in turn increase the cost of the final product for the consumer. GST will eliminate this and reduce the end cost of a product. Also, according to estimates by the National Council of Applied Economic Research, the implementation of GST can enhance India’s GDP by 0.9-1.7% as the current system of multiple taxes was leading to distortion in allocation of resources as well as production inefficiencies.
GST will boost efficiency in the indirect tax regime, with tax liable only on the value added at each stage of output, so as to avoid tax-on-tax across goods and services, both at the Center and the states.

What is the procedure to implement GST?

The Constitution defines the goods that can be taxed by states and the Centre in the Seventh Schedule. Also, it does not allow states to tax supply of services and the Centre to tax sale of goods. Since the GST regime seeks to change these provisions, an amendment in the Constitution is required. The GST Bill seeks to carry out these amendments (the official name of the bill is The Constitution (122nd Amendment) Bill).

What changes does the Bill propose?

The Bill allows both Parliament and state legislatures to frame laws with respect to GST. However, the Centre will have the exclusive power to levy GST on imports and inter-state trade. It also provides for setting up of a GST council consisting of the union and state finance ministers to make recommendations with respect to GST such as the rate of tax and the quantum of compensation for states. This council will also act as the dispute settlement authority for matters related to GST.

What all products will be taxable under GST?

As per the Constitution (122nd Amendment) Bill, 2014, GST will be levied on all goods and services apart from alcohol meant for human consumption.

How would GST work?

GST will have three components: Central GST; state GST and integrated GST. CGST and IGST will be levied by the Centre while SGST will be levied by states.

What is integrated GST?

IGST would be levied on inter-state supply of goods or services. This tax will be levied by the Centre and the requisite payments will bw made to the state in which the goods or services are consumed. Import of goods or services would be treated as inter-state supplies and would be subject to IGST.

If GST is similar to VAT then what is its need?

Although GST is value-added in nature (similar to central VAT and state VAT), it subsumes many other taxes. Also, GST will remove the cascading effect since currently, both state VAT and CENVAT are levied on goods at point of sale and production stages respectively.

What are the concerns of states?

States had expressed concerns over revenue sharing between them and the Centre, and have said that there would be significant loss in tax collection. Also, states had requested power to tax petroleum and liquor products.

How have these issues been addressed?

As far as revenue losses are concerned, the GST Bill provides for compensation to states for a period of up  to five years. With respect to taxes on petroleum and liquor, the former will be zero-rated while the latter has been kept out of the purview of GST. There is also a provision for an additional levy of up to 1% on the inter-state trade, which will be levied by the Centre for two years and the resultant revenues will be assigned to states from where the supply originates.

Center will implement Goods and Services tax from 1 April, 2016(as announced in the  Budget).

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