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Year End Review – 2018- Ministry of Finance

Year End Review – 2018- Ministry of Finance 

The Indian Government has made significant strides in the last 4 years in taking India to new heights in terms of the welfare of the citizenry, the overall structure& growth of the economy, and creating a strong presence as an emerging global power.

To fuel such achievements, the Government has worked tirelessly for shouldering a number of bold and important socio-economic reforms. The Government has undertaken its reform drive with the spirit of inclusiveness of the marginalized and hitherto socio-economically neglected classes in the overall development process. To this end, right at the beginning of its term, the Government came-up with the Pradhan Mantri Jan Dhan Yojana(PMJDY) in August 2014, for giving space to the deprived classes into the formal banking system and making Financial Inclusion as its prime goal. Pradhan Mantri Jan DhanYojana’s success has led to the creation of the much needed financial infrastructure, which serves as a runway for taking-off other Social Security Schemes like Atal Pension Yojana (APY), Pradhan Mantri Suraksha Bima Yojana(PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana(PMJJBY).

Taking a step further towards up-liftment of the neglected, the Government recognized the need for targeted welfare reforms to cater to special needs of certain sections of the society. In this direction, the Government came-up with Pradhan Mantri Sukanya Samridhi Yojana, which provides financial security to the girl child when she grows up.

Not only financial security, but also the financial independence of the women was taken care of through Stand Up India Scheme, which expands its ambit to Schedule Castes and Schedule Tribes. Stand Up India gives subsidized loans to harness and ignite the latent entrepreneurial zeal of the hitherto disadvantaged communities.

Financial needs of all the stakeholders ranging from the budding entrepreneurs to the hard-working farmers have also been catered to through various initiatives.An important initiative in this direction is the Pradhan Mantri MUDRA Yojana. During the Financial Year 2018-19, the number of loans sanctioned are 2,81,08,814 with total amount sanctioned worth Rs.1,48,503.57 Crore, with total amount disbursed Rs.1,42,009.91 Crore.

Alongside the farmer’s needs have also been addressed. The Kisan Credit Card Scheme (KCC) was strengthened for contributing towards the liberation of peasantry from the shackles of exploitative money lenders by improving their access to formal credit.

Reforms and initiatives like GST, Demonetization, Operation Clean Money and Insolvency and Bankruptcy Code have made the Indian economy more efficient and transparentand haveensured financial discipline along with better compliance.

The success of Government’s policies is further reaffirmed and underscored when the International Organizations like the World Bank and IMF recognize India as the fastest growing Emerging Economyin the world and applaud the resilient and stable growth India has witnessed.

According to a recent World Bank report, India is a top improver in the Ease of Doing Business Rankings for the second year in a row. India has improved 65 places from 142 to 77 in span of last 4 years which is a remarkable achievement in itself.

A Department-wise description of the Major Activities undertaken during the year 2018 is as follows.

Department of Economic Affairs (DEA)

Overall fundamentals of the economy remained strong for the Year 2018-19

Macroeconomic Indicator For Year 2018-19
GDP Growth Rate (%) 7.1 (Up to Q2)
CPI 3.9% (Q2)
WPI 4.64% (over November, 2017)
Current Account Deficit (CAD) US$ 15.8 billion (Q1)
Trade Deficit US$ 45.7 billion (Q1)
External Debt to GDP Ratio (%) 20.5% ( till March, 2018)
FDI Inflows US $16,868 million (April –June, 2018)
Foreign Exchange Reserves US$ 393.7 billion

(As on November 30, 2018)

(Source; RBI Bulletin,PIB Website)

GDP and the Economy

The Indian Economy is on track to maintain a high growth rate in the current global environment.

The share of Indian economy in world(measured as a ratio of India’s GDP to world’s GDP at current US$) increased from 2.6 percent in 2014 to 3.2 percent in 2017 (as per World Development Indicators database). The average share of Indian economy in world during 1960 to 2013 was 1.8 percent. The average growth of the Indian economy during 2014-15 to 2017-18 was 7.3 per cent, fastest among the major economies in the world.

Indian economy is projected to be the fastest growing major economy in 2018-19 and 2019-20 (International Monetary Fund October 2018 database). This is borne by GDP growth of 7.6 per cent in the first half of 2018-19.

The Second Quarter has seen a reasonable overall GDP growth of 7.1%.  The H-1 2018-19 growth of the GDP is 7.6% and the H-1 GVA growth is 7.4%.  The Growth in the Second Quarter is on higher base compared to the growth of the First Quarter.

The Manufacturing Growth on a base of 7.1% in Q2 2017-18 has been 7.4% in Q2 of 2018-19.  The Construction Sector has grown by 7.8%.  The Gross Fixed Capital Formation as a ratio of GDP has increased by almost 1.3 percentage points over Q2 of last year.  The Exports for Q-2 have grown by 13.4%.  The Government consumption for the Quarter has also significantly increased by 12.7%.

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This is ratified in the reports of International Organizations like World Economic Forum.

As per the World Economic Situation and Prospects 2018 Report of the United Nations, the outlook for India remains largely positive, underpinned by robust private consumption and public investment as well as ongoing structural reforms.

According to the World Bank’s Ease of Doing Business 2018 Report, India’s ranking improved by 65 positions to 77th rank in 2018. 

The Government of India has taken various initiatives to improve the confidence in the Indian economy and boost the growth of the economy and which, inter-alia, include; fillip to manufacturing, concrete measures for transport and power sectors as well as other urban and rural infrastructure, comprehensive reforms in the foreign direct investment policy, special package for textile industry, push to infrastructure development by giving infrastructure status to affordable housing and focus on coastal connectivity.

Inflation during 2017-18 Averaged to the Lowest in the Last Six Years 

Inflation in the country continued to moderate during 2017-18. Consumer Price Index(CPI) based headline inflation averaged 3.3 per cent during the period which is the lowest in the last six financial years. This has been stated in the Economic Survey 2017-18 placed in Parliament by the Union Minister for Finance and Corporate Affairs, Shri Arun Jaitley.

This progress is a result of a number of initiatives and reforms undertaken by the government which follows in the subsequent pages.

Curbing Black Money

 The Government first targeted the black money outside India.  Asset holders were asked to bring this money back on payment of penal tax. Those who failed to do so are being prosecuted under the Black Money Act.  Details of all accounts and assets abroad which have reached the Government resulted in action against the violators.

 Steps for Curbing the Black Money stashed abroad has led to Positive Results

The Government of India has taken various steps for curbing the black money stashed abroad, which has led to positive results. These steps include the following:

  1. India has been a leading force in the efforts to forge a multi-lateral regime for proactive sharing of Financial Information known as Automatic Exchange of Information (AEOI) which will greatly assist the global efforts to combat tax evasion. The AEOI based on Common Reporting Standard (CRS) has commenced from 2017 enabling India to receive financial account information of Indian residents in other countries.
  2. India has also entered into information sharing agreement with the USA under the Foreign Account Tax Compliance Act (FATCA) of USA. The exchanges under FATCA have taken place for the financial years 2014, 2015 and 2016.
  3. Indian Money in Swiss Bank: The data collected by Swiss National Bank in collaboration with Bank for International Settlements (BIS) shows that the loans and deposits of Indians, other than Banks, in the Swiss banks decreased by 34.5% in the year 2017 as compared to 2016. Further, there has been significant reduction in Swiss non-bank loans and deposits of Indians by 80.2% between 2013 and 2017.

  Unearthing Benami Property

  • Income Tax Department steps-up actions under Prohibition of Benami Property Transactions Act : Benami properties of more than Rs. 3,500 crore in more than 900 cases attached

Cabinet approves appointment of Adjudicating Authority and establishment of Appellate Tribunal under Prohibition of Benami Property Transactions Act, 1988. The approval will result in effective and better administration of cases referred to the Adjudicating Authority and speedy disposal of appeals filed against the order of the Adjudicating Authority before the Appellate Tribunal.

  • New Benami Transactions Informants Reward Scheme, 2018 was launched by the Income Tax Department’

Under the Benami Transactions Informants Reward Scheme, 2018, a person can get reward up to Rs. One crore for giving specific information in prescribed manner to the Joint or Additional Commissioners of Benami Prohibition Units (BPUs) in Investigation Directorates of Income Tax Department about benami transactions and properties as well as proceeds from such properties which are actionable under Benami Property Transactions Act, 1988, as amended by Benami Transactions (Prohibition) Amendment Act, 2016.

  • Fugitive Economic Offenders Bill

With the assent of the President of India, the Fugitive Economic Offenders Ordinance, 2018 was promulgated; New law laid down the measures to empower Indian authorities to attach and confiscate the proceeds of crime associated with economic offenders and the properties of the economic offenders.

The Union Cabinet chaired by Prime Minister Shri NarendraModi, has approved the proposal of the Ministry of Finance to introduce the Fugitive Economic Offenders Bill, 2018 in Parliament.  The Bill would help in laying down measures to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts.

 The cases where the total value involved in such offences is Rs.100 crore or more, will come under the purview of this Bill.

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 Impact:

The Bill is expected to re-establish the rule of law with respect to the fugitive economic offenders as they would be forced to return to India to face trial for scheduled offences. This would also help the banks and other financial institutions to achieve higher recovery from financial defaults committed by such fugitive economic offenders, improving the financial health of such institutions.

  • ShellCompanies

Task Force on Shell Companies took pro-active and coordinated steps to check the menace of shell companies: The major achievements of the Task Force include the compilation of a database of shell companies by SFIO. This database, as on date, comprises of 3 lists, viz the Confirmed List, Derived List and Suspect List. The Confirmed List has a total of 16,537 confirmed shell companies on the basis of the information received from the various Law Enforcement Agencies of the companies found to be involved in illegal activities.

Push to MSME sector:

Prime Minister Shri Narendra Modi launched historic Support and Outreach Initiative for MSME Sector

  • 59 minute loan portal to enable easy access to credit for MSMEs
  • Mandatory 25 percent procurement from MSMEs by CPSEs
  • Ordinance for simplifying procedures for minor offences under Companies Act

The Prime Minister, Shri NarendraModi, launched a historic support and outreach programme for the Micro, Small and Medium Enterprises (MSME) sector. As part of this programme, the Prime Minister unveiled 12 key initiatives which will help the growth, expansion and facilitation of MSMEs across the country.

The Prime Minister said that the success of economic reforms launched by the Union Government can be gauged from the rise in India’s “Ease of Doing Business Rankings,” from 142 to 77 in four years.

The Prime Minister said that there are five key aspects for facilitating the MSME sector. These include access to credit, access to market, technology upgradation, ease of doing business, and a sense of security for employees. He said that as a Diwali gift for the sector, the 12 announcements he is making, will address each of these five categories.

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Access to Credit

As the First Announcement, the Prime Minister announced the launch of the 59 minute loan portal to enable easy access to credit for MSMEs. He said that loans uptoRs. 1 crore can be granted in-principle approval through this portal, in just 59 minutes. He said a link to this portal will be made available through the GST portal. The Prime Minister asserted that in New India, no one should be compelled to visit a bank branch repeatedly.

The Prime Minister mentioned the Second Announcement as a 2 percent interest subvention for all GST registered MSMEs, on fresh or incremental loans. For exporters who receive loans in the pre-shipment and post-shipment period, the Prime Minister announced an increase in interest rebate from 3 percent to 5 percent.

The Third Announcement made by the Prime Minister was that all companies with a turnover more than Rs. 500 crore, must now compulsorily be brought on the Trade Receivables e-Discounting System (TReDS). He said that joining this portal will enable entrepreneurs to access credit from banks, based ontheir upcoming receivables. This will resolve their problems of cash cycle.

Access to Markets

The Prime Minister said that on access to markets for entrepreneurs, the Union Government has taken a number of steps already. In this context, he made his Fourth Announcement thatPublic Sector Companies have now been asked to compulsorily procure 25 percent, instead of 20 percent of their total purchases, from MSMEs.

The Prime Minister said his Fifth Announcement is related to women entrepreneurs. He said that out of the 25 percent procurement mandated from MSMEs, 3 percent must now be reserved for women entrepreneurs.

The Prime Minister said that more than 1.5 lakh suppliers have now registered with GeM, out of which 40,000 are MSMEs. He said transactions worth more than Rs. 14,000 crore have been made so far through GeM. He said the Sixth Announcement is that all Public Sector Undertakings of the Union Government must now compulsorily be a part of GeM. He said they should also get all their vendors registered on GeM.

Technology Upgradation

Coming to technological upgradation, the Prime Minister said that tool rooms across the country are a vital part of product design. His seventh announcement was that 20 hubs will be formed across the country, and 100 spokes in the form of tool rooms will be established.

Ease of Doing Business

On Ease of Doing Business, the Prime Minister’sEighth Announcement was related to pharma companies. He said clusters will be formed of pharma MSMEs. He said 70 percent cost of establishing these clusters will be borne by the Union Government.

The Prime Minister’s Ninth Announcement on Simplification of Government Procedures was that the return under 8 labour laws and 10 Union regulations must now be filed only once a year.

The Prime Minister’s Tenth Announcement was that now the establishments to be visited by an Inspector will be decided through a computerised random allotment.

The Prime Minister noted that as part of establishing a unit, an entrepreneur needs two clearances namely, environmental clearance and consent to establish. HisEleventh Announcement was that under air pollution and water pollution laws, now both these have been merged as a single consent. He further said that the return will be accepted through self-certification.

As the Twelfth Announcement, the Prime Minister mentioned that an Ordinance had been brought, under which, for minor violations under the Companies Act, the entrepreneur will no longer have to approach the Courts, but can correct them through simple procedures.

Social Security for MSME Sector Employees

The Prime Minister also spoke of social security for the MSME sector employees. He said that a mission will be launched to ensure that they have Jan Dhan Accounts, Provident Fund and Insurance.

The Prime Minister said that these decisions would go a long way in strengthening the MSME sector in India. He said the implementation of this Outreach Programme will be intensively monitored over the next 100 days.

SIDBI launched a National Level Entrepreneurship Awareness Campaign, UdyamAbhilasha (उद्यमअभिलाषा) in 115 Aspirational Districts identified by NITI Aayog in 28 States and reaching to around 15,000 youth.

Sovereign Gold Bond Scheme 2018 -19: TheGovernment of India, in consultation with the Reserve Bank of India, has decided to issue Sovereign Gold Bonds-2018-19. The Sovereign Gold Bonds will be issued every month from October 2018 to February 2019.

Fifteenth Finance Commission constituted a High Level Group to examine the strengths and weaknesses for enabling balanced expansion of Health Sector
The Fifteenth Finance Commission has constituted a High Level Group consisting of eminent experts from across the country in Health Sector. Dr. RandeepGuleria, Director, AIIMS, New Delhi will be its Convenor.

International Agreements and Engagements

There have been a number of International Agreements and Engagements that has helped India to increase and enhance its Global Presence.

Some of the International appointments and engagements are as under:

  • India became the Vice Chair of the Asia Pacific Region of World Customs Organisation(WCO) for a period of two years, from July, 2018 to June, 2020.

 Some Important Loan Agreements: 

  1. Government of India and Asian Development Bank (ADB) signed $80 million loan agreement to help boost youth employability in the state of Himachal Pradesh.
  2. The Government of India and World Bank signed $100 million project to boost rural economy of Tamil Nadu.
  3. The Government of India and Asian Development Bank (ADB) signed $250 million loan to improve rural connectivity in the 5 states of Assam, Chhattisgarh, Madhya Pradesh, Odisha and West Bengal under PMGSY.
  4. Government of India and Asian Development Bank (ADB) signed $75 million loan to improve urban services in 4 Karnataka towns
  5. Government of India and Asian Development Bank (ADB) signed $200 million loan to improve State Highways in Bihar
  6. Government of India and the World Bank signed $310 million loan agreement for Jharkhand Power System Improvement Project to provide reliable, quality, and affordable 24×7 electricity to the citizens of Jharkhand
  7. Government of India and the Asian Development Bank (ADB) signed $105 million loan to Support Hydropower Transmission in Himachal Pradesh
  8. Government of India and the Asian Development Bank (ADB) signed $300 million loan to support India Infrastructure Finance Company Limited (IIFCL)in India
  9. Government of India and the Asian Development Bank (ADB) signed $169 million loan to provide water and sanitation services in Tamil Nadu
  10. India and Japan signed a loan agreement worth Rs. 1817 crore for the ‘Project for the Construction of Turga Pumped Storage (I)’contributing to the industrial development and living standard improvement in the state of West Bengal.
  11. Indo- Japanese agreements for bilateral currency swap arrangement of seventy five billion dollars
  12. Cabinet approved Memorandum of Understanding between India and Singapore on setting up of a Joint Working Group on FinTech
  13. Cabinet approved signing of bilateral investment agreement between India Taipei Association in Taipei and the Taipei Economic and Cultural Center in India
  14. India and ADB signed $110 Million Loan to improve rural connectivity in Madhya Pradesh
  15. Government of India and The Asian Development Bank (ADB) signed $100 million loan agreement to expand sewerage and drainage coverage in Kolkata
  16. Government of India and the Asian Development Bank (ADB) signed $ 150 million loanagreementto support India’s first global skills park in state of Madhya Pradesh
  17. India and ADB signed $240 million loan to provide safe drinking water service in 3 West Bengal districts
  18. The Asian Development Bank (ADB) and India signed $150 million loan to improve regional connectivity
  19. India and Japan signed loan agreement for construction of Mumbai-Ahmedabad high speed rail project (I) and Kolkata East West Metro Project (III) with Japan International Cooperation Agency (JICA)
  20. India signed financing loan agreement with the World Bank for US$ 74 million for Uttarakhand Workforce Development Project (UKWDP)
  21. Cabinet approvedMoU on collaborative research on distributed ledger and block chain technology in the context of development of digital economy by Exim Bank under BRICS Interbank Cooperation Mechanism
  22. Government of India and ADB signed $346 million loan to improve state highways in Karnataka
  23. Government of India and ADB signed $375 million loan to improve irrigation efficiency in Madhya Pradesh
  24. Cabinet approved Memorandum of Understanding between India and USA in insurance regulatory sector
  25. Government of India and the World Bank signed $300 million agreement to help scale-up India’s Energy Efficiency Program
  26. The Government of India, Government of Rajasthan and World Bank signed a $250 million agreement to support electricity distribution sector reforms in Rajasthan
  27. Indo-German Government to Government Umbrella agreements worth Euro 653.7 million (approx. Rs. 5253 crore) on Financial Cooperation and Technical Cooperation 2017 were signed.
  28. India signed loan agreement with the World Bank for USD 21.7 million for strengthening the Public Financial Management in Rajasthan Project;
  29. Cabinet approvedMoU between India and Turkey on trade in poppy seeds to ensure quick and transparent processing for import of poppy seeds from Turkey
  30. CBDT notified the protocol amending the Double Taxation Avoidance Agreement (DTAA) between India and Kuwait
  31. India signed loan agreement with World Bank for US$ 125 million for “Innovate in India for Inclusiveness Project”
  32. Government of India and World Bank signed agreement to improve rural road network in Madhya Pradesh
  33. India signed loan agreement with World Bank for USD 48 million for Meghalaya community – led Landscapes Management Project
  34. Government of India,Government of Maharashtra and the World Bank signeda new project to benefit over 25 million small and marginal farmers in Maharashtra.
  35. India and ADB signed $120 million loan to improve rail infrastructure
  36. Cabinet approved agreement for the Avoidance of Double Taxation and Prevention of Fiscal Evasion between India and Iran
  37. Cabinet approved agreement between India and Jordan on cooperation and mutual administrative assistance in customs matters
  38. Asian Development Bank (ADB) and the Government of India signed $ 84 million loan for improvement and expansion of water supply in the state of Bihar
  39. Government of India signed a MoU with Canada’s International Development Research Centre (IDRC) in national capital​.
  40. India and Iran signed in New Delhi an agreement for the Avoidance of Double Taxation (DTAA) and the Prevention of Fiscal Evasion with respect to taxes on income.
  41. Cabinet approved signing and ratification of protocol amending the agreement between India and China for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion
  42. Cabinet approved signing of India-Australia Memoranda of Understanding (MoUs) for Secondment Programme.

Department of Revenue

GST

 This year on 1st July 2018, theGovernment of India celebrated the 1st GST Day.

GST Revenue Collections

The GST Revenue collection for the month of November 2018 has crossed Ninety-Seven Thousand Crore rupees. The total gross GST revenue collected in the month of November, 2018 is Rs. 97,637 crore of which CGST is Rs. 16,812 crore, SGST is Rs. 23,070 crore, IGST is Rs. 49,726 crore (including Rs. 24,133crore collected on imports) and Cess is Rs. 8,031 crore (including Rs. 842 crore collected on imports).   

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GST Council: Important decisions

GST Council 31st Meeting:

GST Rate Cuts on Goods

GST Council in the 31st Meeting held on 22nd December, 2018 at New Delhi took following major decisions relating to changes in GST rates, and clarification (on goods). The decisions of the GST Council have been presented for easy understanding. The same would be given effect to through Gazette notifications/ circulars which shall have force of law.

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  1. GST rate reduction on goods which were attracting GST rate of 28% :
  2. 28% to 18%
  • Pulleys, transmission shafts and cranks, gear boxes etc., falling under HS Code 8483
  • Monitors and TVs of uptoscreen size of 32 inches
  • Re-treaded or used pneumatic tyres of rubber;
  • Power banks of lithium ion batteries. Lithium ion batteries are already at 18%. This will bring parity in GST rate of power bank and lithium ion battery.
  • Digital cameras and video camera recorders
  • Video game consoles and other games and sports requisites falling under HS code 9504.
  1. 28% to 5%
  • Parts  and accessories for the carriages for disabled persons
  1. GST rate reduction on other goods,-
  1. 18% to 12%
  • Cork roughly squared or debagged
  • Articles of natural cork
  • Agglomerated cork
  1. 18% to 5%
  • Marble rubble
  1. 12% to 5%
  • Natural cork
  • Walking Stick
  • Fly ash Blocks
  1.  12% to Nil:
  • Music Books
  1. 5% to Nil
  • Vegetables, (uncooked or cooked by steaming or boilinginwater), frozen, branded and put in a unit container
  • Vegetable provisionally preserved (for example by sulphur dioxide gas, in brine, in sulphur water or in other preservative solutions), but unsuitable in that state for immediate consumption.
  1. Miscellaneous
  • Exemption from GST on supply of gold by Nominated Agencies to exporters of article of gold Jewellery.
  • Exemption from GST on proceeds received by Government from auction of gifts received by President, Prime Minister, Governor or Chief Minister of a State and public servants, the proceeds of which is used for public or charitable cause.
  • Exemption from IGST/Compensation cess on vehicles imported for temporary purposes under the Customs Convention on the Temporary importation of Private Road Vehicles (carnet de passages-en-douane).
  • Rate of 5%/18% to be applied based on transaction value of footwear
  • Uniform GST rate of 12% on Flexible Intermediate Bulk Container (FIBC) from existing 5%/12% (depending on the value)

GST on solar power generating plant and other renewable energy plants

  • GST rate of  5% rate has been prescribed on renewable energy devices & parts for their manufacture (bio gas plant/solar power based devices, solar power generating system (SGPS) etc) [falling under chapter 84, 85 or 94 of the Tariff]. Other goods or services used in these plants attract applicable GST.
  • Certain disputes have arisen regarding GST rates where specified goods attracting 5% GST are supplied along with services of construction etc and other goods for solar power plant.
  • To resolve the dispute the Council has recommended that in all such cases, the 70% of the gross value shall be deemed as the value of supply of said goods attracting 5% rate and the remaining portion (30%) of the aggregate value of such EPC contract shall be deemed as the value of supply of taxable service attracting standard GST rate.

GST Rate Cuts on Services

GST Council in the 31stmeeting held on 22nd December, 2018 at New Delhi took following decisions relating to changes in GST rates, ITC eligibility criteria, exemptions andclarificationson connected issues.The decisions of the GST Council have been presented in this note in simple language for easyunderstanding. The same would be given effect to through Gazette notifications/ circulars which shall have force of law.

 Reduction in GST rates/exemptions on Services:

  1. GST rate on cinema tickets above Rs. 100 shall be reducedfrom 28% to 18% and on cinema tickets uptoRs. 100 from 18% to 12%.
  2. GST rate on third party insurance premium of goods carrying vehicles shall be reduced from 18% to 12%
  3. Services supplied by banks to Basic Saving Bank Deposit (BSBD) account holders under PradhanMantri Jan DhanYojana (PMJDY) shall be exempted.
  4. Services supplied by rehabilitation professionals recognized under Rehabilitation Council of India Act, 1992at medical establishments, educational institutions, rehabilitation centers established by Central Government / State Government or Union Territories or entity registered under section 12AA of the Income-tax Actshall be exempted.
  5. Services provided by GTA to Government departments/local authorities which have taken registration only for the purpose of deducting tax under Section 51 shall be excluded from payment of tax under RCM and the same shall be exempted.
  6. Exemption on services provided by Central or State Government or Union Territory Government to their undertakings or PSUs by way of guaranteeing loans taken by them from financial institutions is being extended to guaranteeing of such loans taken from banks.
  7. Air travel of pilgrims by non-scheduled/charter operations, for religious pilgrimage facilitated by the Government of India under bilateral arrangements shall attract the same rate of GST as applicable to similar flights in Economy class (i.e. 5% with ITC of input services).

 Rationalization

  1. Parliament and State legislatures shall be extended the same tax treatment with regard to payment of tax under RCM (reverse charge mechanism)as available to Central and State Governments.
  2. Security services (supply of security personnel) provided to a registered person,except Government Departments which have taken registration for TDS and entities registered under composition scheme, shall be put under RCM.
  3. Services provided by unregistered Business Facilitator (BF) to a bank and agent of Business correspondent (BC) toa BC shall be put under RCM.

GST Council’s 30th Meeting:

During the 30th Meeting of the GST Council, the proposal of the State of Kerala for imposition of Cess on SGST for rehabilitation and flood affected works was discussed in detail.  The Council decided to constitute a 7-Member Group of Ministers (GoM) to examine this issue in depth.  Accordingly, the Union Finance Minister, Shri ArunJaitley, had approved the constitution of a Group of Ministers on 28thSeptember, 2018 to examine the issue regarding ‘Modalities for Revenue Mobilization in case of Natural Calamities and Disasters’ 

GST Council :28th Meeting:

The GST Council in its 28th Meeting took the following decisions on GST Rate on Goods and Services.

GST Rate on Goods:

  1. GST rates reduction on 28% items:
  1. 28% to 18%
  • Paints and varnishes (including enamels and lacquers)
  • Glaziers’ putty, grafting putty, resin cements
  • Refrigerators, freezers and other refrigerating or freezing equipment including water cooler, milk coolers, refrigerating equipment for leather industry, ice cream freezer etc.
  • Washing machines.
  • Lithium-ion batteries
  • Vacuum cleaners
  • Domestic electrical appliances such as food grinders and mixers & food or vegetable juice extractor, shaver, hair clippers etc
  • Storage water heaters and immersion heaters, hair dryers,  hand dryers, electric smoothing irons etc
  • Televisions upto the size of 68 cm
  • Special purpose motor vehicles. e.g., crane lorries, fire fighting vehicle, concrete mixer lorries, spraying lorries
  • Works trucks [self-propelled, not fitted with lifting or handling equipment] of the type used in factories, warehouses, dock areas or airports for short transport of goods.
  • Trailers and semi-trailers.
  • Miscellaneous articles such as scent sprays and similar toilet sprays, powder-puffs and pads for the application of cosmetics or toilet preparation.
  1. 28% to 12%
  • Fuel Cell Vehicle. Further, Compensation cess shall also be exempted on fuel cell vehicle.
  1. Refund of accumulated credit on account of inverted duty structure to fabric manufacturers: Fabrics attract GST at the rate of 5% subject to the condition that refund of accumulated ITC on account of inversion will not be allowed. However, considering the difficulty faced by the Fabric sector on account of this condition, the GST Council has recommended for allowing refund to fabrics on account of inverted duty structure. The refund of accumulated ITC shall be allowed only with the prospective effect on the purchases made after the notification is issued.

III. GST rates were recommended to be brought down from,-

  1. 18%12%/5% to Nil:

o    Stone/Marble/Wood Deities

o    Rakhi [other than that of precious or semi-precious material of chapter 71]

o    Sanitary Napkins,

o    Coir pith compost

o    Sal Leaves siali leaves and their products and Sabai Rope

o    PhoolBhariJhadoo [Raw material for Jhadoo]

o    Khali dona.

o    Circulation and commemorative coins, sold by Security Printing and Minting Corporation of India Ltd [SPMCIL] to Ministry of Finance.

  1. 12% to 5%:

o    Chenille fabrics and other fabrics under heading 5801

o    Handloom dari

o    Phosphoric acid (fertilizer grade only).

o    Knitted cap/topi having retail sale value not exceeding Rs. 1,000

  1. 18% to 12%:

o    Bamboo flooring.

o    Brass Kerosene Pressure Stove.

o    Hand Operated Rubber Roller.

o    Zip and Slide Fasteners.

  1. 18% to 5%:

o    Ethanol for sale to Oil Marketing Companies for blending with fuel

o    Solid bio fuel pellets

  1. Rate change made in respect of footwear

o    5% GST is being extended to footwear having a retail sale price up to Rs. 1000 per pair

o    Footwear having a retail sale price exceeding Rs. 1000 per pair will continue to attract 18%

V.GST rates were recommended to be brought down for specified handicraft items [as per the definition of handicraft, as approved by the GST council]

  1. 18% to 12%:

o    Handbags including pouches and purses; jewellery box

o    Wooden frames for painting, photographs, mirrors etc

o    Art ware of cork [including articles of sholapith]

o    Stone art ware, stone inlay work

o    Ornamental framed mirrors

o    Glass statues [other than those of crystal]

o    Glass art ware [ including pots, jars, votive, cask, cake cover, tulip bottle, vase ]

o    Art ware of iron

o    Art ware of brass, copper/ copper alloys, electro plated with nickel/silver

o    Aluminium art ware

o    Handcrafted  lamps (including panchloga lamp)

o    Worked vegetable or mineral carving, articles thereof, articles of wax, of stearin, of natural gums or natural resins or of modelling pastes etc, (including articles of lac, shellac)

o    Ganjifa card

  1. 12% to 5%:

o    Handmade carpets and other handmade textile floor coverings (including namda/gabba)

o    Handmade lace

o    Hand-woven tapestries

o    Hand-made braids and ornamental trimming in the piece

o    Toran

  1. Miscellaneous Change relating to valuation of a supply

o    IGST @5% on Pool Issue Price (PIP) of Urea imported on Government account for direct agriculture use, instead of assessable value plus custom duty.

o    Exemption from Compensation cess to Coal rejects from washery [arising out of cess paid coal on which ITC has not been taken].

GST Rate on Services

The GST Council in its 28th meeting took following decisions relating to exemptions / changes in GST rates / ITC eligibility criteria, rationalization of rates / exemptions and clarification on levy of GST on services.

It would be noted that multiple reliefs from GST taxation have been provided to following categories of services –

(i) Agriculture, farming and food processing industry,

(ii) Education, training and skill development,

(iii) Pension, social security and old age support.

Hotel industry has been given major relief by providing that the rate of tax on accommodation service shall be based on transaction value instead of declared tariff.

Services provided in sectors like banking, IT have been provided relief by exempting services supplied by an establishment of a person in India to any establishment of that person outside India [related party].

As a green initiative, GST on supply of e-books has been reduced from 18 to 5%.

EXEMPTIONS / CHANGES IN GST RATES AND SERVICES

Sector –Farmers/ Agriculture/ Food Processing

  1. Exempted services by way of artificial insemination of livestock (other than horses).
  2. Exempted warehousing of minor forest produce in line with exemptions provided to the agricultural produce.
  3. Exempted the works of installation and commissioning undertaken by DISCOMS/ electricity distribution companies for extending electricity distribution network upto the tube well of the farmer/ agriculturalist for agricultural use.
  4. Exempted services provided by FSSAI to food business operators.

Education/ Training/ Skill Development

  1. Reduced rate of GST from 18% to 5% on supply only of e-books for which print version exist.

Social Security/ Pension Security/ Senior Citizens

  1. Exempted services provided by Coal Mines Provident Fund Organisationto the PF subscribers from the applicability of GST on the lines of EPFO.
  2. Exempted supply of services by an old age home run by State / Central Government or by a body registered under 12AA of Income Tax Act) to its residents (aged 60 years or more) against consideration upto Rupees Twenty Five Thousand per month per member provided consideration is inclusive of charges for boarding, lodging and maintenance.
  3. Exempted GST on the administrative fee collected by National Pension System Trust.
  4. Exempted services provided by an unincorporated body or a non-profit entity registered under any law for the time being in force, engaged in activities relating to the welfare of industrial or agricultural labour or farmer; or for the promotion of trade, commerce, industry, agriculture, art, science, literature, culture, sports, education, social welfare, charitable activities and protection of environment, to own members against consideration in the form of  membership fee up to an amount of one thousand rupees per member per year.

Banking/ Finance/ Insurance

  1. Exempted Reinsurance Services provided to specified Insurance Schemessuch as Pradhan MantriRashtriyaSwasthyaSuraksha  Mission (PMRSSM) (Ayushman Bharat), funded by Government.

Government Services

  1. Exempted services provided by Government to ERCC by way of assigning the right to collect royalty, DMFT etc. from the mining lease holders.
  2. Exempted the guarantees given by Central/State Government/UT administration to their undertakings/PSUs.

Miscellaneous

  1. Exempted GST on import of services by Foreign Diplomatic Missions/ UN & other International Organizations based on reciprocity.
  2. Exempted services supplied by an establishment of a person in India to any establishment of that person outside India, which are treated as establishments of distinct persons in accordance with Explanation I in section 8 of the IGST Act provided the place of supply is outside the taxable territory of India in accordance with section 13 of IGST Act
  3. Prescribed GST rate slabs on accommodation service based on transaction value instead of declared tariff which is likely to provide major relief to the hotel industry.
  4. Prescribed GST rate of 12% with full ITC under forward charge for composite supply of multimodal transportation.
  5. Rationalized thenotificationentry prescribing reduced GST rate on composite supply of works contract received by the Government or a local authority in the course of their sovereign functions.
  6. Rationalized entry relating to composite supply of food and drinks in restaurant, mess, canteen, eating joints and such supplies to institutions (educational, office, factory, hospital) on contractual basis at GST rate of 5%; and making it clear that the scope of outdoor catering under 7(v) is restricted to supplies in case of outdoor/indoor functions that are event based and occasional in nature.

Also, the GST Council in its 28th Meeting had approved the New Return Formats and associated changes in law. It may be recalled that in the 27thMeeting held on 4thof May, 2018, the Council had approved the basic principles of GST return design and directed the law committee to finalize the return formats and changes in law. The formats and business process approved in 28th meeting were in line with the basic principles with one major change i.e., the option of filing quarterly return with monthly payment of tax in a simplified return format by the small tax payers.

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GST Refunds

Total GST refunds to the tune of Rs 91,149 crores have been disposed by CBIC and State authorities out of the total refund claims of Rs 97,202 crores received so far. Thus, the disposal rate of 93.77 per cent has been achieved. The pending GST refund claims amounting to Rs 6,053 crores are being expeditiously processed so as to provide relief to eligible claimants. Refund claims without any deficiency are being cleared expeditiously.

GST Evasion

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E-way Bill System

 The E-way Bill System had been introduced nation-wide for inter-State movement of goods with effect from 1st April, 2018 while the States were given the option to choose any date till 3rd June, 2018 for the introduction of the E-way bill system for intra-State supplies. The objectives of E-way bill system are as below:

  1. single and unified E-way bill for inter-State and intra-State movement of goods for the whole country in self-service mode,
  1. enabling paperless and fully online system to facilitate seamless movement of goods across all the States,
  1. improve service delivery with quick turnaround time for the entire supply chain and provide anytime anywhere access to data/services,
  1. to facilitate hassle free movement of goods by abolishing inter-State check posts across the country

Demonetization and Unearthing Black Money

The larger purpose of demonetisation was to move India from a Tax Non-compliant society to a compliant society.  This necessarily involved the formalization of the Economy and a blow to the black money.

Demonetization compelled holders of cash to deposit the same in the banks.  The enormity of cash deposited and identified with the owner resulted in suspected 17.42 lakh account holders from whom the response has been received online through non-invasive method. Larger deposits in banks improved lending capacity for the banks.  A lot of this money was diverted to the Mutual Funds for further investments.  It became a part of the formal system.

The impact of demonetization has been felt on collection of personal income tax.  Its collections were higher in Financial Year 2018-19 (till 31-10-2018) compared to the previous year by 20.2%.  Even in the corporate tax the collections are 19.5% higher.  From two years prior to demonetization, direct tax collections have increased 6.6% and 9% respectively.  In the next two years, post demonetization the increase by 14.6% (part of the year before impact of demonetization in 2016-17) and an increase of 18% in the year 2017-18.

Appropriate action by the Income-tax Department (ITD) and other Law Enforcement Agencies has been taken against those involved in the misuse of the Scheme of Demonetization.

During the period November 2016 to March, 2017, ITD conducted searches in 900 groups, involved in various activities and business, leading to seizure of Rs. 900 crores, including cash seizure of Rs. 636 crores. During the same period, 8239 surveys were conducted leading to detection of undisclosed income of Rs. 6745 crores.

With the objective of obtaining people’s participation in the Income Tax Department’s efforts to unearth black money and reduce tax evasion, a new reward scheme titled “Income Tax Informants Reward Scheme, 2018” has been issued by the Income Tax Department, superseding the earlier reward scheme issued in 2007.

Central Board of Direct Taxes (CBDT)

The Central Board of Direct Taxes (CBDT) has entered into nine more Unilateral Advance Pricing Agreements (UAPAs) during the month of July, 2018. With the signing of these Agreements, the total number ofAPAs entered into by the CBDT has gone up to 232, which includes 20 Bilateral Advance Pricing Agreements (BAPAs). 

Direct Tax

There has been continuous increase in the amount of income declared in the returns filed by all categories of taxpayers over the last three Assessment Years (AYs). For AY 2014-15, corresponding to FY 2013-14 (base year), the return filers had declared gross total income of Rs.26.92 lakh crore, which has increased by 67% to Rs.44.88 lakh crore for AY 2017-18, showing higher level of compliance resulting from various legislative and administrative measures taken by the Government, including effective enforcement measures against tax evasion.

Refunds amounting to Rs.1.23 lakh crore have been issued during April, 2018 to November, 2018, which is 20.8% higher than refunds issued during the same period in the preceding year.

So far as the Growth Rate for Corporate Income Tax (CIT) and Personal Income Tax (PIT) is concerned, the Growth Rate of Gross Collections for CIT is 17.7% while that for PIT (including STT) is 18.3%.

According to the Direct Tax Statistics released by CBDT:

  • There is a constant growth in direct tax-GDP ratio over last three years and the ratio of 5.98% in FY 2017-18 is the best DT-GDP ratio in last 10 years.
  • There is a growth of more than 80% in the number of returns filed in the last four financial years from 3.79 crore in FY 2013-14 (base year) to 6.85 crore in FY 2017-18.
  • The number of persons filing Return of Income has also increased by about 65% during this period from 3.31 crore in FY 2013-14 to 5.44 crore in FY 2017-18.

Department of Financial Services

Reforms for addressing the Non-Performing Assets (NPAs) of Public Sector Banks (PSBs):

The government has strongly come out with key measures and reforms in order to address the increase in NPAs, which are detailed as under.

  1. Recapitalization of Public Sector Banks (PSBs):

Government moved proposal in Parliament for enhanced bank re-capitalisation outlay from Rs.65,000 crore to Rs.1,06,000 crore in the current financial year to propel economic growth, cementing India’s position as the fastest growing economy of the world. This would enable infusion of over Rs.83,000 in Public Sector Banks (PSBs). 

The enhanced provision is aimed at:

(1)  Meeting regulatory capital norms

(2)  Providing capital to better-performing PCA Banks to achieve 9% Capital to Risk-weighted Asset Ratio (CRAR); 1.875% Capital Conservation Buffer and the 6% Net NPA threshold, facilitating them to come out of PCA

(3)  Facilitating non-PCA banks that are in breach of some PCA thresholds to not be in breach

(4)  Strengthen amalgamating banks by providing regulatory and growth capital

Following comprehensive clean-up of the banking system under Government’s 4R’s approach of Recognition, Resolution, Recapitalisation and Reforms, the envisaged recapitalisation would equip banks financially at levels higher than the global norms. In this connection, it is pertinent that India’s capital norms for banks are 1% higher than the norms recommended under the global Basel-III framework. Further, unlike the early intervention regime of other major economies, India’s PCA framework for weaker banks has more onerous thresholds, viz., higher capital thresholds and a Net NPA threshold that further embeds capital requirement on account of provisioning of NPAs. Today’s proposal in an expression of Government’s commitment that each PSB is an article of faith, and aims at securing compliance even for the higher regulatory norms.

  1. One market place for Public Sector Bank loans

The reforms agenda aimed at Enhanced Access & Service Excellence (EASE), encapsulates a synergistic approach to ensuring prudential and clean lending, better customer service, enhanced credit availability, focus on Micro, Small and Medium Enterprises (MSMEs), and better governance.

  1. Consolidation of Regional Rural Banks (RRBs)

With a view to enable Regional Rural Banks (RRBs) to minimize their overhead expenses, optimize the use of technology, enhance the capital base and area of operation and increase their exposure, the Government has sought comments of respective State Governments and Sponsor Banks on a roadmap for Amalgamation of RRBs within a State.

Apart from these measures, a number of other measures have been undertaken. As a result, PSBs recovered an amount of Rs. 1,58,259 crore, during the financial years 2015-16 to 2017-18.

  1. To avoid recurrence and for stringent recovery, the Insolvency and Bankruptcy Code, 2016 (IBC) has been enacted to create a Unified Framework for resolving insolvency and bankruptcy matters.
  2. The Banking Regulation Act, 1949 was amended, to provide for authorization to RBI to issue directions to banks to initiate the insolvency resolution process under IBC. Under this, by adopting a creditor-in-saddle approach, with the interim resolution professional taking over management of affairs of Corporate Debtor at the outset, the incentive to resort to abuse of the legal system was taken away. This coupled with debarment of wilful defaulters and persons associated with NPA accounts from the resolution process, has effected a fundamental change in the creditor-debtor relationship.
  3. Further, as per RBI’s directions, cases have been filed under IBC in the National Company Law Tribunal (NCLT) in respect of 39 large defaulters, amounting to about Rs. 2.69 lakh crore funded exposure (as of December 2017).
  4. In addition, recapitalisation of PSBs, announced and initiated by the Government, has enabled upfront provisioning, easing apprehensions in actively pursuing resolution.
  5. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) has been amended for faster recovery with a provision for three months imprisonment in case the borrower does not provide asset details and for the lender to get possession of mortgaged property within 30 days. Also, six new Debts Recovery Tribunal have been established to expedite recovery.
  6. PSB Reforms Agenda announced by the Government, PSBs have committed to strengthen recovery mechanism by setting-up Stressed Asset Management Verticals for focussed recovery, clean and effective post-sanction follow-up on large-value accounts by tying up with Agencies for Specialized Monitoring for loans of Rs. 250 crore and above, and strict segregation of pre- and post-sanction roles for enhanced accountability.
  7. To reduce incidence of default on account of and to effect recovery from wilful defaulters, as per RBI’s instructions, wilful defaulters are not sanctioned any additional facilities by banks or financial institutions, their unit is debarred from floating new ventures for five years, and lenders may initiate criminal proceedings against them, wherever necessary.
  8.  Securities and Exchange Board of India (SEBI) Regulations have been amended to debar wilful defaulters and companies with wilful defaulters as promoters/directors from accessing capital markets to raise funds.
  9.  Further, the Insolvency and Bankruptcy Code has been amended to debar wilful defaulters from participating in the insolvency resolution process.

Global Recognition of Government’s Reform Drive

The reform drive undertaken by the government has been recognized by International Organizations like Standard &Poor’s which states, inter-alia, that “the worst is almost over for India’s banks”. It states that the Government is working on a four-pronged strategy to improve the health of the banking sector: recognition, resolution, recapitalisation and reform (“4Rs”), and that their stable outlook on the banks reflect their view that the “4Rs” and other initiatives taken by the Government and RBI will strengthen the banking system over the next couple of years.

Streamlining of National Pension System (NPS) 

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The Union Cabinet in its Meeting on 6th December, 2018 has approved the following

Financial Inclusion

Finance Ministry launches Mobile Application “Jan DhanDarshak” as a part of Financial Inclusion

Department of Financial Services (DFS), Ministry of Finance and National Informatics Centre  (NIC) has jointly developed a mobile app called Jan DhanDarshak as a part of financial inclusion (FI) initiative . As the name suggests, this app will act as a guide for the common people in locating a financial service touch point at a given location in the country.

Major Schemes and their Improvements:

Issue of Kisan Credit Cards

There is positive growth in terms of both individual policies as well as first year premium during 2017-18. Apart from interest rates, there are other factors which affect the life insurance growth such as overall economic growth, sales force, product portfolio, level of competition with other financial products etc. 

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Pradhan Mantri Jan Dhan Yojana (PMJDY): Under Pradhan Mantri Jan DhanYojana33.4 Crore beneficiaries banked so far ₹85,494.69 Crore balance in beneficiary accounts as on 17th December, 2018

Pradhan Mantri Vaya Vandana Yojana extended up to March 2020: Exemption of Interest Income on deposits increased to Rs 50,000. Existed limit on investment under PMVVY enhanced to Rs 15 lakhs.

Sukanya Samridhi Account Scheme: Until 30 June, 2018 more than 1.39 crore accounts have been opened across the country in the name of girl-child securing an amount of Rs.25,979.62crore.

Atal Pension Scheme: The Subscriber base under APY has crossed 1.24 crore mark; More than 27 lacs new subscribers have joined the Scheme during the Current Financial Year 2018-19 (As on 2nd November,2018). The Scheme is very easy to understand and it is very transparent. States like Uttar Pradesh, Bihar, Andhra Pradesh, Maharashtra and Karnataka are the top contributors in APY enrollment. The Scheme allows any Indian Citizen between the age group of 18-40 years to join through the bank or post office branches where one has the savings bank account.

Pradhan Mantri Suraksha Bima Yojana(PMSBY) and  Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)

  • Pradhan MantriSurakshaBimaYojana:  As per data uploaded by banks, the number of persons enrolled under Pradhan MantriSurakshaBimaYojana (PMSBY) as on 31.10.2018 is 14.27 Crores.
  • Pradhan MantriJeevanJyotiBimaYojana:5.47 crore subscribers under Pradhan MantriJeevanJyotiBimaYojana (PMJJBY) with 1.10 lakh claims, involving an amount of Rs. 2,206.28 crore settled so far. (As on 8th September,2018)

Pradhan Mantri Mudra Yojana

Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the Hon’ble Prime Minister on April 8, 2015 for providing loans upto 10 lakh to the non-corporate, non-farm small/micro enterprises. These loans are classified as MUDRA loans under PMMY. During the financial year 2018-19, the number of loan sanctioned are 2,92,30,665 with total amount sanctioned Rs. 1,53,783.83Crores, with total amount disbursed Rs.1,47,115.20Crores (As 14th December,2018)

Stand Up India Scheme

Progress around Stand-Up India Scheme is as under

    Performance under Stand Up India Scheme   (Amt. in Rs. Crore)
          SC     ST       Women     Total
  Date                                    
  No Of Sanctioned   No Of Sanctioned No Of   Sanctioned   No Of   Sanctioned
           
    A/Cs Amt.   A/Cs   Amt. A/Cs   Amt.   A/Cs     Amt.
  31.10.2018 9175 1776.87   2770 557.35 54135   12096.91   66080   14431.14
                                 

 Rates of Small Saving Schemes was increased for Financial Year 2018-19.

 

Public Financial Management System (PFMS) Achieves a Historical Record Breaking Volume of Digital Transaction

Public Financial Management System (PFMS) is an ambitious project of Government of India being implemented by Controller General of Accounts, Ministry of Finance. PFMS has proved as a robust digital platform towards Prime Minister’s vision of DIGITAL INDIA.

On 28th March, 2018, an historic amount of Rs. 71,633.45 crore has been digitally transacted/routed through PFMS Portal for 98, 19,026 transactions in a single day.

  1. Department of Disinvestment and Public Asset Management (DIPAM)
  • As on 11th December, 2018, the Government had realized Rs. 34,005.05 crore as disinvestment proceeds against the BE of Rs. 80,000 crore during the current financial year (2018-19).
  • The FFO 3 of CPSE-ETF in November 2018 was the biggest disinvestment transaction through ETF raising Rs. 17,000 crore.
  • Total disinvestment proceeds during 2017-18 was Rs. 1,00,056.91crorevis-a-vis the revised target of Rs. 1,00,000 crore.
  • CPSEs constitute 8.81% and 8.89% of the total market capitalisation of companies listed at BSE and NSE respectively (as on 7th December, 2018)
  • The Initial Public Offering (IPO) of CPSE IRCON had been subscribed 9.5 times. The Government expected to raise Rs 466 crore from the issue. IRCON is the second CPSE to launch an IPO in the Current Fiscal besides being the second Railway CPSE to be listed on the stock markets after RITES in June this year.
NAME OF CPSES % OF GOIS SHARES DISINVESTED RECEIPTS (In Crores) GOIS SHAREHOLDING POST DISINVESTMENT
Mishra Dhatu Nigam Ltd. (MIDHANI) 25 434.14 75%
Bharat 22 ETF 8325.26
RITES 12.60 460.51 87.40%
Garden Reach Shipbuilders and Engineers Ltd. 25.5 342.90 74.5%
Coal India Ltd. 3.19 5218.30 75.46%
KIOCL Ltd. 1.983 205.34 99.06%
HSCC (India) Ltd. 100 285.00
CPSE-Exchange Traded Fund (FFO3) 17000.00
National Aluminium Company Ltd. 1.80 260.41 56.77%
NLC India Ltd. 989.86
Coal India Ltd. 0.01 17.33 75.12%

(Source – DIPAM site)

  • Further Fund Offer of Bharat – 22 ETF had been a resounding success with strong participation of FIIs.
  • Also, the Cabinet Committee on Economic Affairs chaired by the Prime Minister, Shri NarendraModi had given ‘in principle’ approval for strategic disinvestment of 100% Government of India’s shares in DCIL to consortium of four ports namely, Vishakhapatnam Port Trust, Paradeep Port Trust, JawaharLal Nehru Port Trust and Kandla Port Trust.
  • In January, The Government of India had also entered into an agreement with ONGC for the strategic sale of its 51.11% equity share-holding in HPCL at a consideration of Rs. 36,915 crore.

Department of Expenditure

  • The Finance Minister said that in order to impart unquestionable credibility to the Government’s commitment for the revised fiscal glide path, he proposed to accept key recommendations of the Fiscal Reform and Budget Management (FRBM) Committee relating to adoption of the Debt Ruleand to bring down the Central Government’s Debt to GDP ratio to 40%. The Government also accepted the recommendation to use Fiscal Deficit target as the key operational parameter.
  • Presenting the General Budget 2018-19 in Parliament here, the Union Minister for Finance and Corporate Affairs, Shri ArunJaitely  said that the total earmarked allocation for SCs in 279 programmes had been increased from Rs.34,334 crore in 2016-17 to Rs.52,719 crore in RE 2017-18.  Likewise, for STs, earmarked allocation had been increased from Rs.21,811 crore in 2016-17 to Rs.32,508 crore in RE 2017-18 in 305 programmes.  The Finance Minister said that earmarked allocation had been further increased to Rs.56,619 crore for SCs and Rs.39,135 crore for STs in BE 2018-19.
  • The Union Cabinet, chaired by the Prime Minister Shri NarendraModi has approved to release an additional installment of Dearness Allowance (DA) to Central Government employees and Dearness Relief (DR) to pensioners w.e.f. 01.07.2018 representing an increase of 2% over the existing rate of 7% of the Basic Pay/Pension, to compensate for price rise.
  •  Direct Benefit Transfer (DBT) had been made applicable across the country vide M/o Finance OM dated 12.12.2014. Till 15/02/2018, 366 such schemes/components were identified where cash was directly transferred to bank account of the beneficiaries. Till 15/02/2018, Rs. 2,64,113 crore was transferred to the beneficiaries in the Cash Schemes.
  • Total Agriculture Credit Disbursement increased from Rs. 9,15,509.92 Crore in 2015-16 to Rs. 11,68,502.84 Crore in 2017-18
  • To enhance their skills and keep pace with the changes in the World Global Environment, the Department of Expenditure took the lead role in the capacity building of Financial Advisers

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The Impact of the Government Policies on Direct Tax Collections

1.PNG  Union Minister Arun Jaitley

The first sixty-seven years after Independence from 1947 to 2014 saw a total number of 3.82 crores assesses filing tax returns.  Obviously, in comparison to a total population of almost 1.3 billion, this figure appears highly inadequate.  The total direct tax collection (income tax) in 2013-14 was Rs.6.38 lakh crore.

Prime Minister Modi led NDA Government had a multi-pronged strategy to increase the tax base.  A campaign involving various steps to flush out black-money, including black-money outside the country, was initiated.  The demonetisation led to a lot of people in possession of undeclared cash depositing the same in the banking system.  The source of the money was now questioned.  Almost 18 lakh people were identified who had made deposits disproportionate to their returned incomes.  The use of technology helped the tax department significantly.  Most of the functioning of the Income-tax Department is now online, returns are filed online, queries are addressed online, assessment orders are handled online and refunds are also made online.  Technology is also used for reconciliation purposes in order to detect those who should be filing returns but are non-filers.

GST English (33x20cm)

The implementation of the Goods and Services Tax as a single consolidated tax has had a significant impact even on direct taxes.   Those who have disclosed a business turnover for the GST now find it difficult not to disclose their net income for the purposes of income tax.

What would be the combined impact of all these measures on India’s direct taxation base? We had targeted to optimise the base increase without any increase on the tax liability.  India’s tax to GDP ratio in four years increased by almost 1.5%.  On the contrary, a large number of taxpayers in each of the four Budgets of the present Government has benefitted from relief given.  Today a medium-term assessment of the impact of these steps can be made.  In four years, the number of assesses has increased by 64.6%.  The total number of returns filed was 6.86 crores in FY 2017-18.  The number of new assesses who filed returns in FY 2017-18 were 1.06 crore. I hope that the percentage increase when the Government completes its first five years would be significantly higher.  The total income tax collection for the year 2017-18 is Rs.10.02 lakh crore, a four year increase of 57%.  Last year, despite formidable economic challenges, the income tax collection managed to grow by over 18 percent.

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Last year, the impact of the GST on direct tax collection was not visible.  Since GST had been imposed in the middle of the year, it will be more apparent this year.  The first big news for this year is that the advance tax deposit during the first quarter of this year has seen a gross increase of 44% in the personal income tax category and 17% in the corporate tax category.  After repayment of refunds due to some excess tax paid in earlier years, which are usually paid back in the first quarter, the net amount would be somewhat lesser.  But if the same trend continues in the next three quarters, one expects a significant increase in the direct tax collection this year.  The first indication is that the spending is higher, consumption is higher and corporates are seeing increased sales and a greater prospect of profitability.  But increase in the amount of collections in category of personal income tax is also due to more people coming within the tax net.  There is also the impact of the GST visible this year.  This unprecedented taxation growth is a result of the anti-black money measures, use of technology, demonetisation and the GST.  Most of these measures were severely criticized by the Congress Party.  This is just the medium-term impact of some of these measures.  The long-term impact would be significantly higher.  Higher tax collection would enable us to continue with the developmental programmes in the country, not to impose any extra burden on the taxpayers and yet maintain the targeted fiscal deficit.

Money in Swiss-Banks

A news item has appeared today indicating an increase of money by ‘Indians’ in the Swiss banking system.  This has led to misinformed reaction in certain circles raising a query whether the Government’s anti-black money steps have yielded results.

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Switzerland in financial disclosures was always a reluctant state.  Of late it was subjected to a lot of international pressures which favoured disclosures and Switzerland ran the risk of being a ‘non-compliant’ State by the FATF.  It has, therefore, entered into several bilateral treaties for making disclosures to requesting States.  It has amended its domestic laws involving all disclosures and entered into a treaty even with India and real time flow of information with regard to Indians will be made.  The flow of information is starting in January, 2019.  Any illegal depositor knows that it is a matter of months before his name becomes public and he will be subjected to the harsh penal provisions of the Black money law in India.  Assuming this information to be correct, what does past experience show?  When disclosures have been made with regard to ‘Indians’, including in the Panama Papers, certainly some of them have held illegal accounts.  ‘Indian’ money outside the country is of various categories.  Past investigation by CBDT have shown that this includes many held by persons of Indian origin who now hold foreign passport, monies belonging to Non-Resident Indians, as also monies belonging to resident Indians who have made legitimate investments abroad, including transfer of money under the liberalised remittance schemes.  It is only monies kept by resident Indian outside these categories which become actionable.  The first two categories are within the jurisdiction of those countries where these persons are residents and the third category can easily be checked up in India.  If the deposit does not fall in any of these categories, it is per se illegal for which investigations are undertaken, arrests are made and criminal prosecutions are launched.  Switzerland has taken significant efforts to get out of the image of being a tax haven and a non-compliant State.  It is on the verge of making disclosures in real time and, therefore, is no longer an ideal destination for tax evaders.  Those who participate in a public discourse must understand these basic facts before expressing an opinion which may be ill-informed.  To assume that all the deposits are per se tax evaded money or that Switzerland in the matter of illegal deposits is what it was decades ago, is to start on a shaky presumption.

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A Year After Demonetisation

Arun Jaitley arun1

November 8, 2016 would be remembered as a watershed moment in the history of Indian economy. This day signifies the resolve of this Government to cure the country from “dreaded disease of black money”. We, the Indians, were forced to live with this attitude of “chalta hai” with respect to corruption and black money and the brunt of this attitude was faced particularly by the middle class and lower strata of society. It was a hidden urge of the larger section of our society for a long period to root out the curse of corruption and black money; and it was this urge which manifested in the verdict of people in May 2014.

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 Immediately after taking up responsibility in May 2014, this Government decided to fulfil the wish of the people in tackling the menace of black money by constituting SIT on black money. Our country is aware that how even a direction from the Supreme Court on this issue was ignored by the then Government for number of years. Another example of lack of will to fight against black money was the delay of 28 years in implementation of Benami Property Act.

This Government took decisions and implemented the earlier provisions of law in a well-considered and planned manner over three years to meet the objective of fight against black money. These decisions span from setting up of SIT to passing of necessary laws for foreign assets to demonetisation and to implementation of GST.

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 When the country is participating in “Anti-Black Money Day”, a debate was started that whether the entire exercise of demonetisation has served any intended purpose. This narrative attempts to bring out positive outcomes of demonetization in short-term and medium-term with respect to stated objectives.

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RBI has reported in their Annual Accounts that Specified Bank Notes (SBNs) of estimated value of Rs.15.28 lakh crore have been deposited back as on 30.6.2017. The outstanding SBNs as on 8th November, 2016 were of Rs.15.44 lakh crore value. The total currency in circulation of all denominations as on 8th November, 2016 was 17.77 lakh crore.

One of the important objective of demonetisation was to make India a less cash economy and thereby reduce the flow of black money in the system. The reduction in currency in circulation from the base scenario reflects that this intended objective has been met. The published figure of “currency in circulation” for half year ending September, 2017 is Rs.15.89 lakh crore. This shows year on year variation of (-) Rs.1.39 lakh crore; whereas year on year variation for the same period during last year was (+) Rs.2.50 lakh crore. This means that reduction in currency in circulation is of the order of Rs.3.89 lakh crore.

Why should we remove excess currency from the system? Why should we curtail cash transactions? It is common knowledge that cash is anonymous. When demonetization was implemented, one of the intended objectives was to put identity on the cash holdings in the economy. With the return of Rs.15.28 lakh crore in the formal banking system, almost entire cash holding of the economy now has an address. It is no more anonymous. From this inflow, the amount involving suspicious transactions based on various estimates ranges from Rs.1.6 lakh crore to Rs.1.7 lakh crore. Now it is with the tax administration and other enforcement agencies to use big data analytics and crack down on suspicious transactions.

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 Steps in this direction have already started. Number of Suspicious Transaction Reports filed by banks during 2016-17 has gone up from 61,361 in 2015-16 to 3,61,214; the increase during the same period for Financial Institutions is from 40,333 to 94,836 and for intermediaries registered with SEBI the increase is from 4,579 to 16,953.

Based on big data analytics, cash seizure by Income Tax Department has more than doubled in 2016-17 when compared to 2015-16; during search and seizure by the Department Rs.15,497 crore of undisclosed income has been admitted which is 38% higher than the undisclosed amount admitted during 2015-16; and undisclosed income detected during surveys in 2016-17 is Rs.13,716 crore which is 41% higher than the detection made in 2015-16.

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Undisclosed income admitted and undisclosed income detected taken together amounts to Rs.29,213 crore; which is close to 18% of the amount involved in suspicious transactions. This process will gain momentum under “Operation Clean Money” launched on January 31, 2017.

 The exercise to remove the anonymity with currency has further yielded results in the form of

  • 56 lakh new individual tax payers filing their returns till August 5, 2017 which was the last date for filing return for this category; last year this number was about 22 lakh;
  • Self-Assessment Tax (voluntary payment by tax payers at the time of filing return) paid by non-corporate tax payers increasing by 34.25% during April 1 to August 5 in 2017 when compared to the same period in 2016.

With increase in tax base and bringing back undisclosed income into the formal economy, the amount of Advance Tax paid by non-corporate tax payers during the current year has also increased by about 42% during 1st April to 5th August.

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The leads gathered due to data collected during demonetisation period have led to identification of 2.97 lakh suspect shell companies. After issuance of statutory notices to these companies and following due process under the law, 2.24 lakh companies have been de-registered from the books of Registrar of Companies.

 Further actions were taken under the law to stop operation of bank accounts of these struck off companies. Actions are also being taken for freezing their bank accounts and debarring their directors from being on board of any company. In the initial analysis of bank accounts of such companies following information has come out which are worth mentioning:

  • Of 2.97 lakh struck off companies, information pertaining to 28,088 companies involving 49,910 bank accounts show that these companies have deposited and withdrawn Rs.10,200 crore from 9th November 2016 till the date of strike off from RoC;
  • Many of these companies are found to have more than 100 bank accounts – one company even reaching a figure of 2,134 accounts;

Simultaneously, Income Tax Department has taken action against more than 1150 shell companies which were used as conduits by over 22,000 beneficiaries to launder more than Rs.13,300 crore.

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Post demonetization, SEBI has introduced a Graded Surveillance Measure in stock exchanges. This measure has been introduced in over 800 securities by the exchanges. Inactive and suspended companies many a time are used as harbours of manipulative minds. In order to ensure that such suspicious companies do not languish in the exchanges, over 450 such companies have been delisted and demat accounts of their promoters have been frozen; they have also been barred to be directors of listed companies. Around 800 companies listed on erstwhile regional exchanges are not traceable and a process has been initiated to declare them as vanishing companies. Demonetization appears to have led to an acceleration in the financialisation of savings.

In parallel, there is a shift towards greater formalisation of the economy in the near term aided by the introduction of Good and Services Tax (GST). Some of the parameters indicating such shift are given below:

  • Corporate bond market has started reaping the benefits of additional financial savings and transmission of interest rate reduction. The corporate Bond market issuance grew to Rs. 1.78 lakh crore in 2016-17, the year on year increase was Rs.78,000 crore. With other sources of issuance in capital market the incremental variation is almost Rs.2 lakh crore in 2016-17 while that was Rs.1 lakh crore in 2015-16.
  • This trend is further substantiated by the surge in primary market raising through public and rights issues. There were 87 issues of public and rights for raising equity involving amount of Rs.24,054 crore during FY 2015-16; in the first six months of 2017-18 itself there are 99 such issues amounting to Rs.28,319 crore.
  • Net inflow into Mutual Funds during 2016-17 increased by 155% during 2016-17 over 2015-16 reaching 3.43 lakh crore; Net inflows in mutual funds during November 2016 to June 2017 was about Rs.1.7 lakh crore as against Rs.9,160 crore during the same period in the year before;
  • Premia collected by life insurance companies more than doubled in November 2016; the cumulative collections during November 2016 to January 2017 increased by 46 per cent over the same period of the previous year. The premium collections witnessed 21% growth for year ending September 2017 over the corresponding period of previous year.

With a shift to less cash economy, India has taken a big leap in digital payment during 2016-17. Some of the trends are given below:

  • 110 crore transactions, valued at around Rs.3.3 lakh crore and another 240 crore transactions, valued at Rs.3.3 lakh crore were carried out through credit cards and debit cards, respectively. The value of transaction for debit and credit card was Rs.1.6 lakh crore and Rs.2.4 lakh crore respectively during 2015-16.
  • Total value of transaction with Pre-Paid instruments (PPIs) have increased from Rs.48,800 crore in 2015-16 to Rs.83,800 crore in 2016-17. Total volume of transactions through PPIs have increased from about 75 crore to 196 crore.
  • During 2016-17, National Electronic Funds Transfer (NEFT) handled 160 crore transactions valued at Rs.120 lakh crore, up from around 130 crore transactions for Rs.83 lakh crore in the previous year.

With higher level of formalisation, it has brought out related benefits to workers who were denied of social security benefits in the form of EPF contribution, subscription to ESIC facilities and payments of wages in their bank accounts. Large increase in opening of bank accounts for workers, enrolment in EPF and ESIC are added benefits of demonetisation. More than 1 crore workers were added to EPF and ESIC system post-demonetisation which was almost 30% of existing beneficiaries. Bank accounts were opened for about 50 lakh workers to get their wages credited in their accounts. Necessary amendment in Payment of Wages Act was done to facilitate this.

The reduction in incidences of stone pelting, protests in J&K and naxal activities in LWE affected districts are also attributed to the impact of demonetisation as these miscreants have run out of cash. Their access to Fake Indian Currency Note (FICN) was also restricted. During 2016-17, the detection of FICN for Rs.1000 denomination increased from 1.43 lakh pieces to 2.56 lakh pieces. At the Reserve Bank’s currency verification and processing system, during 2015-16, there were 2.4 pieces of FICNs of Rs.500 denomination and 5.8 pieces of FICNs of Rs.1000 denomination for every million pieces notes processed; which rose to 5.5 pieces and 12.4 pieces, respectively, during the post-demonetisation period. This shows almost doubling of such detection.

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In an overall analysis, it would not be wrong to say that country has moved on to a much cleaner, transparent and honest financial system. Benefits of these may not yet be visible to some people. The next generation will view post November, 2016 national economic development with a great sense of pride as it has provided them a fair and honest system to live in.

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Shri Arun Jaitley is the Union Minister of Finance and Corporate Affairs, Government of India

Paradigm shift in Governance

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The Nation has witnessed a paradigm shift in governance in the three years of Narendra Modi Government. Policy statements laced with highly reformative decisions have changed the mood of the nation for development and growth. Prime Minister Modi has pushed through a slew of reforms to bail out the country’s economy from a state of policy paralysis.

The NDA government inherited a baggage of low growth rate, high inflation and apathetic governance. With exports moving in south directions, industrial output almost stagnated.

The Prime Minister set the tone for the development and growth by announcing programmes like Make-in-India, Start-up India, Skill Development, MUDRA, PM Jan Dhan Yojana, JAM, DBT and many more.

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To support these initiatives, he put in place the required policies and reforms. The decision of demonetization and amnesty scheme to flush out black money helped in cleansing the economy to some extent. The creation of NITI Ayog in place of outdated Planning Commission is in line with the new demands and aspirations of a young nation and “New India”.

The historic indirect tax reform, the boldest step since Independence, came with the introduction of GST (Goods & Services Tax) in mid-night of June 30 and July 1, 2017. The GST regime put the countrymen under “One Nation One Tax” administration. The reform is aimed at bringing in transparency in taxation with an ultimate goal of safeguarding the interest of the consumers as well as the business and industries.

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The indirect tax reform decision, supported by all the states in the country including Jammu & Kashmir, was hailed by many countries world over. The signals from first month of GST implementation show a promising trend and bright economic future for the nation.

Meanwhile, the Modi government has achieved thunderous success so far as implementation of Direct Benefit Transfer (DBT) policy is concerned. Particularly, the DBT introduced for cooking gas proved to be the biggest DBT scheme in the world. Nearly 15 crore cooking gas consumers have come under the DBT known as PAHAL which has been acknowledged by Guinness Book of World Records. The DBT has saved over Rs56,000 crore government money from leakage.  The NDA government is now proposing to introduce DBT for fertilizer and kerosene subsidies on pilot basis.

The UPA policy of retrospective taxation and the stagnation in further opening up of sectors, spoiled the environment for Foreign Direct Investments (FDIs) in the country. Soon after coming to power, the NDA government announced that the retrospective taxation case would be considered case by case in a bid to assuage the feelings of the foreign investors.  It liberalized the FDI policy and announced a slew of decisions to attract off-shore investments in sectors like insurance, railways, defence, retail marketing.

The union finance minister, Arun Jaitley, in his budget speech, announced that FDI in insurance will be automatically allowed upward the sectoral cap of 49%. He also allowed more than 50% FDI in defense. Not only that most of the railways sector was opened for 100% FDI vide DIPP Press Note8 (2014), issued on 8/27/2014. Similarly, the DIPP Press Note 12 removed almost all restrictions on FDI in construction.

Removing restriction on foreign investment in single brand retail, the Centre allowed FDI up to 100% via the government approval route, but requires that 30% of goods sold in the first 5 years be manufactured in India. This period is tolled 3 years for ‘cutting edge’ technology. The Government also allowed more than 50% foreign investment in direct retail e-commerce with a rider that  FDI is not allowed in business-to-consumer e-commerce, unless items are all being sold under a single brand and meet local-content requirements.

The NDA government has put the fuel pricing reforms on fast track. Following the deregulation of petrol prices, the diesel prices were deregulated from October 18, 2014. So also the natural gas pricing.

Realizing that the mining sector plays a key role in propelling growth, the Modi government put in place laws and policies for development of the sector. The MMDR Act was amended to bring in transparency in leasing out non-coal major minerals. It also opened the coal mining sector to private and foreign investments by a legislation Coal Mines (Special Provisions) Act, 2015 on March 20, 2015. The transparent e-auction in mining sector has fetched government a huge revenue also.

Similarly, changes were brought in the policies to conduct the telecom spectrums in a transparent way. India has now conducted multiple free and fair telecom auctions with no complaints from stake-holders.

As part of ease of doing business, the government extended the expiration date of industrial licenses. DIPP issued an order on December 20, 2014, increasing the maximum validity of an industrial license from two years to seven years. Removing sectoral investment limit, the government on April 10, 2015 removed the last 20 products from the reserved list

The government has also recently enacted bankruptcy laws to make it easy for the companies to go for liquidations.

Modi government has several reform initiatives in its agenda. Now further reforms in subsidies expenditures is the top priority of the government. Reform is a long term and continuous process. The real dividend of the reform processes that have already initiated is expected to come in the next two years.

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* Dilip Kumar Bisoi is a Senior Journalist and Columnist. Presently working as the Editor of Odia daily ‘The Samay’.

Assessing India’s Progress in Various Fields

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We are celebrating 70 years of our Independence. But looking back at the history of these seven decades, what are the things which we should be proud of? Have we really progressed much and reached the level we should have in all these years?

The verdict will be divided. India is a land of a diverse population, with great variations in economic standards, having different religious and cultural customs and different stages of development. Hence, every section has its own view of development and reasons to whine or cheer.

But there are certain major and decisive strides we have made in these years particularly during last three years which no one can ignore or deny, irrespective of his or her political affiliation or personal grudges against certain leaders or governments or the ‘system’. Perhaps our greatest achievement is to have evolved a healthy democratic government system.

We have a very strong constitutional framework that makes democracy such a success here.  But that is just the tip of the iceberg. Our achievements in these years are endless, should we sit to prepare an exhaustive list. We have some of the best institutes in the world in the form of IIMs and IITs.

Our healthcare sector is looking up and health tourism is a reality where people from advanced nations are coming here for affordable treatment.  We have a railway network that is among the largest in the world in terms of track length and passenger volume. We have one of the largest armies in the world.

We have among the world’s busiest airports in Delhi and Mumbai. Our life expectancy at birth has increased from a mere 32 years in 1947 to 66 years today. We were one of the foremost nations to establish nuclear reactors and produce clean energy. Despite our financial and technological limitations, we have made the best use of our resources and from an importer of even a needle, today we are exporters of software.

Our technocrats and managers are celebrated worldwide for their professionalism and calibre. Today we are a nation reckoned as a leader in space technology. Millions of Indians have fought their way in and made Europe and the US their home, by sheer virtue of their hard work and professional competence, contributing seminally in global projects.

We have produced noble laureates, artists, singers, musicians, writers, sportsmen, scientists, diplomats, scholars and statesmen of world repute year after year, in hundreds. This is no mean thing in just seven decades of our independent existence.  We had difficult times in recent years with policy paralysis in government and slackness in ideation that slowed down India’s growth trajectory to some extent but in the last three years or so of the NDA government, things have started looking up.

In less than three years, at least 30 new projects have been launched for giving a new shape and direction to the country like Jan Dhan, Swachh Bharat, Startup India, Nat’l Health Policy, Give up LPG, Skill India, Make in India, Smart City, Udaan scheme, GST, Digital India, Crop Insurance scheme to name a few, even if we leave for the moment aggressive advancements in railway and road networks and facilities.

No wonder World Investment Report finds India among the top three prospective host economies of the world. In Financial Year 2015-16 we had a whopping 55 billion dollars’ worth of investments in the country. In World economic forum Global Competitive Index, India has jumped 32 places and today the country is the 6th largest manufacturing nation in the world. Projects worth Rs. 8 lakh crore pending for years have now been cleared and put on the fast track under the Prime Minister’s personal initiative.

India’s effort and commitment towards production and use of clean energy has found praise globally. The government has plans to produce 175 GW of renewable energy and we have already realised 50 GW production level in last three years.  India stands 4th in the world in global wind power installed capacity. At least 22 crores LED bulbs have been distributed, which is to lead to saving of Rs 11,000 crore in electricity bills of the country.  The government is not only targeting mega projects but is equally attentive towards micro-level social engineering and taking grassroots level steps to strengthen the common man and the rural foundations.

The Prime Minister deeply believes in public participation and hence all projects are prepared with a view to benefit more and more people.  In just three years of his governance, the government has ensured the establishment of 50,000 km of power transmission lines, even as over last five decades we had only 16,000 km covered. Not only that, in less than three years we have over 12,000 villages electrified, even as when the government came in power, it found over 18,000 villages in Independent India still living in the dark.

Between 2010 and 2014, just 59 village panchayats had been connected with optical fibre network which in last three years stands at 77,000 panchayats. Such is the pace at which the government is working.  It is very likely that in next two years we will have all the 2.5 lakh villages enjoying optical fibre network to enjoy seamless internet and communication facility.

The buzzword of the government is transparency and to bring in transparency in government working, digitisation has a big role to play, which is why the government is taking along the two together. The more digital technology penetration we have, the lesser corruption we have because everything is in the public domain for everyone to see and track. As Prime Minister Modi says, it is all about change in the viewpoint and way of handling things that would make all the difference.

The NDA government is a departure from the past because it has changed the work culture and viewpoint of the people, instilling hope in them, pushing them to dream big. The seeds of every success lie in dreams that we cherish!

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*The author is State Editor of the Madhya Pradesh Editions of The Hitavada.

India on Way to Change the Course Correction in Planning and Governance

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After a tryst with destiny 70 years back India is said to have now finally arrived at a take off stage to achieve the dreams and aspirations of its people. The nation is witnessing an upsurge of youth power bubbling with enthusiasm and confidence.

It is not out of context to state here that the present government at the Centre got elected on a massive mandate from electorate consisting in abundance of young, mostly first time, voters.

India has traversed a long way since the attainment of independence. The leadership of the party which guided the destiny of the nation for a number of electoral terms was obviously inclined towards socialism and adopted a model of planned development pursuing mixed economy with huge state sector investment. But the state machinery was not equipped and even prepared to own the mammoth task.

State intervention was needed and it initially paid dividends because we could not do without it as the big investments were not possible from private sector. We witnessed the first decade of independent India as full of hope and aspiration for change in socio economic situations that has been stagnant for historic reasons. There was superb enthusiasm and confidence among the people of the new republic that they would change their destiny. However, the following decades proved to be the period of disillusionments. Despite the country pumping in huge public money we found, by the turn of the century, it was complete shattering of hopes as the system started showing it’s rotten state.

For a long time state sponsored economy kept the market based economy at bay. But for the first time in all these long years we are witnessing a course correction after the last elections sent a party to govern with huge electoral mandate.

Unlike its predecessors, the NDA government has no inhibition or compulsion to follow the beaten path and is using the bulging market economy for the benefit of rising the standard of living of the masses, particularly of the poorest of the poor.

The government at the centre, headed by Narendra Modi, is showing a determination and vigour in taking decisions and implementing them, including the latest one of GST. The whole model of subsidies has been changed to transfer financial help directly to the beneficiaries in their bank accounts.

With the clarion call of ‘Sabka Saath, Sabka Vikas‘(Together with all, development for all) and ‘Minimum Government and Maximum Governance’ as policy initiatives the present government, headed by Narendra Modi, has established itself a doer.

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Of all the policy initiatives taken by the government, the Goods and Services Tax (GST) is the most transformative and impactful reform GST aiming at making India a common market with common tax rates.

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Replacing the leaky and inefficient welfare delivery system with the cash transfer model has been adopted using direct benefit transfer (DBT) pilots with the JAM (Jan Dhan, Aadhaar, Mobile) as its foundation.

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This initiative is natural corollary of the ambitious ‘Make in India’ which aims at making the country a global manufacturing hub. ‘Make in India’ initiative encourages both multinational as well as domestic companies to manufacture their products in India and the transparent and efficient tax collection system would make it realise.

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Similarly ‘Skill India’ wants to make India a skilled country targeting skill development training to over 500 million youth by the year 2022.

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Coupled with this the flagship ‘Digital India’ programme has already started transforming the country into a digitally empowered society and knowledge economy by bringing in digital infrastructure, creating digital empowerment and delivering governance and services through digital means. That brings transparency and efficient governance.

Start-up India’, ‘Stand-up India’ is aiming at young entrepreneurs to become self-employed. The scheme was launched to give a boost to entrepreneurship and job creation. The policy initiative promotes bank financing for start-up ventures.

The Prime Minister has rightly commented recently that “the pace at which people are taking to digital technology defies our stereotypes of age, education, language and income.” 

For the first time a sustained and effective effort is made against corruption which pervaded not only the state machinery but in politics too.

The battle against corruption has already started cleansing the rotten system it inherited. The Prime Minister is not only asserting that boldness is required to drive the corruption out of the system but adopting a bold approach indeed defying the preachers of doom. A robust boldness is evident in the functioning of the present government breaking the inertia.

Election driven development schemes, wrapped in rigid bureaucratic framework, are now slowly but certainly being replaced with people’s participation. Young generation of the 21st century is now aspiring for finding its national identity too as a powerful and competing country in the world. Majority of Indians are now asserting that they be counted and are not in a mood of compromise. We may call it self-confidence.

The country is preparing to celebrate Independence Day with greater hopes and aspirations with full of confidence not witnessed for a long time.

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*The author is a senior journalist with experience of more than 40 years of journalism. Has served in the Press Trust of India for over 26 years in various capacities including the Chief of Bureau, Rajasthan.

India in Fast Motion

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During the initial years after country’s independence, the Government of the day had three major challenges to meet – managing the massive refugee crises and the consequent re-settlement of lakhs of people; integration of more than 560 princely states into one strong nation; and promulgation of the Indian Constitution which laid the foundation of political democracy and socio-economic justice. With this, the planning system adopted by the country, facilitated the development of infrastructure for promoting science, technology, power, agriculture, industry, roads, irrigation and other segments of development. The state, including the Central and State governments, performed a key role in guiding and controlling the process of socio-economic change. However, a radical transformation of Indian economy took place in 1991 through the adoption of Liberalization–Privatization–Globalization paradigm. A new era of partnership between the public and the private sectors commenced authentically, heralding faster and less regulated economic development. During the next year (1992), the 73rd and the 74th Constitutional Amendments paved the way for the democratization of urban and rural local governance institutions. In later years, another important reform in strengthening political democracy was promulgated – the introduction of the Right to Information Act, 2005.

In the domain of socio-economic development, there has been an enormous growth of the public sector, despite its erratic performance. Further, there have been numerous schemes and programmes in the realms of urban change, rural transformation, transportation, communication and other sectors of national life. The focus of many programmes has been on the development of backward regions, provision of urban services to rural areas, mitigation of poverty, promotion of agriculture and raising the dignity and status of less privileged sections of society.

The Faster Track after 2014 

After the NDA government came to power in 2014, vigorous initiatives and innovations have been introduced in almost all facets of national life. Narendra Modi’s pro-active foreign policy has augmented India’s prestige and strengthened economic and defence relations at the cross-national level. Besides, massive investment is being made on modernizing India’s defence system. Of late, India’s economic growth has been accelerating consistently, making it the fastest growing economy in the world.

What is most noteworthy in the present regime is the re-vitalization of economic democracy. There has been a massive participation of common people in banking services, employment generation, industrial expansion, business growth, educational transformation and delivery of health services.

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The “Digital India” campaign has become an effective catalyst to ensuring greater transparency, accountability and people’s participation in the governance system. GST is one such upshot of the technological revolution.

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The trinity of JAM (Jaan Dhan Yojana, mobile and Adhaar) has empowered crores of people financially and economically.

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Start-ups and stand-ups have inculcated the spirit of enterprise and self-esteem among young people, women and underprivileged sections of society. Obviously, the socio-economic philosophy of the present government is characterized by the time-honoured dictum of growth with equity. Beti Bachao, Beti Padao is an example of garnering support for gender justice and women empowerment.

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Perhaps the three most important innovations of the Modi government are the Make in India campaign (facilitating even the production of defence equipment and supercomputers), strengthening the spirit of Team India that has given a fillip to deliberative democracy, and the Skill India Mission.

skill-india.jpgDemonetization and GST will eventually be helpful in containing black money, although many more systematic efforts will be required to curb economic crimes and corruption.

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We need to build an India where people are devoted to the performance of their duties and voluntarily conduct themselves honestly in their private and public life.

The Swacchh Bharat Abhiyan of the Modi government is a revolutionary movement in the India of Mahatma Gandhi who proclaimed that “cleanliness is next to godliness”.

logo2.pngFor the success of this and other programmes, people should demonstrate strong civic sense which can be promoted by voluntary social groups, families and educational institutions. India deserves a more responsible society where people do not evade taxes nor violate laws. They must feel a strong bonding with their nation and its governments at various levels. Modi’s “New India” can be constructed only when we have “New Indians” – hard working, sincere, emotionally intelligent, decent, honest and patriotic.

Apart from national defence and internal security, which are the areas that require a more focused attention in the near future?

Perhaps, these would be: multi-dimensional infrastructural development, industrial regeneration, agricultural re-invention, primary health, primary education, digitalization including Artificial Intelligence, non-conventional sources of energy and provision of pure drinking water to all people in all regions. Importantly enough, the Modi government has emphasized and adopted the approach of ‘holistic’ development, thus aptly balancing all significant components of nation building.

Every Indian citizen, irrespective of religion, caste, region and political affiliation, should contribute to making India a great nation. We truly need to ensure that there is “Sab ka Saath, Sab ka Vikas”.

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* Author is Chairman, Management Development Academy, Jaipur.

The Story of India’s Union Budgets

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India’s budget documents over the last seventy years since Independence capture the struggles and achievements, frustrations and leaps of faith of India as a nation. These mirror the nation’s aspirations and achievements. The jejune budget figures spring to life in the context of India’s post-colonial history   

Come the union budget next year, think of what you will do next morning. You will possibly run a cursory glance at the major highlights of the budget. Nothing more.

Now question yourself, what did people do on the morning after the union budget for the greater part of the seventy years since Independence? If you are old enough to recall, they would make a beeline for the newspapers to make out the prices of things of everyday use. From electric fans to cosmetic articles, textile items and the perceived luxury goods, prices would mostly go up. Cigarette prices would certainly increase, much to the chagrin of smokers.

Now nobody should worry about the budget impact on prices of ordinary goods and even services. Because they would know what the rates of GST were on each of these items and the finance minister would be in no position to alter them, however much, his finances were stretched. These could be decided now by only the GST Council and this is a kind of once for all arrangement, unless there is some extraordinary snafu.

The union finance minister in a way has passed on his authority to change taxes on goods and services to GST Council. Not only he, all his state counterparts have also done so.

The union budget has, as if, disappeared for the ordinary people. Not really though. What has happened is that we have got a steel framework of indirect taxes which can now be changed or tampered through an agreed mechanism of “collaborative federalism” now called the GST Council by all the finance ministers of the country. That is a long transition from what budgets used to be in the seventy years of the life of Independent India.

The profile of the union budget has profoundly changed over the last seventy years. The first surprise for a present-day reader of the budgets of yesteryears would be the numbers. These would look so small. Even after these are adjusted for inflation, the numbers would be peanuts by today’s standards. That measures the strides we have made. Then the budget treatment would be so very different and so were the predominant priorities. In all, going through the budgets you get an impression it was as if another planet. But take a little closer look. There some worries and observations which might hold relevance.

The first budget

Three months after Independence, in November 1947, presenting an interim budget, the union finance minister R.K. Shanmukham Chetty, underlined his concern over rising prices, due mainly to “accumulation of surplus purchasing power in the hands of the community” as well as “all round fall in production, both industrial and agricultural”.

Next year, in 1948-49, the finance minister’s budget speech had devoted a good part on the “Balance of Payments”. It is important to take note of this because that gives a clue to the state of the economy and what turned out to be a festering problem. He drew the attention of “The House to a matter, which had been causing some concern to Government, namely, the emergence, in recent times, of a substantial adverse balance in India’s external payments”. In the subsequent paragraphs he explained this with reference to rising food imports bill.

This issue has been so important for India’s economic policy for the subsequent decades, I cannot help but quoting him in detail: “The second and by far the more important, reason for this deficit is, as is well-known, our imports of food grains. India has of course been a regular importer of foods for many years. But quantities and prices have both been recently going up. In 1944-45 and 1945-46 the value of food grains imported into India was Rs14 crore and Rs24 crore, respectively. In 1946-47 the amount was Rs89 crore. These figures are in addition to the import of supplementary food articles, which cost a further Rs15 crore in 1946-47. In 1947-48 the amount expected to be spent on the import of food grains is Rs110 crore.

Behind these figures lay a grim reality. It had caused misery to the people. It had destroyed India’s image as well. This is what the Delhi correspondent of the Time Magazine had reported in a story in its issue of August 22, 1949: “India celebrated the anniversary of Independence by announcing new and stricter austerity measures. India is still basically a hungry land; the government has launched a drive to raise more food. To highlight the food drive, ploughs ripped through New Delhi’s vice-regal gold course. Governor General Chakravarty Rajagopalachari, no golfer himself, posed behind a team of bullocks…

The lucid interval

Fast forward half a decade to the mid-fifties. By then the mantle of union finance ministry has been taken over by a legendary man of the financial sector – C.D. Deshmukh. Between 1950 and 1955, the fortunes of the country had miraculously improved. Presenting his budget in 1955, finance minister Deshmukh there were increase in food production, improvement of supplies in general (like those of cloth, cement, jute goods and steel), and above all, “the disappearance of inflationary conditions”.

The country had even shown a surplus in external balances of Rs55 crore in 1953. India’s “Sterling Balances” –foreign exchange reserve of those days—had also increased. As India had gained independence from the British, India had inherited a treasure chest. It is now forgotten that India had made a tremendous effort during the Second World War. It was not only sending some fifty lakh soldiers from the subcontinent to the War effort, but India had supplied general provisions from food grains (starving millions of Indians at home) to jute bags, gunnies, steel and iron items.

Britain had then promised to pay for these later. It did not have the money during the war years, burdened as it was with the huge expenses for fighting a dug in war on fronts across the world. The payments for war supplies had accumulated over the years from 1939 to 1946. It was a huge sum in those days.

In parallel with the Sterling Reserves, the “Dollar Position” – which used to be accounted separately – because dollar used to be the mode of payment for imports of food from the United states – had also shown improvement.

But then even in the midst of moderate surplus, finance minister Deshmukh warned:       “ We must not forget, however, that our foreign exchange expenditures are bound to grow rapidly …..and we must spare no efforts to conserve our foreign exchange reserves ..” This rang true for India’s policy making till the external payments crisis of 1991-92.

Reading successive budget speeches of finance ministers, along with the plan documents of those years, one gets the feeling that 1956 was the best as it could get for India. The finance minister had confidently announced that when he said: “The spell of stagnation had been broken”. GDP had grown by 18% between 1950 and 1955, due to a sharp turnaround in food production imports were lower, export demand for tea and jute were booming, current account had shown a surplus of Rs25 crore and sterling balances peaked at Rs735 crore.

The inflexion point

With hindsight, it appears misfortunes struck just when things seemed rosy. In 1956, India could have taken a course towards a more open economy, integrating with the global economy and the West with freer trade policies. Instead we took a reverse turn. With his 1956 budget, C.D. Deshmukh introduced policies which were continued with little variations well into the 1970s.

What had changed the policy paradigm was the urgency of the political powers to launch the Second Plan with its hugely ambitious targets and lop-sided strategy. The Plan had embarked upon developing a massive capital goods sector, following the Soviet model. It called for large project imports. With uncanny sense of what was coming, Deshmukh had observed that physical targets could not be formulated leaving aside financial considerations.

Anticipating a severe crisis, Deshmukh observed “there is little doubt that, if the Second Five-Tear Plan proceeds according to schedule, not only shall we not be able to achieve any surplus in our external accounts but we are likely to be faced with fairly substantial deficits”. The demands of the Plan led to general import compression. To meet the requirements of the Second Plan and to gather the financial resources massive doses of taxation was slapped. Income tax reached 91.2% at the margin – a sure way of generating black money.

The financial implications of the Second Plan had given rise to budgeting for two kinds of resources gap. The budget began to treat separately the overall domestic resources gap and the foreign exchange resources gap. It was as if preparing two distinct budgets.

The anomaly of this approach was noted by a young American economist who was visiting India under the aegis of a US foreign aid agency. A future Nobel Laureate Milton Friedman had come to India in 1955 and presented a memorandum to the government in which he had argued that treating foreign exchange gap separately from overall domestic resources gap was wrong. The former was part of the latter. He had also criticised the policies of exchange control, import and export licensing on the ground that these necessarily involved “indiscriminate implicit subsidies to those granted import licences”.

He offered three to options to finance minister Deshmukh he had met. Let exchange rate fluctuate, inflate or deflate internally in response to putative surplus or deficit in balance of payments, or auction off exchange released. The memorandum was of course forgotten.

Three fears

Indeed, three fears seemed to have stalked our finance ministers in those days immediately after the Independence which had singularly influenced India’s economic policy. Fear of food shortage, fear of run-away price rise and fear of dearth of foreign exchange to meet external payments obligations. Much of India’s economic legislation had been the upshot of these three fears, which in fact had haunted the country off and on.

Food shortages had dogged the country throughout the ‘fifties and ‘sixties until we achieved breakthrough in crop production after what is now known as Green Revolution of the 1970s. We had to import food from the United States, which had used time and again the vulnerability for overt and covert political purposes. This had destroyed the image of the newly emergent country as a vibrant, growing economy. The union finance ministers had betrayed this constant anxiety in budgets after budgets.

Worries about food shortages dogged from the beginning. Worries because the memory of the horrific Bengal famine were fresh. Country was facing monsoon failures and shortages of food grains. These was need for money to import food from overseas. Foreign exchange became scarce. It had to be preserved for meeting the essential needs of food imports.

Foreign exchange was needed to fund the fledgling Indian Foreign Service posts overseas. The budget even mentions the allocation of funds for the Indian missions abroad and the people posted in the missions. Even that was difficult because it was a question of opportunity cost: whether you keep money aside for essential imports or you send money to the embassies and high commissions. It was no easy choice. These were the precursor days to the eventual promulgation of the ill-famed Foreign Exchange Regulation Act, which of course came decades later.

Inflation is a worry for all finance ministers, including the present incumbent. In his last budget speech Arun jaitley had expressed concern about price stability in the context of global commodity price. Inflation is no longer only domestic; it is connected to the global economy, price of oil, US Federal Reserve stance and China’s demand for industrial raw materials.

As of now, Indian inflation is benign. We are hoping for accommodative monetary policy on the back of it to give a further push for growth. Today we can afford to be a little ambitious given our financial strength.

What a distance have we covered. A foreign exchange kitty of close $400 billion was unthinkable at the beginning of that journey. Despite increasingly open economy, current account deficit is minimal. We are receiving foreign direct investment of record amounts. And India is a cynosure of global investors with its stellar growth performance among major economies. Its stable political climate is an envy and germinates optimism.

Good cheers, this Independence Day as we never had it so good before, if we remember what Times Magazine wrote in 1949.

*******

*The author is a senior freelance journalist based in Delhi. He was with the Economic Times and the Telegraph previously.

GST: The Biggest Ever Tax Reform

Ajay Kumar Chaturvedi* i201763003.jpg

Much awaited Goods and Services Tax (GST) will finally be a reality tonight that would radically change the way manufacturer, service provider, trader and eventually the consumer, pay taxes to the exchequer, both at the state and Central level, through a single levy, subsuming a plethora of indirect taxes and making India unified market.

WHAT IS GST?

GST is a unified taxation system which would end multiple taxation across the states and create a level playing field for businesses throughout the country, much like the developed nations. It is a multi-stage destination-based tax which will be collected at every stage, starting from procuring the raw material to selling the final product.

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The credit of taxes paid at the previous stages will be available for set-off at the next stage of supply. Being destination or a consumption based, the GST will also end multiple taxes levied by Centre and the State Governments like Central Excise, Service Tax, VAT, Central Sales Tax, Octroi, Entry Tax, Luxury Tax and Entertainment Tax etc. This will lower the overall tax burden on the consumer and will benefit the industry through better cash flows and working capital management. Currently, 17 State and Central levies are being applied on goods as they move from one State to the other.

BENEFITS

Different estimates peg the net advantage to the Gross Domestic Product, up to two percentage points. The GST regime is also expected to result in better tax compliance, thereby increasing its revenue and narrowing the Budget deficit. All the imported goods will be charged Integrated Goods & Services Tax (IGST) which is equivalent to the Central GST + State GST. This will bring equality with taxation on local products.

Mainly, there will be three types of taxes under the GST regime: Central Goods and Services Tax (CGST), State (or Union Territory) Goods and Services Tax (SGST) and Integrated Goods and Services Tax (IGST). Tax levied by the Centre on intra-State supply of goods or services would be called the CGST and that to be levied by the States and Union Territories(UTs) would be called the SGST respectively. The IGST would be levied and collected by the Centre on inter-State supply of goods and services. Four supplementary legislations approving these taxes, namely the Central GST Bill, the Integrated GST Bill, The GST (Compensation to States) Bill, and the Union Territory GST Bill were passed by the Lok Sabha in May this year, making the realisation of 1st July, 2017 deadline a reality.

All the matters related to the GST are dealt upon by the GST Council headed by the Union Finance Minister while all the State Finance Ministers are its Members. The GST Council also has a provision to adjudicate disputes arising out of its recommendation or implementation thereof.

TAX RATES

The GST Council has fixed four broad tax slabs under the new GST system – 5 per cent, 12 per cent, 18 per cent and 28 per cent. On top of the highest slab, there is a cess on luxury and demerit goods to compensate the States for revenue loss in the first five years of GST implementation. Most of the goods and services have been listed under the four slabs, but a few like gold and rough diamonds have exclusive tax rates. Also, some items have been exempted from taxation. The essential items have been kept in the lowest tax bracket, whereas luxury goods and tobacco products will invite higher tax.

17-YEAR-LONG WAIT

Many countries in the world switched to a unified taxation system very early. France was the first country to do so in 1954 and many others followed, some by implementing GST and others by using a different form of Value Added Tax (VAT). In India, the discussion on GST started in the year 2000, in the NDA Government led by the former Prime Minister, Shri Atal Bihari Vajpayee. Finally, after 17 years of consensus building, 101stConstitution Amendment Bill was passed by Parliament in 2016. The States had apprehension of reduction in their revenue and their desire to keep some lucrative goods out of the GST baskets like alcohol, petroleum and real estate among others.

IMPACT ON CONSUMERS

From agarbattis (incense sticks) to luxury cars – all these goods will be taxed under different slabs. Movie tickets costing less than Rs 100 have been kept in the 18% GST slab while those over Rs 100 will attract 28% tax under GST. Tobacco products have been kept under a higher tax bracket. Industries such as textiles and, gems and jewellery are subject to a GST rate of 5%.

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The Government has shown its strong determination and stuck to implementing the GST with effect from 1stJuly, 2017. The road ahead would require a lot of resolve by the implementing agencies like the Goods and Services Network, states and the industry. To sail through initial hiccups and successfully steer the ship of the economy, the Government needs to show the same determination and courage. A bold initiative like GST taken for the welfare of the country must lead to a grand success.

* The Author is a retired Indian Information Service Officer who writes on developmental issues.

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