Reforms focussing on cutting red tape
Riding high on its electoral victory in the April-May national elections, the Narendra Modi government on Friday signalled its intent to push big-ticket reforms, make major structural changes to simplify business procedures, reduce bureaucratic red tape and put technology to the best use to boost the economy .
In the first budget of its second term, the National Democratic Alliance administration spelled out plans to open the doors wider to foreign direct investment (FDI) and attract more investments and consider higher disinvestments that may even bring the government’s stake below 51% to an appropriate level on a case-by-case basis. It also promised to promote faceless interactions between income tax authorities and taxpayers and push for more digital transactions.
“We had set the ball rolling for a New India, planned and assisted by the NITI Aayog. We have shown by our deeds that the principle ‘Reform, Perform, Transform’ can succeed. Mega programmes and services, which we initiated and delivered during those five years, will now be further accelerated,” finance minister Nirmala Sitharaman said, summing up the reformist mood of the government.
FDI inflows have faced global headwinds, but India was still able to clock 6% growth in overseas investment in the year ended March over the previous year. To consolidate the gains, Sitharaman said the government will examine suggestions to raise the limit on foreign investment permissible in some sectors, including insurance and media (animation, visual effects, gaming and comics) in consultation with stakeholders. It will allow 100% foreign holding in insurance intermediaries, such as brokers and advisers, and ease local sourcing norms for FDI in single brand retail.
According to the World Investment Report 2019 published by the United Nations Conference on Trade and Development, global FDI flows dropped 13% in 2018 to $ 1.3 trillion from US$ 1.5 trillion the previous year , the third consecutive annual decline. FDI inflows to India in 2018-19 remained strong at $ 64.375 billion.
“It is high time India not only gets integrated into global value chain of production of goods and services, but also becomes part of the global financial system to mobilise global savings, mostly institutionalised in pension, insurance and sovereign wealth funds. The Government is contemplating organising an annual Global Investors Meet in India, using National Infrastructure Investment Fund (NIIF) as the anchor, to get all three sets of global players--top industrialists/corporate executives , top pension/insurance/sovereign wealth funds and top digital technology/venture funds,” Sitharaman added.
As it sets its sights on making India a $5 trillion economy in the next few years, the government wants to consider major changes in the existing disinvestment policy. So far, in non-financial public sector undertakings, the Centre’s stake hasn’t gone below 51%. “Government is considering, in case where the undertaking is still to be retained in Government control, to go below 51% to an appropriate level on case-to-case basis. Government has also decided to modify present policy of retaining 51% Government stake to retaining 51% stake inclusive of the stake of Government controlled institutions,” said the finance minister.
Strategic disinvestment of select central public sector enterprises would also continue to remain a priority for the government, which will offer the private sector a chance for a strategic partnership in Air India and other public sector undertakings. The government set an enhanced target of Rs 1.05 lakh crore in disinvestment receipts for 2019-20, up from Rs 90,000 crore in the interim budget presented in February. It will undertake strategic sales of PSUs and continue to consolidate PSUs in the non-financial space. “Higher investments would help the government rein in the fiscal deficit and get a better return on investments,” a senior government official said on condition of anonymity.
The first budget of the new government also reiterated its zeal to push a new labour regime, and reforms in the power tariff policy. It has proposed measures to promote rental housing including drafting a Model Tenancy Law.
Sitharaman wants to reduce interactions between taxpayers and the tax department and pitched a new system of faceless assessment of tax returns in an electronic mode. “The existing system of scrutiny assessments in the Income-Tax Department involves a high level of personal interaction between the taxpayer and the Department, which leads to certain undesirable practices on the part of tax officials. To eliminate such instances...a scheme of faceless assessment in electronic mode involving no human interface is being launched this year in a phased manner. To start with, such e-assessments shall be carried out in cases requiring verification of certain specified transactions or discrepancies,” she said.
Cases selected for scrutiny shall be allocated to assessment units randomly and notices shall be issued electronically by a central cell, without disclosing the name, designation or location of the assessing officer. The central cell “shall be the single point of contact between the taxpayer and the Department. This new scheme of assessment will represent a paradigm shift in the functioning of the Income-Tax Department,” she added.
Sitharaman proposed to levy tax deducted at source (TDS) of 2% on cash withdrawals exceeding ₹1 crore in a year from a bank account to discourage cash payments in business. She also proposed that “business establishments with annual turnover more than Rs 50 crore shall offer low cost digital modes of payment to their customers and no charges or Merchant Discount Rate shall be imposed on customers and merchants.”
The Reserve Bank of India ( RB)I and banks will absorb these costs from the savings that will accrue to them on account of handling less cash, the minister said.
The plans for faceless communications between tax officers and taxpayers and the push for digital transactions were welcomed by Abhirup Sarkar,an economist at the Indian Statistical Institute. “I wholeheartedly support these moves although I want to add that with such a large informal sector in India, pushing cashless transactions would be a big challenge,” Sarkar added. On the proposals to expand FDI and dilute government’s stake below 51% in disinvestment, Sarkar said, “The two moves makes it very clear that the government is heavily depending on the markets to mop up resources. The way the vision for the next decade is laid...the government hopes the market will take care of most of the problems.”