Daily News Mail - News of 02/03/2015

Chances of Jammu and Kashmir to get closer : Mufti

• Soon after he took oath as the 12th Chief Minister of Jammu & Kashmir, Peoples Democratic Party leader Mufti Mohammad Sayeed called his party’s alliance with the BJP a historic moment which he wanted to be a turning point. 
• “Kashmir has been a problem in front of every Prime Minister, whether it was Jawaharlal Nehru, Indira Gandhi, Atal Bihari Vajpayee or now Narendra Modi. We want to change history and make this alliance a turning point in history,” he said.
• “It takes 30 minutes to travel [by air] between Jammu and Srinagar, and after the highways are completed, it will take four hours by road,” he said. But the distance between the two regions, he said, is far more than that and he hopes to close this distance with this alliance.
• Mr. Sayeed reiterated his belief that for the State to come closer to the Union of India, the two regions must come closer.
• Mr. Sayeed said India was destined to drive the SAARC region the way Germany did in Europe, and said Pakistan was the only bottleneck in that role.
• He acknowledged that Pakistan and the Kashmiri separatist leadership did not disrupt the atmosphere during the elections in the State leaving it conducive for a high turnout, and said he told Mr. Modi about it as well and urged that there must be a meaningful engagement with them.
• Among the 24 legislators sworn in as Ministers in Jammu and Kashmir on Sunday, 16 will join the Mufti Mohammad Sayeed Cabinet. While 10 of the PDP are in the Cabinet, the BJP has six, including People’s Conference chairman and party ally Sajjad Lone.

Prime Minister Narendra Modi with new J&K Chief MinisterMufti Mohammad Sayeed 

and People’s Conference chief Sajjad Gani Lone

Game changers in the Budget

Paradigm shift

• NITI Aayog has brought paradigm shift by directing the national policymaking body to “adhere to the tenet that while incorporating positive influences from the world, no single model can be transplanted from outside into the Indian scenario. We need to find our own strategy for growth.”

•  Almost a decade back, Finance Ministers and Central Bank Governors of the G20 nations had declared that “there is no uniform development approach that fits all countries” and “each country should choose the development approaches and policies that suit its specific characteristics.” Three years later, the World Bank conceded “we have learned the hard way that there is no one model that fits all.” Yet, for a decade more, India followed the economic model of the West till the NITI Aayog decided to correct the course. The game-changing elements in this Budget are in line with NITI Aayog’s philosophy.

• The first expression of the India-centric approach is the innovative agenda to ‘fund the unfunded’ 58 million micro and small businesses in the non-formal sector. This sector is unique to India. While in other countries the informal sector is largely illegal, in India, it is non-formal because government policies have not reached it. These 58 million non-formal micro businesses generate millions of rural and semi-urban entrepreneurs and provide 128 million jobs. Two-thirds of these units are operated by Scheduled Castes, Scheduled Tribes and Other Backward Classes. Yet, this Kamadhenu of job creation gets only 4% of its credit needs from banks. The sector now borrows at usurious rates of interest of 120% and beyond. While it is denied funds, the formal sector — which garnered some Rs.54 lakh crore since 1991 by way of foreign domestic and domestic capital and loans — has added just a couple of million jobs in two decades. 

• All governments since liberalisation had expected these millions of units to die of euthanasia in market economics. But they have posted the fastest growth among all segments of the Indian economy. But economic policymaking in India continued to ignore them. Mr. Modi is the first political leader to see the potential of this sector to drive up jobs. He also realised that the modern banking system is unsuited to fund this sector. In the last budget, the Modi government had announced a committee to structure a new financial architecture for this sector. The Reserve Bank of India reportedly opposed any new architecture. But this Budget has gone ahead and announced a new financial architecture, the Micro Units Development Refinance Agency (MUDRA), for the non-formal sector with a corpus of Rs.20,000 crore and budgetary support of Rs.3,000 crore for credit guarantee. MUDRA will come into existence by a separate law. This will fund the millions of entrepreneurs by an innovative financial architecture that will integrate the existing private financiers of small businesses as last-mile lenders. It is a completely indigenous, India-centric and innovative solution for the most job-intensive, yet totally credit-starved, segment of an economy unique to India.

Monetisation of gold

• The second potential game changer is the beginning of the process of monetisation of gold — creating and circulating money based on gold. Modern economists would dismiss gold as a wasteful item; as a “relic of barbarism.” This might be the case in the U.S., which successfully proscribed private gold in the 1930s, made possession of gold an offence and turned it into a government asset. But Indians celebrate gold and the Indian government, unable to do what the U.S. did, has always been bewildered about how to handle this asset. The Budget policy to monetise the domestic gold stock is an Indian solution to a unique Indian economic phenomenon. Obviously, no Western idea can handle it. If, through the sovereign gold bonds proposed in the Budget, the government can generate a substantial gold stock as buffer stock, India can aggregate its demand for gold and use that power in the international market. If it builds a decent buffer stock, it can play the global gold market which, barring China perhaps, no other country can, because only in India private gold consumption is as high as a fourth of the world’s. Despite that, India has no gold refining and standardisation infrastructure. This new policy will help build this. The only concern is that unless full tax immunity is granted to gold to be lodged in bonds, the entire stock of black gold may not enter monetisation.

• The next big idea is accident insurance for Rs.2 lakh at Rs.12 per annum; for life insurance at a premium of Rs.330 per annum and lifelong pension on an annual premium of up to Rs.1,000, each to be contributed by the beneficiary and the government equally. This ambitious plan aims to reach crores of poor Indians.

Scaling up execution

• Each one of them is a potential game changer. But their success requires scaling up of execution. The MUDRA idea requires millions of private financial intermediaries, who are currently providing finance to non-formal businesses, to be registered and integrated into the new architecture as the last mile delivery instrumentalities. The insurance and pension idea also needs mobilisation of crores of beneficiaries into the network. The idea of gold monetisation also calls for a massive campaign to convince the millions of Indians possessing gold to look at gold bonds as equal to gold itself. These are great ideas but their success will need scaling up of the kind which Mr. Modi demonstrated when he got over 12.5 crore Indians hooked to the banking system through the Jan Dhan Yojana [JDY]. The RBI was reportedly not very enthusiastic, if not optimistic, about such extensive banking extension. But Mr. Modi reportedly insisted on 7.5 crore bank accounts and in less than six months. He could scale up the very execution mechanism of PSU banks, written off by elite Indians as inefficient, to achieve not just 7.5 crore accounts but 5 crore more.
• Reaching and financially formalising crores of people was thought of as impossible till Mr. Modi could insist on and drive the JDY to a huge success. His high scale of success lends credibility to the massive reaches of human numbers proposed in the MUDRA, Pension and Sovereign Gold Bond schemes. With Aadhar cards and JDY accounts, the huge scale of operation assumed in the game-changing ideas in the budget do not seem over optimistic. If Mr. Modi succeeds in delivering credit through the MUDRA model to millions of non-formal units, he would do in India what Deng Xiaoping did to China through the 28 million Town and Village Enterprises. If Mr. Modi gets several crores of Indians hooked to the insurance and pension schemes, he could improve their life beyond recognition. If he brings hidden gold into national coffers through the sovereign gold bond scheme, he could transform gold from being a liability of India to its global asset.

Mr. Modi’s proven capacity to scale up the government to his level of ambition makes the game changing ideas in the Budget possible.

A framework for recovery and growth

This is a very good article highlighting on recovery and growth of the Indian economy by Subramanian Swamy (former Union Minister of Commerce and Professor of Economics).

• Budget-making today is a tough call for a Finance Minister trying to reverse the past decline caused by the UPA’s policies. The Indian economy, for example, decelerated from an 8.4% growth rate in GDP in 2003-04 to 4.8% in 2013-14. The UPA’s decade of economic decline has been wrongly attributed to the global economic meltdown especially during the last six years of the decade.

• Therefore, recovery and growth need a different policy today, and require choosing a new framework of objectives, priorities, strategy and resource mobilisation measures in constituting a budget.

• The Budget for 2015-16 presented on 28 February to Parliament by Union Finance Minister Arun Jaitley is a serious attempt to usher(show or guide (someone) somewhere) in such a new framework. An analysis of how far he has succeeded and what more remains to be done for a successful turnaround is the concern here in this article.

Participatory Notes

• The Indian economy has declined because of the peculiar Indian “invention” of that perfidious(untrustworthy) financial derivative called Participatory Notes or PNs, otherwise known as the crony(a close friend or companion)/crooked(bent or twisted out of shape or out of place; dishonest or illegal) facilitator for black money-based portfolio investment. No other country would think of such a derivative.

• The Budget does not treat PNs as a time bomb and to seek to abolish this derivative, as the Tarapore Committee had wanted. Actually, PNs have been even more legitimised by enhancing their status to that of FDI inflow.

• The Finance Minister ought to have abolished PNs in this Budget to stabilise the economy. I do not know if Mr. Jaitley was even shown this legitimisation of PNs which is in the fine print of the Budget documents.

• He has introduced many new measures, such as a vastly increased agricultural credit facility, the new MUDRA Bank to fund the underfunded, especially Scheduled Caste/Tribe entrepreneurs, tax-free bonds for infrastructure development, ultra-large power plants of 4,000 MW, monetisation of hoarded gold by paying interest on gold deposit accounts in banks and ease of doing business in India by a digitisation of procedures. But this is not enough to kick-start the economy since Mr. Jaitley has not embedded such piecemeal (characterized by unsystematic partial measures taken over a period of time; a little at a time) measures in the larger picture of economic reform and budgetary restructure.

The question arises here that why the participatory notes is dangerous?

Participatory Notes (PN) — a general name used for the investment by Foreign Institutional Investors (FIIs) through Offshore Derivative Instruments (ODIs) such as Participatory Notes, Equity-Linked Notes, Capped Return Notes and Participating Return Notes — have created a storm in the stock market, with SEBI coming out with a draft for discussion to regulate them, the RBI suggesting that they be phased out, and the Finance Minister assuring that the Government is not going to phase them out.

First things first. Let us clearly understand the fundamental issues. The PNs are a slap on the face of every citizen who is an investor. For a person to invest even in one share, several KYC (know your customer) forms have to be filled up, and PAN numbers and proof of address, etc., provided. For the PN investor the system is totally silent on even elementary information. The FIIs issue PNs to funds/companies whose identity is not known to the Indian authorities.

Looming crisis

• Today, for example, there is a budgetary crisis looming on the horizon because the allocations for major heads of expenditure — government employees’ salaries, pensions, police, defence, subsidies, interests to be paid for past loans taken by the government, etc., and which now cover 98% of the current and capital account revenues accruing to government — cannot be reduced without creating a political crisis.

• These allocations are revenue expenditures, and hence not asset-building or investments for development projects.

• Moreover, in the past, in the revenue budget, these expenditures far exceed the revenue. Thus, the revenue budget has been in huge deficit, and which is covered by taking more loans from public sector banks and creating a surplus in the capital account by trimming investment allocation.

• In the Budget, we find this is continued because Non-Plan Expenditure has risen 11% while Plan Expenditure has been stagnant. In a financially healthy economy, it should be the other way around — surplus on the revenue account, i.e., revenue exceeding expenditure, and a deficit in the capital account, i.e., investment exceeding amortisation. 

• This situation however cannot continue for long because loans from public sector banks to the government to pay for the overall deficit in the Budget have to be paid back. It will require a major recapitalisation of banks to meet the Basel III norms or else the public sector banks may go bankrupt by 2017. A time bomb is ticking here.

Being futuristic

• The big picture we have to usher in is an Indian economy growing annually at 10 to 12% by inducing the current household saving rate of 29% of income to rise again to the rate of 36%.

• To become a developed country in the foreseeable future, India’s GDP will have to grow at 10 to 12% per year for at least a decade. A 12% GDP growth rate per year will mean a doubling of GDP every six years, and that of per capita income, doubling every seven years.

• This level of the growth rate can take us to the league of the top three nations of the world, of the United States, China and India by 2020, and then aim to overtake China in the next decade thereafter. That should be a stated goal of every budget and not just a “balancing the books” exercise.

• Technically, this is within India’s reach, since it would require the rate of investment to rise while productivity growth will have to ensure that the incremental output-capital ratio** declines from the present 4.0 to 3.0. Productivity increases can be achieved by cutting transaction cost in the ease to do business and by motivating labour with incentives to work harder.

• Further, if we reduce transaction cost by eliminating corruption, then the current incremental capital-output ratio will easily fall from 4.0 to 3.0.

Enthusing the middle class

• This can also be sustained by directly, and not indirectly, enthusing the middle class — which today can be achieved only by abolishing personal income tax.

• In this Budget, the middle class has little to cheer about. The morning-after announcement of petrol and diesel price hikes even while internationally, crude oil price continues to be in decline, has only further discouraged the middle class. India’s middle class urgently needs some good news.

• India has many advantages to achieve a booming economy such as a demographic dividend, agriculture that has internationally the lowest yield in land and livestock-based products, and also, by WTO reckoning, the lowest cost of production, 12 months a year of farm-friendly weather, a highly competitive, skilled and semi-skilled labour force and low wage rates at the national level, the advantages of which have already been proved to the world by the outsourcing phenomenon. We have a young population — the average is 28 years when compared to the U.S.’s 38 years, and Japan’s 49 years — that is the base for it to usher(show or guide (someone) somewhere) in innovation in our production process.

• Since the worldview of economic development has now completely changed, economic development is no more thought of as being capital-driven, but knowledge-driven. For application of knowledge, we need innovations, which means more original research, and more fresh, young minds out of the cream of youth to be inculcated with learning and to be at the frontier of research.

• The unintended consequences of past policies should not make us squander this “natural resource” of youth we have acquired. Today, using proper policy application for the young, we must realise and harvest this demographic potential.

• Thus, these goals have to be at the core of the economic agenda underlying the making of the Budgets. But for all that to happen, more vigorous, market-centric, economic reforms are necessary and need to be at the centre stage of the nation’s attention in a Budget and not be overwhelmed by what corporate-driven, media hype expects of a budget.

• Looking ahead positively, the nation still has four more annual Budgets to see, and which will hopefully set the stage for India’s economic renaissance in the next decade.

**Incremental output capital ratio - The Incremental Capital-Output Ratio (ICOR), is the ratio of investment to growth which is equal to 1 divided by the marginal product of capital. The higher the ICOR, the lower the productivity of capital. The ICOR can be thought of as a measure of the inefficiency with which capital is used.

Medha Patkar joins campaign against neutrino project

• Social activist Medha Patkar on 1 March, 2015 said the campaign against proposed neutrino observatory project in Tamil Nadu will be taken up as a “national battle”, because some foreign companies were attempting to destroy the Western Ghats in India.

• Environment impact assessment was not done properly while choosing Pottipuram in Theni district, she alleged, adding that the India-based Neutrino Observatory (INO) project was proposed at a cost of Rs.1,500 crore.

• Extending her support to MDMK general secretary Vaiko, who has been opposing the underground observatory, Ms. Patkar said that it was the responsibility of Centre and scientists to answer the questions raised with regard to safety of people’s lives and the biodiversity of the Western Ghats

• Addressing a joint press conference along with Mr.Vaiko, she said digging of a huge tunnel would negatively impact the Western Ghats.

• “The Kasturirangan report pointed out the fragility of the Western Ghats. If the scientists are sure that the safety is intact, are they ready for a public debate,” she asked.

• She also asked the Centre to clarify whether the INO site will be used for storing nuclear waste coming from the Kudankulam Nuclear Power Plant.

Daily News Mail - News of 01/03/2015

Union Budget 2015-16

FISCAL DEFICIT

* Fiscal deficit seen at 3.9% of GDP in 2015/16

* Will meet the challenging fiscal target of 4.1% of GDP

* Remain committed to meeting medium term fiscal deficit target of 3% of GDP

* Current account deficit below 1.3% of GDP

* Jaitley says have to keep fiscal discipline in mind despite need for higher investment

* Fiscal Deficit - When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.

GROWTH

* GDP growth seen at between 8% and 8.5% year on year

* Aiming double digit growth rate, achievable soon

INFLATION

* Expects consumer inflation to remain close to 5% by March, opening room for more monetary policy easing

* Monetary policy framework agreement with the RBI clearly states objective of keeping inflation below 6%

* "One of the achievements of my government has been to conquer inflation. This decline in my view represents a structural shift."

REVENUES

* Revenue deficit seen at 2.8% of GDP

* Non tax revenue seen at Rs. 2.21 lakh crore

* Agricultural incomes are under stress

DISINVESTMENT

* Government targets Rs. 41,000 crore from stake sales in companies

* Total stake sale in 2015-16 seen at Rs. 69,500 crore

MARKET REFORMS

* Propose to merge commodities regulator with SEBI

* To bring a new bankruptcy code

* Jaitley says will move to amend the RBI act this year, and provide for a monetary policy committee

* To set up public debt management agency

* Proposes to introduce a public contract resolution of disputes bill

* To establish an autonomous bank board bureau to improve management of public sector banks

POLICY REFORMS

* To enact a comprehensive new law on black money

* Propose to create a universal social security system for all Indians

* To launch a national skills mission soon to enhance employability of rural youth

* To raise visa-on-arrival facility to 150 countries from 43

* Allocates Rs. 34,699 crore for rural employment guarantee scheme BORROWING

* Gross market borrowing seen at Rs. 6 lakh crore

* Net market borrowing seen at Rs. 4.56 lakh crore

GENERAL ANTI-AVOIDANCE RULES (GAAR)

* Government defers rollout of anti-tax avoidance rules GAAR by two years

* GAAR to apply prospectively from April 1, 2017

* Retrospective tax provisions will be avoided

TAXATION

* No change in personal Income Tax

* Health Insurance Premium deduction hiked from Rs. 15,000 to Rs. 25,000; for senior citizens to Rs. 30,000

* Transport allowance exemption hiked to Rs. 1,600, from Rs. 800 per month

* Additional 2% surcharge on people earning over Rs. 1 cr; to fetch Rs. 9,000 cr

* Wealth tax abolished

* Direct Taxes Code (DTC) dropped

* Rs. 50,000 deduction for contribution to New Pension

* To abolish wealth tax

* Replaces wealth tax with additional 2% surcharge on super rich

* Proposes to cut to 25% corporate tax over next four years

* Corporate tax of 30% is uncompetitive

* Net gain from tax proposals seen at Rs. 15,068 crore

* Jaitley proposes modification of permanent establishment norms so that the mere presence of a fund manager in India would not constitute a permanent establishment of the offshore fund, resulting in adverse tax consequences.

* Proposes to rationalise capital gains tax regime for real estate investment trusts

* Expects to implement goods and services tax by April 2016

* To reduce custom duty on 22 items

* Basic custom duty on commercial vehicle doubled to 20%

* Proposes to increase service tax rate and education cess to 14% from 12.36%

* Plans to introduce direct tax regime that is internationally competitive on rates without exemptions

* Exemptions for individual tax payers to continue

* To enact tough penalties for tax evasion in new bill

* Tax dept to clarify indirect transfer of assets and dividend paid by foreign firms

INFRASTRUCTURE

* Investment in infrastructure will go up by Rs. 70,000 crore in 2015-16 over last year

* Plans to set up national investment infrastructure fund

* Proposes tax-free infrastructure bonds for projects in roads, rail and irrigation projects

* Proposes 5 "ultra mega" power projects for 4,000 MW each

* Second unit of Kudankulam nuclear power station to be commissioned

* Will need to build additional 100,000 km of road

* Ports in public sector will be encouraged to corporatise under Companies Act

EXPENDITURE

* Plan expenditure estimated at about Rs. 4.65 lakh crore

* Non-plan expenditure seen at about Rs. 13.12 lakh crore

* Allocates Rs. 2.46 lakh crore for defence spending

* Allocates Rs. 33,150 crore for health sector

* If revenue improves, hope to raise budgeted allocations for rural job scheme by Rs. 5,000 crore

* There are two components of expenditure - plan and non-plan.

Of these, plan expenditures are estimated after discussions between each of the ministries concerned and the Planning Commission.

Non-plan revenue expenditure is accounted for by interest payments, subsidies (mainly on food and fertilisers), wage and salary payments to government employees, grants to States and Union Territories governments, pensions, police, economic services in various sectors, other general services such as tax collection, social services, and grants to foreign governments.

Non-plan capital expenditure mainly includes defence, loans to public enterprises, loans to States, Union Territories and foreign governments.

INVESTMENT

* Propose to do away with different types of foreign investment caps and replace them with composite caps

* To allow foreign investment in alternative investment funds

* Public investment needed to catalyse investment

GOLD

* To develop a sovereign gold bond

* To introduce gold monetisation scheme to allow depositors to earn interest

* To introduce Indian-made gold coin to reduce demand for foreign gold coins

SUBSIDIES

* Food subsidy seen at Rs. 1.24 lakh crore

* Fertiliser subsidy seen at Rs. 72,969 crore

* Fuel subsidy seen at 300 billion rupees

* We are committed to subsidy rationalisation based on cutting leakages

Social Security

* PM Suraksha Bima Yojana with accidental death cover of Rs. 2 lakh.

*Atal Pension Yojana with government contributing 50% of the premium.

* PM Jeevan Jyoti Bima Yojana: natural/accidental death cover of Rs. 2 lakh

* Rs. 9,000 unclaimed in PPF/EPF to be used for a Senior Citizen Fund.

GST on the horizon

Goods and Services Tax. After a decade of dithering, the final deadline for implementation has been set: the start of fiscal year 2016-17.

By replacing the bewildering assortment of levies and exemptions with a single tax, GST will create one all-India market with a uniform levy for most goods and services. This will dramatically ease doing business, cut transaction costs and radically alter the indirect tax landscape. By most estimates, this will add a full percentage point to GDP growth.

The second is the plan to cut corporate income tax from 30% to 25% over four years. Simultaneously, Jaitley has promised to end the array of exemptions and concessions.

This will lead to a more transparent tax code, and put India’s corporate tax rate in the ballpark with the global average of 23.8%.

Coupled with the further deferment of the reviled General Anti Avoidance Rules by two years, and a promise to implement it only from April 1, 2017, Jaitley has removed a major bugbear for foreign investors. Along with a major change proposed to bankruptcy laws — ease of doing business includes ease of exit, too — this will improve India’s ranking on this front.

Wealth tax killed

The third is the decision to abolish Wealth Tax. In 2013-14, wealth tax collections were Rs. 1,008 crore, which puts the total assessed wealth at just Rs. 20,000 crore.

“Should a tax which leads to high cost of collection and a low yield be continued or should it be replaced with a low cost and higher yield tax,” Jaitley asked.

Instead, he will tax those with a taxable annual income of over Rs. 1 crore an additional 2%. This will not only ease compliance and boost the mop up, it will also bury the socialist angst of the past.

The fourth is the clear move towards federalism. States will get Rs. 5.24 lakh crore out of the Centre’s revenue receipts in 2015-16 against the Rs. 3.38 lakh crore they got in 2014-15. Along with grants and transfers, they will get to spend 62% of Jaitley’s collections. Fiscal feudalism will be consigned to history.

More public investment

The fifth is the recognition that public investment will have to lead the way, and that private investment, particularly in the infrastructure space, will flow in only when the currently broken Public Private Partnership (PPP) model is fixed.

Jaitley has addressed this in a number of ways. He has stepped up public spending on infrastructure: it is slated to cross Rs. 70,000 crore in 2015-16. A new National Investment and Infrastructure Fund gets Rs. 20,000 crore, there will be tax-free bonds for infrastructure, and PPP deals will see the government underwriting much of the risk.

In the short term, this will mean a higher fiscal deficit. The gap will rise to 3.9% of GDP, the lowest since 2008 but higher than the 3.6% target set by his predecessor. But Jaitley will deviate only a little, and for a short while. In three years, he intends reducing the fiscal deficit to 3% of GDP. This, with moderate inflation — the target for the coming year is 5%, lower than the RBI’s 6 % — should pave the way for moderation in lending rates, spurring consumption and investment.

Entrepreneurship boost

The last is a focus on fostering entrepreneurship. From the announcement of an innovation fund to Rs. 20,000 crore for the creation of a ‘Mudra Bank’ to refinance lending to the MSME sector, Jaitley is betting big on the entrepreneur creating a virtuous cycle of growth and job creation.

But these future pay-offs come at the cost of some present pain, particularly for the salaried tax payer, who has only got nominal increases in healthcare and transportation allowances.


There are no grand hand-outs for the poor, though MNREGA allocations have been upped. Add the increase in Service Tax to 14% and the increase in general excise duty (by rounding off education cess), and this Budget will be a difficult political sell for the BJP.

Emphasis on 'Make in India'

Not surprisingly, the Budget placed a great deal of emphasis on the Prime Minister’s ‘Make in India’ drive, which he flagged off last September. Jaitley announced a clutch of measures that were aimed to nudge the country towards becoming a manufacturing hub.

The focus on fostering entrepreneurship was a recurring theme, even as Jaitley noted that a “major challenge is that manufacturing has declined from 18% to 17% of GDP…and manufacturing exports have remained stagnant at about 10% of GDP.”


Saying that the ‘Make in India’ programme is about meeting this challenge and creating new jobs, Jaitley announced a package of incentives to stoke the manufacturing sector. These included a gradual reduction in corporate tax, from 30% to 25%, a slash in basic customs duty on 22 industrial inputs, a reduction in the tax on royalty and the removal of special additional duty on IT products – all aimed at encouraging manufacturing at home.

A vision document

Piggybacking on Modi’s reputation for execution, the budget laid down ambitious quantitative targets on housing-for-all, road connectivity and sanitation by 2022 — India’s 75th year of independence.


The support for business was accompanied by a slew of social and welfare measures — a balance that has come to represent Modi’s signature style. The Pradhan Mantri Jan Dhan Yojana got eight mentions in the speech, with the scheme getting credit for ‘bringing 12.5 crore families into the financial mainstream’, within 100 days.

Clean India drive

As one would have expected, Swachh Bharat Abhiyan, the pet project Modi flagged off last Gandhi Jayanti, which Jaitley described as a movement to regenerate India, found more than one mention.

Taking note of the 50 lakh toilets already constructed in 2014-15, Jaitley said that the target of 6 crore toilets would certainly be met. He made sure this initiative didn’t lack in funding either. Corporate contributions to the Swachh Bharat Kosh and the Clean Ganga project were granted a 100% tax exemption. A 2% Swachh Bharat cess has also been proposed on all service tax payments in future.


The budget steered clear of UPA-style populism(ideology or political movement that mobilizes the population) by pruning(cut away) fuel subsidies and promised to root out leakages. It made clear its intention of moving to direct transfers through the JAM trinity (Jan Dhan, Aadhaar, mobile numbers).

Poll Slogan

Modi’s poll slogan of Sabka Saath, Sabka Vikas was kept in mind, with a slew of special benefits for girl children, the elderly, the under privileged and the disabled.


A social security net was promised for the 10.5 crore senior citizens, a MUDRA bank flagged off to fund micro enterprises run by SC/ST/OBC owners and the Sukanya Samridhhi scheme granted tax breaks.

Service tax hike will deliver all-round blow

The hike in service tax from 12.36% to 14%, as announced in the Budget, is going to ensure that eating out is set to become more expensive. Also, be prepared: going for a movie, ordering flowers, or even getting a haircut is set to be costlier. By increasing service tax, the Government has directly hiked the price of all things which are under service tax,'. Consumers will have to shell out more even for flight tickets, music concerts, sporting events as well as entry to amusement parks. The tax is also expected to hamper the tourism industry in India, bringing down tourist arrivals by around 50%


The $20 billion that the country earned from the 7.5 million tourist arrivals in 2014, is expected to slide to less than $12 billion, according to experts.

Setting up a business will become easier

As part of its efforts to bring transparency into the procedures for starting a business in India and enhance the ‘ease of doing business’, the Government will examine the possibility of doing away with the requirement for multiple prior permissions and replacing it with a pre-existing regulatory mechanism.

It takes 28 days to start a business in India, according to World Bank data, compared with three days in Australia, four in Korea, 11 in Japan and three days in Hong Kong. Even Pakistan and Bangladesh are better than India, with average time required to start a business at 19 days and 20 days, respectively.

Jaitley said that he intended to appoint an expert committee to prepare a draft legislation that would replace the need for multiple prior permissions with a pre-existing regulatory mechanism.

Govt. to allow FDI in alternative investment funds

What is Alternative Investnment Funds : An entity that collects money from people, and invests it. But unlike the regular mutual funds, they donot usually involve in the conventional debt-equity share market type investment. And They’re not covered under SEBI’s regulations for mutual funds and collective investment schemes. Such funds / entities are called Alternative Investment fund.

The announcement by Finance Minister Arun Jaitley to allow foreign investment in Alternative Investment Funds (AIFs), a category of pooled-in investment vehicles for real estate, private equity and hedge funds, is expected to give a boost for private equity industry in India.

Furthermore, Jaitley proposed to allow tax pass-through for alternate investment funds.
Read our full coverage on Union Budget


AIFs are basically funds established or incorporated in India for the purpose of pooling in capital from Indian investors. In presentation of Budget for 2015-16, FM has also said that the government would do away with different categories like Foreign Portfolio Investors (FPI) and Foreign Direct Investment (FDI) for such investments with a view to making it easier for overseas investors to invest in AIFs.

Banking on disinvestment

Finance Minister Arun Jaitley does not seem to be fazed by past failures to achieve targets given that he has projected capital receipts of Rs. 69,500 crore from disinvestment. This includes Rs. 41,000 crore from stake sales in both profitable and loss-making PSUs.

But a new head in the Receipt Budget for 2015-16 indicates that another Rs. 28,500 crore is proposed to be raised through “strategic divestment”. Strategic disinvestment is akin to the sale of Hindustan Zinc and Balco to Vedanta by the previous NDA regime. Typically, PSU disinvestments have seen minor stake sales. Market experts say that when you sell to a strategic investor, he’s looking for control.

The Government sees disinvestment as a major source of revenue, after tax collections, to finance the fiscal deficit. It has lined up a slew of companies for possible disinvestment, including Indian Oil Corporation, National Mineral Development Corporation, BHEL and Nalco.


Divestment is also a pressing need in light of listing norms that stipulate a minimum public shareholding of 25 per cent. The major PSUs where the Government holding is more than 75 per cent include Coal India, NHPC, NMDC and SJVN. The Government’s stake is about 90 per cent in companies such as MMTC, Hindustan Copper, HMT, Neyveli Lignite and STC.

A surprise booster for MGNREGA

A day after Prime Minister Narendra Modi took a dig at the Congress over the the Mahatma Gandhi Rural Employment Guarantee Act (MGNREGA) in the Lok Sabha, calling it a living proof of its misrule, Finance Minister Arun Jaitley increased its allocation to Rs. 34,699 crore, the highest it has ever received.


Jaitley said that he was enhancing MGNREGA’s budget by Rs. 5,000 crore and it was the highest it has ever got. MGNREGA was the flagship scheme for rural job enhancement under the UPA government and has come up for flak time and again since the Modi government came to power.

Education boost

The Finance Minister targeted the country’s 70% rural population with a slew of other measures, including the allocation of Rs. 79,526 crore for rural development activities, including MGNREGA.

Education received  Rs. 68,968 crore to which Jaitley clubbed the Mid-Day Meal scheme, while health was allocated  Rs. 33,152 crore. A large chunk of these were attributed to the “poor and disadvantaged”, which means that these would impact rural India as would the Rs. 10,351-crore set aside for women and child development. To create credit for the rural population with priority to SC&ST, and rejuvenate the micro-finance sector, Jaitley allocated a corpus of Rs. 20,000 crore to create a Micro Units Development Refinance Agency (MUDRA) Bank through a Pradhan Mantri Mudra Yojana.


To skill village youth under the government’s soon to be launched National Skills Mission, he set aside Rs. 1,500 crore for the Deen Dayal Upadhyay Gramin Kaushal Yojana. Jaitley emphasised the need for streamlining the direct transfer of benefits to rural populations and the poor. Calling it “a game changing reform”, he said the JAM Trinity – Jan Dhan, Aadhaar and Mobile – will allow the transfer of benefits “in a leakage-proof, well-targeted and cashless manner”. The Jam Trinity essentially means linking the Prime Minister’s Jan Dhan Yojana with a citizen’s Aadhaar identity and mobile number to transfer subsidies and benefits.

Helping hand for neighbours

The Indian Ocean countries of Sri Lanka and Maldives are to be allocated Rs. 683 crore, which includes Rs. 500 crore to Sri Lanka under both Plan and non-Plan allocations as per the Union Budget. In addition, Bhutan, another SAARC country, will be allocated Rs. 6,160.20 crore, while strife-torn Afghanistan will get Rs. 676 crore. The Budget, including both Plan and non-Plan allocations, provides for these funds under development assistance projects implemented by India for its neighbouring countries. The Ministry of External Affairs had sought these funds from the Finance Ministry. 


While India also plans to provide Rs. 15 crore as aid to Latin America, Myanmar will be a beneficiary of aid worth Rs. 270 crore, which includes funds from both Plan and non-Plan allocation.

Security at one rupee per month

At one rupee per month Finance Minister Arun jaitley has provided a Rs. 2 lakh accident or death cover for the aam aadmi in the Budget proposal.

Christened the ‘Pradhan Mantri Suraksha Bima Yojna’, it is targeted at the poor and vulnerable sections.

To this he has added the ‘Atal Pension Yojana’ for those who can pay premiums, which will have a government component as well. The Government will contribute 50 per cent of the beneficiaries’ premium limited to Rs. 1,000 each year, for five years, in accounts opened before December 31, 2015. These schemes will use the platform created by Pradhan Mantri Jan Dhan Yojana for financial inclusion. The scheme already has over 13 crore bank accounts comprising mostly of the poor and under privileged.

The Finance Minister also proposed the ‘Pradhan Mantri Jeevan Jyoti Bima Yojana.’ Here, the rate of premium will be Rs 330 a year or less than Re 1 per day. This will be available for those in the age group of 18 to 50 years and will cover both natural and accidental death risk of Rs 2 lakh.

In his Budget proposal Jaitley said that there is around Rs 9,000 crore worth of funds available through unclaimed deposit in the Public Provident Fund (PPF) and the Employees Provident Fund (EPF). He proposed to use this amount for creating a Senior Citizen Welfare Fund. It would primarily subsidize the premiums of vulnerable groups such as old age pensioners, BPL card-holders, small and marginal farmers and others. The Government will announce details of the scheme next month.


Senior citizens living below the poverty line in rural areas would also be provided physical aids and assisted living devices under a new scheme. He said that out of 10.5 crore senior citizens (people over the age of 60 years) over one crore are above the age of 80 years. Of these 70 per cent live in rural areas and a large number are in the BPL category.

Eyes on the Horizon

The Modi government’s first full Budget has its eyes firmly fixed on achieving medium-term growth. It suggests that the government wants to do all it takes to move to a higher growth trajectory — despite a sanguine forecast of 8.1-8.5% for the next fiscal. This includes relaxing the fiscal deficit target to 3.9% of the GDP for 2015-16, against the earlier roadmap of 3.6%. The target of 3% for 2016-17 has been pushed back by a year. What is remarkable is not that the target has been set aside for a couple of years. The UPA overshot it on several occasions, either to pull the economy out of a crisis, as in 2008-09, or to boost welfare schemes — only to brutally slash capital spending in other years, as in 2013-14. But there is nothing knee-jerk about this Budget. For the first time, the need for an enhanced deficit has been put on the table with a sense of confidence — it is meant to fund infrastructure creation and, by implication, will be inevitably corrected by the growth that such assets create. With a comfortable current account deficit, benign inflation, low oil prices, stable rupee, and no foreseeable political or global shock to make foreign investors rush for the exit door and push up interest rates, the Centre has chosen the right moment to hit the ‘invest’ button. Its confidence has rubbed off on investors as well, with the markets, rather uncharacteristically, taking the higher than projected deficit for 2015-16 in their stride. Running a higher fiscal deficit also makes sense in view of the increase in devolution of funds to the states; the Centre needs a breather to adjust. So, this Budget, unlike many earlier budgets, is biased towards investment rather than consumption as the engine of growth.

To fund this investment, the Budget plans to lift both savings and efficiency in financial intermediation. The middle class has been allowed generous deductions towards healthcare and pensions, meeting both macroeconomic and social objectives. Moves to promote gold bonds and their variants are also welcome. But apart from pursuing growth, the investment push has been prompted by another circumstance. As the Finance Minister said, with the PPP model in disarray, there is a need to revisit the sharing of risk in infrastructure projects. Such a pro-active role should also be seen in the context of uncertainty over the land acquisition ordinance, which could lead to private players holding back funds over the consent clause.

The Budget’s revenue projections look more credible than what was put out in July. Then, the government estimated a tax revenue increase of 18% for the current fiscal, with the economy growing at a nominal rate of about 12%. Collections have fallen short by over Rs. 10,000 crore and Jaitley is hoping for a 15.8% rise in tax collections in 2015-16 (at Rs. 1.4 lakh crore) over the revised estimates, assuming a nominal growth** rate of 13%, while also banking on the slight increases in service tax and excise duty rates. A disinvestment target of Rs. 69,500 crore, however, looks like a tall order, despite the buoyancy in the market. Whether the Centre will squeeze social spending to stick to the 3.9% deficit target or allow the deficit to go further will depend on the monsoon and the stability of macroeconomic indices. The move to abolish wealth tax and introduce a 2 % surcharge on the super-rich instead is sensible. Wealth tax is a vestige of the inspector raj, its collections not being worth the cost and harassment.

Apart from infra spend generating demand for industry, there is a lot for corporates to cheer about. A cut in corporate taxes from 30% to 25%, accompanied by the likelihood of lower interest rates, should spur industry to invest, particularly if red tape is cut to obtain clearances. An improved mechanism to resolve contractual disputes would address one of the biggest hurdles to doing business in India. From a political economy perspective, it appears that the tax-cum-regulatory package for industry is also meant to offset the uncertainty surrounding big bang land and labour reforms, with crucial elections around the corner.


However, in this seemingly comprehensive package of supply and demand driven measures, there is a bewildering omission: agriculture. Apart from the routine hike in credit targets, the Budget has little to offer. That the fertiliser subsidy has been hiked to nearly Rs. 73,000 crore at a time of subdued oil prices shows a surprising disinterest in addressing the problem of nutrient imbalance. The imbalance, owing to a disproportionately high usage of urea, has impacted soil quality. This once again points to the political constraints to reform. In sum, this Budget takes a five-year view, but it is also like a long-distance runner subtly asking for time.

**Nominal growth - Nominal Growth. Unadjusted for inflation. A calculation of nominal economic growth simply adds up the total of goods and services in current cash terms and makes no adjustment for inflation, which may lead to great overstatement of the real position.

Daily News Mail - News of 28/02/2015

Economic Survey 2014-15 highlights
Following are the highlights of Economic Survey 2014-15 presented by Finance Minister Arun Jaitley in Parliament today:

• GDP growth seen at 8.1-8.5% in 2015-16
• Double digit growth trajectory; 8–10% GDP in coming years
• Inflation shows declining trend during April-December
• Current Account Deficit (CAD) to decline to about 1% in 2015-16
• To adhere to fiscal deficit target of 4.1% of GDP; to aim for 3%
• Committed to fiscal consolidation; to enhance revenue generation
• More reforms on anvil; Goods and Services Tax, expanding direct benefit transfers to be game-changers
• Foodgrains production for 2014-15 estimated at 257.07 million tonnes; will exceed last 5-year average by 8.5 million tonnes
• NITI Aayog, 14th Finance Commission to enhance fiscal federalism
• External Sector returning to strength, resilience
• Need balance between ‘Make in India’ and ‘Skilling India’
• Services sector negotiations at WTO crucial for India in removing many market access barriers
• Revitalise PPP model to revive investment
• Manufacturing and services equally important for growth
• Consumer inflation in 2015-16 to be between 5-5.5%
• Lower inflation opens up space for more monetary easing
• There is scope for big bang reforms
• Labour, capital, land, market reform and skills to be engines of growth
• JAM Trinity - Jan Dhan Yojana, Aadhaar, Mobile - to help transfer of funds to poor without leakage
• Shield domestic industry to promote ‘Make In India’
• Borrowings to fund investment, not for meeting expenses
• Food subsidy bill in April-Jan up 20% to Rs. 1.08 lakh cr
• Reform Railway’s structure, commercial practices, overhaul of technology
• Public investment key growth engine in short-run for Railways, but not a substitute for private investment
• More disinvestments on the anvil in current fiscal
• Under-recoveries on petroleum products to come down to Rs. 74,664 crore in 2014-15, from Rs. 1.39 lakh crore in FY14
• 4Ds — Deregulation, Differentiation, Diversification, Disinter (better bankruptcy laws) - to push financial sector growth
• Implementation of GST to boost GDP, exports
• Suggests medium to long term fiscal policy to target deficit, expenditure
• Global commodity prices to remain weak in 2015
• Ecommerce sector to witness 50% growth in 5 years (Source - Business Line)

'4-D model for Banking Sector'

• The Economic Survey has prescribed a '4-D model' for the banking sector to face competition in the changed environment."Banking is hobbled by policy, which creates double financial repression, and by structural factors, which impede competition," the Economic Survey 2014-15, tabled in Parliament by Finance Minister Arun Jaitley, said.
• 4Ds of deregulation (addressing the statutory liquidity ratio (SLR) and priority sector lending (PSL), differentiation (within the public sector banks in relation to recapitalisation, shrinking balance sheets and ownership), diversification (of source of funding within and outside banking), and disinterring (by improving exit mechanisms),” it said.
• The Survey has recommended SLR, a portion of deposits mandatorily invested in Government securities, requirements can be gradually relaxed.This will provide liquidity to the banks, depth to the Government bond market, and also encourage the development of the corporate bond market, it said.The right sequence would be to gradually reduce SLR and then provide incentives for a deeper bond market, it added. Since 2010 RBI has slashed SLR by 350 basis points. Earlier this month, RBI slashed the SLR by 50 basis points to 21.5%. SLR, the proportion of deposits banks will have to keep in assets specified by RBI, including government bonds and securities, is more of a conduit for financing government deficits, although it is also an instrument of credit control. 
• The Survey has highlighted that further SLR reduction could help reduce the need for Government resources for bank recapitalisation. This is a better and cleaner way of recapitalising the banks than to allow banks to mark their G-secs to market and realise the accounting profits, according to the Survey. Reducing SLRs are critical to finding better sources of infrastructure financing, the Survey said, adding time is ripe for developing other forms of infrastructure financing, especially through bonds market.
• “PSL norms can be re-assessed. There are two options: one is indirect reform, bringing more sectors into the ambit of the PSL, until in the limit every sector is a priority sector; the other is to redefine the norms to slowly make the priority sector more targeted, smaller, and need-driven,” it said.
• The dual responsibility of building a modern economy and lifting the standard of living at the lowest percentiles of income demand creativity, including more evidence-based policy-making, especially in relation to PSL, it said.
• The Survey further said the analysis suggests that there is sufficient variation in the performance of public sector banks. The policy implication is that a one-size-fits-all approach to governance reforms, public ownership, exit and recapitalisation should cede to a more selective approach.
• It also suggested that more banks and more diversified ones must be encouraged.
• Healthy competition from capital markets is essential too, which will require policy support, it said.
• Besides, better bankruptcy procedures for the future are essential.

India in a sweet spot, says Economic Survey

• India has reached a sweet spot and could finally be on a double-digit medium-term growth trajectory, says the Economic Survey, projecting over 8 per cent growth in 2015-16.
• Decisive policy shifts by the Centre that have stabilised the macro-economic situation, a declining trend in inflation, and a benign external environment make India the cynosure of investors, says the report-card on the economy for 2014-15, tabled in Parliament on Friday.
• The Survey, which sets the tone for the Budget, sent the stock market surging, with the Sensex closing 473 points up on expectations of a business friendly initiative by Finance Minister Arun Jaitley tomorrow.
• The Survey, authored by Chief Economic Advisor, Arvind Subramanian, listed four factors for higher growth: the cumulative effect of reforms, declining oil prices, monetary easing due to lower inflation and a normal monsoon.

Growth surge

• “In the coming year, real GDP growth at market prices is estimated to be 0.6-1.1 percentage points higher vis-a-vis 2014-15,” the Survey said. Using 2014-15 as the base, growth at market prices is expected at 8.1-8.5 per cent in 2015-16, it said.
• Overall, the Survey said that in the short run, growth will receive a boost from lower oil prices, likely monetary policy easing facilitated by lower inflation, lower inflationary expectations, and the forecast of a normal monsoon this year.
• In the medium term, growth prospects will be conditioned by the ‘balance sheet syndrome with Indian characteristics,’ which has the potential to hold back rapid increases in private sector investment.
• The Survey observed that there has been a structural shift in the inflationary process due to lower oil prices and deceleration in agri prices and wages. “Going forward inflation is likely to remain in the 5-5.5% range, creating space for easing of monetary conditions,” it said.
• The Survey has expressed concern over the alarming rise in the stalling of projects in the last five years.However, “the good news is that the rate of stalling seems to have plateaued in the last three quarters. The stock of stalled projects has come down to about 7% of GDP at the end of the third quarter of 2014-15 from 8.3% the previous year,” it said.
• The Survey, which focuses on the broad themes of creating opportunity and reducing vulnerability, suggested India must meet its medium-term fiscal deficit target of 3% of GDP. This will provide the fiscal space to insure against future shocks.
• “The nation must also reverse the trajectory of recent years and move towards the golden rule of eliminating the revenue deficit and ensuring that, over the cycle, borrowing is only for capital formation. The way to achieve this objective should be based on firm control over expenditure, most notably by eliminating leakages in subsidies and social expenditures,” it said.

Opposition unimpressed

• The Survey, however, hit the political hotspot, with the Congress terming it a “statistical jugglery”, and the Left parties saying that the basic thrust of the Survey is anti-people.

Carbon tax on coal can be increased five-fold

• An almost five-fold increase in carbon tax on coal would still allow coal-fired power plants to remain profitable, the Survey said.
• Carbon tax on coal can be hiked from the current Rs. 100 a tonne to as much as Rs. 498 a tonne without compromising on the profitability of coal plants.

Skilling India is the key to future growth trajectory

• The future trajectory of India’s development depends on both ‘Make in India’ and ‘Skilling India’, says the Survey, adding there is a dual challenge of skilling and employing these in a proper way.
• It said a major impediment to the pace of quality job generation in India was because of the small share of manufacturing in total employment, calling for promoting growth of micro, small and medium enterprises. The survey said only 2% of the country’s workforce is skilled, which is much lower than in developing nations.
• According to a Labour Bureau report, the number of people aged 15 years who have or are receiving skills is a mere 6.8%. According to the National Skill Development Corporation, there was need of 120 million skilled people in the non-farm sector in 2013-14. To meet the challenge, the Narendra Modi government has created a separate Ministry for Skill Development as also skilling schemes for poor rural youth and minority dropouts.
• The Survey was also concerned at the deceleration in the compound annual growth rate of employment during the 2004-05 to 2011-12 period to 0.5% from 2.8% during 1999-2000 to 2004-05, against growth rate of 2.9% and 0.4%, respectively, in the labour force for the same periods.
• The National Skill Development Agency (NSDA) attempts to increase Employability of Youth in India. It is a fully autonomous body, constituted on the approval of Union Cabinet of India.On May 9, 2013, the Union Cabinet gave its nod to form NSDA.
• The National Skill Development Corporation India, (NSDC) is a one of its kind, Public Private Partnership in India. It aims to promote skill development by catalyzing creation of large, quality, for-profit vocational institutions. 
• The Modi government is set to launch a new skill development policy (Skilling India) by March 2015 that would bridge the gap between educational institutions and the labour market, minister of state for skill development and entrepreneurship Sarbananda Sonowal said here on Wednesday. The new scheme is expected to move beyond the target of skilling 500 million youth by 2020 that was set by the UPA government.

Renewables, a $160-billion investment opportunity

• Over the next five years, India’s renewable energy sector is likely to provide business opportunities worth $160 billion, according to the Survey.
• “Some of India’s major immediate plans on renewable energy include scaling up cumulative installed capacity to 170 gigawatts (GW) and establishing a National University for Renewable Energy,” the Survey stated.
• As on December 31, 2014 India’s total renewable power capacity has reached 33.8 GW of which wind energy continues to dominate the sector with 66% of installed capacity, followed by bio mass, small hydro power and solar power.
• India scaled up the National Solar Mission target by five fold to 100 GW by 2022.(earlier it was 20 GW by 2022).
• “The aim of this initiative is primarily to provide energy access to nearly 300 million households. The collateral benefit would be lower annual emissions of CO2 by about 165 million tonnes,” the Survey stated.
• “With more than half of the India of 2030 yet to be built, we have an opportunity to avoid excessive dependence on fossil fuel-based energy systems and carbon lock-ins that many industrialised countries face today,” it added.
• Meanwhile, the clean energy cess on coal which was introduced in 2010 was doubled in 2014 to Rs. 100 per tonne. Total collections under the National Clean Energy Fund has reached Rs. 17,000 crore as on September 2014 and 46 clean energy projects worth around Rs. 16,000 crore have been recommended support out of this fund.

Insuring Health

• The recently announced ‘Draft National Health Policy’ has the overarching objective of ensuring universal healthcare access. In this context, it is pertinent to note that currently, only around 4% of the population in the country has health insurance coverage. This has led to a situation where out-of-pocket healthcare spending constitutes 86% of total healthcare spends in India.

Economic Survey moots three-point action plan to realise ‘Make in India’ dream

• The Economic Survey of 2014-15 has suggested three initiatives in the decreasing order of effectiveness and the increasing order of controversy to realise the ‘Make in India’ dream.
• The non-controversial response lies in improving the business environment by making regulations and taxes less onerous((of a task or responsibility) involving a great deal of effort, trouble, or difficulty), building infrastructure, reforming labour laws, and enabling connectivity. “All these will reduce the cost of doing business, increase profitability, and, hence, encourage the private sector, both domestic and foreign, to increase investments,” the Survey said.
• The next response could be in the form of ‘industrial policy’. This could focus on promoting manufacturing by providing subsidies, lowering the cost of capital, and creating special economic zones (SEZs) for manufacturing activity.
• And then, it suggested a ‘protectionist’ response. Essentially, this would focus on the tradability of manufacturing intended to shield domestic manufacturing from foreign competition via tariffs, local content requirements, and export-related incentives. “The effectiveness of these actions is open to debate given past experience. Moreover, they could run up against India’s external obligations under the WTO and other free trade agreements, and also undermine India’s openness credentials,” the Survey said.
• Eliminating all exemptions for the countervailing duty (CVD) and special additional duties on imports would eliminate the negative protection facing the Indian manufacturers, it pointed out. The Survey went on to illustrate how the tax policy was effectively penalising domestic manufacturing. This could be addressed by enacting a well-designed GST preferably with one internationally competitive rate and with narrowly defined exemptions.
•  'Countervailing Duties' - Tariffs levied on imported goods to offset subsidies made to producers of these goods in the exporting country.

REMOVING ROAD BLOCKS:The tax policy was effectively penalising local manufacturing. This could be addressed by enacting a well-designedGoods and Services Tax.

GDP on a new base year

• New method to calculate the Gross Domestic Product (GDP) has two key elements: new base year and market price.
• It is a normal practice to change the base year once in five years.
• The new base year will be 2011-12 against the previous base year of 2004-05.
• Earlier, calculation was based on the factor cost or costs of production. Now, keeping in line with international practices, tabulation will be done on the basis of market price or the price which consumer pays. This is also called Gross Value Addition (GVA).
• New method also includes more detailed data on corporate activity, newer surveys of spending by households and informal businesses and taxes paid (after deducting subsidy).
• This changes growth estimate for 2013-14 to 6.9% from 4.7%.
• Similarly, the number for 2014-15 is likely to be 7.4% against 5.5-6%.
• Growth estimate for 2015-16 has also been made on new series and it is likely to be 8.1 to 8.5%.

Roaming to get cheaper as TRAI proposes lower tariffs.

• Under the latest draft amendment of the Telecommunication Tariff Order, TRAI proposes cutting down the maximum charges that can be imposed on outgoing local calls in roaming mode to 65 paise per minute, from the ceiling rate of Rs. 1 per minute.
• It also proposed cutting STD call rates in roaming mode to Rs. 1 per minute, from the maximum of Rs. 1.5 per minute. For incoming calls, it has asked telecom companies to charge a maximum of 45 paise per minute instead of 75 paise now.
• For SMS, it has proposed a maximum of 25 paise per STD SMS in roaming mode compared to the current ceiling of Rs. 1.50 per SMS. For local SMS, it has recommended a maximum of 20 paise compared with Rs. 1 now.

Australia lobbying to stop Great Barrier Reef making ‘in danger’ list

• Australia has embarked on a “whole of government” diplomatic and ministerial lobbying(seek to influence (a legislator) on an issue) campaign to correct “misinformation” and prevent the Great Barrier Reef from being placed on the UNESCO world heritage committee’s “in danger” list, a Senate committee has been told.