Kelkarpanel wants govtto bite the bulleton subsidy
BS REPORTER
New Delhi, 28 September
The Vijay Kelkar committee recommended in its report made public today
that the government prune its subsidies, check plan expenditure, raise
at least ~30,000 crore from disinvestment and shore up tax-to-GDP
ratio to restrict fiscal deficit at 5.2 per cent of the gross domestic
product (GDP) for the current financial year.
The committee warned that fiscal deficit could widen to 6.1 per cent
of GDP, against the Budget Estimate of 5.1 per cent, if the government
did not act. It said the Budget had overestimated tax receipts by
~60,000 crore and underestimated subsidies by ~70,000 crore.
The government, however, with the food security Bill on its mind, was
quick to distance itself from the committee's recommendations on
subsidies. Economic Affairs Secretary Arvind Mayaram told reporters:
"Some recommendations appear contrary to the government's declared
objective of sustained and inclusive growth." The panel recommended
the proposed Food Security Bill be implemented in phases. Mayaram
said: "The government has reiterated its intention of ensuring food
security for all." The panel said it wanted the government to increase
the prices of food items sold through ration shops every time the
minimum support price was revised. Besides, it recommended that
selling of sugar at ration shops be discontinued.
The committee also suggested that the prices of diesel be raised
immediately by ~4 a litre, kerosene by ~2 a litre and LPG by ~50 a
cylinder. It said these steps would reduce underrecoveries of oil
marketing companies by ~20,000 crore. However, analysts' estimates
suggest that the government's recent steps are good enough to reduce
the underrecoveries by ~20,300 crore.
The panel further recommended increasing the price of diesel at
regular intervals, until it became completely deregulated, and keeping
the subsidy on LPG and kerosene at affordable levels.
The Kelkar panel favoured the proposal to increase the maximum retail
price of urea by 10 per cent during the first year, with any further
increase being limited to any increase in the pooled gas price.
The panel made a case for the government saving additional ~20,000
crore in Plan expenditure through proper prioritisation and efficient
use of available resources.
On the tax front, it said the government needed to review the Direct
Taxes Code Bill and bring more services in the tax net. Besides, it
wanted the finance ministry to tone its tax administration.
On the indirect taxes, it suggested progressively cutting excise duty
from 12 per cent to 8 per cent to align it with the GST rate.
The Kelkar panel added that the government could garner ~30,000 crore
from disinvestment by making the offer-for-sale model attractive and
using the exchange-traded model for securities held by it in public
sector units. It also wanted the government to set up a group to
suggest on monetising the government's land resources.
The panel said the Centre might be able to cap its fiscal deficit at
4.6 per cent of GDP in the next financial year and 3.9 per cent in
2014-15, if the steps suggested by it were implemented.
>Kelkarpanel dilutes Finance Commission's fiscal road map
>DTCBill ill-timed
>Panel forsubsidy slash
>Save through cuts in Plan expenditure
>Pitches forrefined OFS and ETF models
>Pass Constitution amendmentBill for GST in wintersession
>Apragmatic approach: MGovinda Rao
>Form body on monetising govtland KELKAR PANEL REPORT PAGE 4 >
With food security Bill on mind, govt uncomfortable
(% ofGDP) BUDGET ESTIMATE WITHOUT REFORM WITH REFORM
>Total receipts 9.6 9.1 9.4
Gross taxrevenue 10.6 10.1 10.3 Non-debtcapital receipts 0.4 0.2 0.4
>Total expenditure 14.7 15.2 14.6
Non plan expenditure 9.5 10.2 9.8 ...ofwhich subsidies 1.9 2.6 2.2
Plan expenditure 5.1 5.0 4.8
>Fiscal deficit 5.1 6.1 5.2
>Revenue deficit 3.4 4.4 3.7
>Debt 45.5 46.7 46.1 FISCALROAD MAP
Scenarios outlined bythe Kelkar panel KEYRECOMMENDATIONS
|Immediately hike prices of diesel by ~4 a litre, kerosene by ~2 a
litre and LPG by ~50 a cylinder |Hike prices of food items at ration
shops every time MSP is revised |Implement Food Security Bill in
phases |Review Direct Taxes Code |Set up group to suggest on
monetising the government's land resources
The Kelkarpanel report said the Union Budget had overestimated tax
receipts by ~60,000 crore and underestimated subsidies by ~70,000
crore
PM approves architecture for Aadhaar-based subsidy transfer
BS REPORTER
New Delhi, 28 September
Prime Minister Manmohan Singh today cleared the architecture of the
Aadhaar-based system to launch nationwide cash transfer system for
subsidies and entitlements directly into the bank accounts of the
beneficiaries. Wages for the National Rural Employment Guarantee
Scheme, scholarships, pensions and health benefits will come under
this.
The new system, which the government plans to implement in a
time-bound manner, will cut down wastage, duplication and enhance
efficiency in the disbursement of subsidies and other benefits which
will be paid through electronic cash transfer.
The architecture is a coordination mechanism comprising a national
ministerial panel under the prime minister with members from other
ministries and departments like finance, IT, social justice, HRD,
minorities, labour, health, food, petroleum, fertilisers, Plan panel
and the Unique Identification Authority of India.
This high-level ministerial committee will ensure decision-making at
the highest level and bring in the necessary urgency to the programme.
There is also a national executive committee with the secretaries of
the ministries as members who will meet frequently to coordinate
action, ensure adherence to timelines and sort out hitches in the
programme as it is rolled out.
Then there are other sub-committees to smoothen out the process.
The implementation panel will finalise all details related to the
design and operation of the transfer system.
The technology panel will focus on technology, architecture and IT and
the financial inclusion panel will ensure universal access to banking.
Further, the electronic benefit transfer committee will work out the
details such as data bases, transfer rules and controls audits for
each ministry engaged in benefit transfers.
The national executive committee will monitor these committees.
With the rapid rollout of Aadhaar, now covering 200 million people and
mandated to enroll a total of 600 million, and with the National
Population Register covering the rest of the population, the
government thinks it can move to an e-cash transfer system without
much trouble.
Aadhaar-based pilots are already under implementation in Andhra
Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu, West Bengal,
Karnataka, Puducherry and Sikkim.
The newsystem will cut down wastage, duplication and enhance
efficiency in the disbursement of subsidies and otherbenefits
Kelkarpanel dilutes Finance Commission's fiscal road map
BS REPORTER
New Delhi, 28 September
The Vijay Kelkar committee has framed aroad map for the Centre's
fiscal deficit, one that is easier than that projected by the 13th
Finance Commission, also headed by Kelkar.
The panel projected the country's fiscal deficit for this financial
year at 5.2-6.1 per cent of the gross domestic product (GDP). For
2013-14 and 2014-15, the panel projected the deficit at 4.6 per cent
and 3.9 per cent of GDP, respectively. The 13th Finance Commission had
estimated fiscal deficit at three per cent of GDP for 2013-14 and
2014-15.
The panel said if its recommendations weren't implemented, the fiscal
deficit this financial year would stand at 6.1 per cent of GDP,
against the Budget estimate of 5.1 per cent. However, if the reforms
suggested by it were effected, the deficit would be reduced to 5.2 per
cent, it added. In the first five months of this financial year, the
fiscal deficit already accounted for about 66 per cent of the Budget
estimate.
In 2011-12, the fiscal deficit was 5.76 per cent of GDP, against the
Budget estimate of 4.6 per cent and the revised estimate of 5.9 per
cent.
The fiscal deficit projections of the Kelkar panel for the next two
financial years are close to what the finance ministry had projected
in its papers submitted under the Fiscal Responsibility and Budget
Management (FRBM) Act. The ministry had pegged the fiscal deficit for
2013-14 and 2014-15 at 4.5 per cent and 3.9 per cent of GDP,
respectively.
This means the Kelkar panel and the ministry both agree the fiscal
deficit wouldn't fall to three per cent of GDP till at least 2014-15.
The FRBM Act, enacted in 2003, had prescribed the fiscal deficit be
reduced to three per cent of GDP by 2007-08, later relaxing this by a
year. However, even in 2008-09, fiscal deficit stood at six per cent
of GDP.
According to the Kelkar panel, the revenue deficit, or the gap between
the government's current expenditure and its current receipts, would
rise to 4.4 per cent of GDP this financial year, compared with 3.4 per
cent estimated in the Budget.
However, the panel added if reforms were carried out, revenue deficit
could be restricted to 3.7 per cent.
For 2013-14, it pegged the revenue deficit at 2.8 per cent, and for
2014-15, it projected the figure to fall to two per cent of GDP. These
figures are much higher than those projected by the 13th Finance
Commission, which pegged revenue deficit in 2012-13 at 1.2 per cent.
The commission had projected revenue deficit would be done away with
in 2013-14, adding the Centre would be revenue-balance surplus by 0.5
per cent. The Kelkar panel's recommendations are, however, in
conformity with the ministry's projections for 2013-14 and 2014-15.
Projects the country's fiscal deficit for this financial year at
5.2-6.1% of the GDP
According to the panel headed by VijayKelkar (pictured) ,the revenue
deficit would rise to 4.4% of GDP forFY13
INDIRECT TAX
Pass Constitution amendment Bill for GST in winter session
BS REPORTER
New Delhi, 28 September
Recognising it was unlikely the Goods and Services Tax (GST) would be
rolled out from April 1 2013, the Vijay Kelkar panel suggested at the
very least, the government pass the Constitution amendment Bill in the
winter session of Parliament. "The roll-out of GST from April 1, 2013,
does not appear to be feasible," the Kelkar committee stated. The
panel said the government should reform services and excise duties for
their smooth integration into the GST regime and suggested a cut in
the standard excise duty rate from 12 per cent to eight per cent to
align it with the GST rate and send a signal the government was
committed to the new indirect tax regime.
It also sought the list of goods for which the excise duty was six per
cent or less to be restricted to merit goods, and recommended
narrowing the negative list of services. "The passage of the pending
Constitution amendment relating to introduction of GST in the winter
session of Parliament would send a very strong signal to trade and
industry about the government's serious intent to move forward on this
issue," it said.
Analysts said at a time when the government and the Opposition were on
a collision course on the alleged coal block allocation scam, foreign
direct investment in the retail sector and fuel price revisions, it
remained to be seen how the Bill would muster the support of
two-thirds of both Houses of Parliament. Besides, the Bill also has to
be ratified by at least half of the states. The parliamentary standing
committee on finance is yet to give its recommendations on the report.
After it does so, a revised Bill has to be framed to be tabled in
Parliament. After the Constitution amendment Bill, the Centre and
states would have to get their GST Bills passed in Parliament, as well
as their respective Assemblies.
Sebi mulls safety net for IPOs, floats discussion paper
BS REPORTER
Mumbai, 28 September
In order to protect small investors from adverse price movements,
market regulator Securities and Exchange Board of India (Sebi) is
contemplating to provide a safety net mechanism in initial public
offers (IPOs). On Friday, Sebi put out a discussion paper on this new
mechanism on its website to invite public comments on or before
October 31.
The regulator has invited comments on issues like whether the safety
net provision should be mandatory for all IPOs, the trigger for such
mechanism and eligiblity of investors. Sebi board, which had discussed
this issue in its meeting on August 8, decided to float the discussion
paper before the new mechanism is implemented.' "Considering the
Indian market dynamics and the recent post-listing price performance
of IPOs, the Board opined that besides disclosures, other measures are
needed to bring in self-discipline in IPO pricing. One such measure
which could help protect the interests of small investors is a safety
net mechanism," Sebi said. "While agreeing with the approach in this
regard, it was of the view that more public consultation on the
details of the proposal was needed, before it could be implemented."
Sebi's Primary Market Advisory Committee (PMAC). which had discussed
this issue on July 31, was of the view that considering the recent
post-listing price performance of IPOs, it is necessary to make the
safety net mechanism mandatory for IPOs so as to reinforce investor
confidence in capital markets and discipline issuers and market
intermediaries. The committee was, broadly, in concurrence with Sebi
on the need for such a mechanism.
However, the committee was of the view that the proposed mandatory
safety net mechanism would impact various segments of market
participants such as investors, issuers, promoters, merchant bankers
etc, and that public comments be sought.
In its analysis of price performance of the scrips listed during 2008
to 2011, Sebi observed that out of 117 scrips, 72 (around 62 per cent
issues) were trading below the issue price after six months of their
listing. Of those 72 scrips which witnessed fall in prices, the fall
was more than 20 per cent of the issue price in 55 scrips.
"In this scenario if the trend continues, the sentiments of the
investors would get affected and they may lose confidence in the
capital market. Thus, there is a need to provide safety net
arrangement for retail individual investors to build their confidence
in capital market," said Sebi. In the discussion paper, Sebi has
sought consultation on whether the safety net provision shall trigger
only in cases where the prices of the shares depreciate by more than
20 per cent from the issue price. The price for this provision shall
be calculated as the volumeweighted average market price of such
shares for a period of three months from the date of listing, Sebi
said.
"Further, the 20 per cent depreciation in share price shall be
considered over and above the general fall, if any, in market index.
The market index for this purpose may be BSE-500 or S&P CNX 500. The
market index to be considered for this purpose shall be disclosed, in
advance, in the offer document," Sebi said in the discussion paper.
In terms of eligibility, Sebi said the facility would be available for
all the allotted securities to original resident retail individual
allottees who had made an application for up to ~50,000. There are
also other conditions like total obligation on safety net provider
will be capped at five per cent of the issue size and the maximum
obligation of the promoter would be five per cent of ~1,000 crore
issue. This means, the promoter will be obliged to buy shares worth
~50 crore at the issue price.
--
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CS A RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
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