Dear all
Going by the reports, Government will undertake more reforms in the coming months.
Regards
Source Business standard
| Big- bang capital market reforms on the cards |
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New Delhi, 29 May The finance ministry is set to push through major reforms in equity and debt markets to be implemented in the next three months. According to the plan, the foreign borrowing norms are to be liberalised and the capital controls imposed by the Reserve Bank of India last year rolled back. The ministry is also considering replacing short- term capital gains tax with a higher securities transaction tax ( STT). While tax incentives are being considered for retail investors and permanent establishments managing global funds in India, measures are in the offing to deepen corporate bond markets, strengthen retail participation in equities, comprehensively revamp depository receipts and join Euroclear, the world's largest securities settlement system. To sell the Indian reform story to foreign investors, Finance Minister Arun Jaitley is planning to go to London, Tokyo, Hong Kong, Singapore and New York for road shows. "We are looking at a three- month timeframe to roll out many of these measures. Some that require legislative amendment might come in the Union Budget. The restrictions imposed by RBI in July last year will also be lifted," a finance ministry official, asking not to be named, told Business Standard. Budget measures might include abolishing short- term capital gains tax and, instead, levying a higher securities transaction tax ( as suggested by the Parthasarathi Shome committee), exempting global income of India- based permanent establishments from tax, and offering tax sops to encourage retail investors' participation in equity markets. The finance ministry wants to take measures to boost investments by domestic players, especially the retail ones, as the market rally in recent times has mainly been driven by inflows from foreign investors. " Participation of retail investors is a big concern. We have to push this in a big way," another official said. The ministry will also try to widen the scope of both American and global depository receipts (DRs). Currently, only listed companies are allowed to sell DRs ( that too only against underlying equity shares). The M S Sahoo committee had proposed DRs for debt and unlisted companies as well. These would give easy access to foreign investors who don't wish to invest directly in Indian companies. The finance ministry also wants to relax the external commercial borrowing ( ECB) norms and enable companies to fully hedge against foreign currencies. " We want to let borrowers decide how much they want to raise. If you hedge it, the cost of borrowing goes up. So, naturally, they will be cautious," said the second official quoted earlier. Experts said ECBs should, in fact, be liberalised generally, with control only for certain sectors. " Refinancing of ECBs should be allowed on a wholesale basis. They should ease end- use of ECBs because international markets provide cheaper funds. Its use should be expanded significantly, while there should be control for certain sectors," said Abizer Diwanji, partner and national leader ( financial services), EY. In a step towards internationalising debt, the government is also planning to join Brussels- based Euroclear bank. Turn to Page 19 > Finance ministry lines up major plans to be implemented within three months REFORMS PIPELINE |ECBs: Foreign borrowing norms likely to be liberalised |PERMANENT ESTABLISHMENTS: Global income of India- based establishments might not be taxed |DEPOSITORY RECEIPTS: Unlisted companies' sale of receipts against debt could be allowed |CAPITAL CONTROLS: Outward remittance limit might be restored to $200,000 from $ 75,000 at present |EUROCLEAR: To enable cross- border settlement of locally- issued government bonds |ROAD SHOWS: Finance Minister Arun Jaitley to sell the India story in London, Tokyo, Hong Kong, Singapore, New York |RETAIL PARTICIPATION: Tax sops to encourage retail investors' participation in equity Finance Minister Arun Jaitley arrives at PMO on Thursday. PHOTO: PTI OPINION 17 > >EDIT: Time to start selling >We need heroism, Mr Modi |
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| lick: Article continued from…Big- bang capital market |
| Big- bang capital |
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The ministry is getting legal opinion on whether this would require amendment to the Sebi Act. It is awaiting a formal view from RBI on the issue. The government is also trying to liberalise the rupeedenominated corporate bond market. So far, its efforts to deepen this have yielded little result. "If banks are ready to lend at cheaper rates, who would go for corporate bonds? Unlike the US, our economy is dependent on bank debt," the official explained. |
| Industry lauds govt's move to promote e- auction |
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New Delhi, 29 May Industry officials and experts on Thursday applauded the government's move to " promote e- auction" for the procurement of goods and services, among the top policy priorities unveiled by Prime Minister Narendra Modi. "It is a very good idea which will introduce transparency and may require re- tooling in the functioning of the government," said Rajat Kathuria, director and chief executive at the New Delhi- based thinktank Indian Council for Research on International Economic Relations or ICRIER. E- auction or e- tendering moves the process of bidding for government contracts completely online, removing most manual procedures and, therefore, creating an accountability trail. Though not mandatory, e- auctioning is quite widespread within the government machinery currently. The ministries of civil aviation, communications and information technology, along with coal, have been early adopters of the eauction, using the method for their tendering process over the last few years. The United Progressive Alliance government had introduced e- auctioning for distribution of coal in 2005, largely for non- core consumers in the cement, fertiliser and paper sectors. Since then, the stateowned miner, Coal India, has been selling over 11 per cent of its annual 462 million tonne output through auctioning on the electronic platform. While auctioning was also introduced for captive coal allocation in 2010, it is yet to be transferred from the physical to the electronic platform. E- auctioning is also being used since 2011 for the distribution of iron ore, a key raw material for the steel industry. However, iron ore auctions, being limited to Karnataka currently, are being conducted not as a policy measure but on the directions of the Supreme Court as an interim arrangement to help the local steel- makers tide over an ongoing supply crisis after iron ore mining was banned by the apex court on allegations of illegalities. Kathuria said that the last spectrum auction held by the department of telecommunications is a very good example of how government resources need to be given out. " It made the process very transparent," he said. It might also come as a confidence booster for the bureaucracy as the " underlying principle of bringing transparency is to reduce the risk of being victimised or being framed for a certain decision," added Kathuria. For full reports, visit www. business- standard. com |
| Jaitley likely to take Central Sales Tax route to convince states on GST |
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New Delhi, 29 May The Centre is planning to extend an olive branch to the states to end the stalemate on Goods and Services Tax ( GST). Finance Minister Arun Jaitely will separately reach out to Madhya Pradesh and Gujarat to address their concerns on fiscal autonomy and revenue loss. To win back confidence of the states, the finance ministry might also make provisions in the upcoming Budget for adequately compensating the states for the losses they made due to reduction in Central Sales Tax ( CST) — a tax on interstate movement of goods. After meeting chief ministers or finance ministers of Madhya Pradesh and Gujarat— the two BJP- ruled states that blocked GST —Jaitley will have a meeting with all state finance ministers sometime mid next month. The Budget wish- list of states might also be discussed in that. "The government is going to give a major push to GST. We are working out a mechanism ( to address the concerns of the states). The finance minister himself might reach out to Gujarat and Madhya Pradesh," an official, who did not wish to be identified, told Business Standard, after giving a presentation to Jaitely on contentious issues in GST. The official added the Centre would try to arrive at a revenue neutral rate at which no state loses revenue, and if it does there would be a mechanism to compensate them. It, however, might not agree to the states' demand to keep petroleum out of GST. In an interview with Business Standard last month, head of Tax Administrative Reforms Commission Parthasarathi Shome had said, " If you keep petroleum products out, no tax policy designer could call it a GST." He also argued that the flexibility given to the states in terms of differential rates would cause a high compliance burden on the tax payer. In meeting with the state finance ministers, Jaitley might take the first step by assuring them of CST compensation in the Budget. Last year, former Finance Minister P Chidambaram had made a provision for CST compensation to the tune of ₹ 9,300 crore but only ₹ 1,940 crore was finally released. According to Shome, there should be quick cut- off for compensation for CST. "The need for a consensus among the states still remains and the empowered committee ( of state finance ministers) should give the signals for that to happen. In the immediate Budget, the government can introduce a federal GST, combining excise and service tax laws, to begin the integration towards an eventual GST," said Bipin Sapra, Tax Partner, EY. Gujarat's contention is that GST would shift revenues from manufacturing states to consuming states, while Madhya Pradesh has maintained it would take away their fiscal autonomy. Besides, most of the states have opposed subsuming entry tax in GST. GST will help increase tax base by improving compliance. It will remove cascading of taxes and reduce inflation, contributing to high economic growth. Finance Minister Arun Jaitley will meet finance ministers of all the states in June BS FILE PHOTO |
| Stable ₹ may prod RBI to liberalise rules |
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Mumbai, 29 May After withdrawing some of its earlier restrictions on gold import and raising the limit on importers' forward contracts, the Reserve Bank of India (RBI) might do more. It might, believe watchers, restore the norm which had allowed an individual travelling out of the country to spend up to $ 200,000 abroad in a year. And, liberalise the rules on offshore investments by domestic companies. RBI had taken a host of measures in 2013 to arrest volatility in the rupee. The decision to unwind some of these might come because the rupee is now considered stable against the dollar, with the current account deficit coming down significantly, mainly due to a rise in the import duty on gold. The rupee has risen by nearly five per cent since the start of 2014. Experts believe it might rise more. "The shift of rupee direction from an excessive bearish mode to extreme bullishness leads RBI to unwind the measures taken to arrest rupee weakness and sterilise the rupee liquidity pumped into the system through its dollar purchases," said Moses Harding, group chief executive officer ( liability and treasury management), Srei Infrastructure Finance. He expects removal of the administrative restrictions on gold import, restoration of the Liquidity Adjustment Facility (LAF) corridor and retaining the Marginal Standing Facility (MSF) as a special- situation rate. Also, liberalisation in offshore investment rules for resident individuals or companies and in the limitations on hot money inflow from abroad. Earlier this month, RBI liberalised the gold import norms' 80: 20 rule. Though the ratio hadn't been changed ( of re- exporting a fifth of all gold imported by nominated agencies), star and premier export houses have been allowed to import, while banks and nominated agencies have been allowed now to provide gold for domestic use as loans to jewellers and bullion traders. Besides, RBI allowed importers to book forward contracts, under the past performance route, up to 50 per cent of the eligible limit. Earlier, this limit was 25 per cent. The eligible limit is computed as the average of the previous three financial years' import turnover or the previous year's actual import turnover, whichever is higher. "The liquidity ( restriction) measures might not be withdrawn by RBI. But maybe it will allow people travelling abroad to ( again) spend $200,000 there in a year, as against the present limit of $75,000 ( fixed last August). That might be announced anytime," said the treasury head of a public sector bank. The rupee had touched an all- time low of 68.85 a dollar on August 28, during intraday trade. DURING THE STORM... Keymeasures taken by RBI in 2013 to arrest volatility in rupee |Curbed gold imports |Barred banks from proprietary trading in currency futures and exchange traded options |Capped LAF borrowing to 0.5% of net demand and time liabilities |Raised the Marginal Standing Facility ( MSF) rate |Cut the amount an individual could take out of the country from $ 200,000 to $ 75,000 |Reduced the limit for overseas direct investment by domestic companies under automatic route from 400% of net worth to 100% NTOWARDS JUNE 3 N RUN - UP TO BI- MONTHLY MONETARY POLICYREVIEW |
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| Sebi ' red card' for brokers with bad record | ||
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Mumbai, 29 May The Securities and Exchange Board of India (Sebi) is planning to rate stock brokers on their track record in key operational parameters. The proposed ' risk profiling' system is aimed at increasing transparency and helping equity investors understand their investment advisors better. A source said Sebi planned to tag brokers based on their performance on areas such as compliance, investor protection and arbitration. He added brokers with poor track records could be given red tags, while those who scored well would be given green ones. "Sebi is working on a system of dynamic tagging of brokers. The idea is to provide investors atool for differentiating brokers based on their performance," said a person with direct knowledge of the development. Brokers will have to make their ratings public. The move will be similar to the product- labelling system introduced for mutual fund products — schemes with low risks are colour- coded blue, while high- risk instruments are coded brown. Pending investor complaints and arbitration cases could be the key parameters under the proposed ranking system. Factors to be considered might include instances of shortfalls in margin payment and poor regulatory track record such as adverse observations in Sebi's internal audit report. Sources said in spirit, the risk- profiling system was a good initiative. They, however, cited practical challenges. " The idea is novel, but implementation might be difficult, as there is no comprehensive tracking system. As far as arbitration and investor complaints are concerned, Sebi will have to establish whether the complaints are genuine," said the head of a leading domestic brokerage. On an average, Sebi examines about 300 cases against stock brokers a year. According to figures made public by Sebi, there are 17,400 registered stock brokers in the cash and derivatives segment. Experts said implementation of the proposed system would require Sebi's data management system to be beefed up and effective and comprehensive management of the huge data flow at all intermediaries. Last year, Sebi had mandated acentralised surveillance system across all major exchanges to oversee operations of market participants. The surveillance committees of bourses are required to submit market intermediary reports to Sebi every six months. Experts said investors could be willing to cough up higher fees for brokers with higher rating and better systems. In 2011, Sebi had made it mandatory for bankers bringing initial public offerings (IPOs) to the market to disclose the performance of the past issues they had handled. This followed investors losing money in most IPOs. Source The Hindu Cap on employer's PF contribution PUJA MEHRA Regulator plans new system to rate stock brokers on operational parameters |
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The Provident Fund Office has allowed companies to cap their per-month PF contribution to employees at Rs. 6,500. At present, companies contribute an amount equal to at least 12 per cent of an employee's basic salary towards his/her PF. Now if a company chooses it need not provide more than Rs. 6,500, the overall benefits of some salaried employees could be hit by the new circular. The final call rests with employees. "An employer paying Provident Fund on full basic salary may limit contribution to Rs. 6,500 per month at any time," said Sonu Iyer, consultancy firm EY's partner and National Leader – Human Capital Global Mobility. He was reacting to the circular issued by the PF Office. "The circular will especially help IT companies that are forced to pay up in addition to PF social security obligations of their employees stationed offshore in accordance with the rules of the countries they are placed in." The circular specifies that the Provident Fund Office will not challenge the 2011 Supreme Court ruling that allowed the capping of PF contributions. It directs the regional PF offices not to "force employers to contribute over and above the statutory wage ceiling in respect of their employees." "Option is available for the employees to contribute beyond the statutory wage ceiling if they so desire, subject to approval from the Provident Fund office under Para 26(6) of the Employees' Provident Funds Scheme, 1952," the circular says. Mr. Iyer, however, said such an option might not be available where there was an agreement with the employees to contribute on full basic salary. Keywords: Provident Fund, Provident Fund Office, PF contribution |
A.Rengarajan Chennai
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