Reforms back, but loads to do
What are the major reform measures that the government has announced recently?
The government has allowed foreign direct investment (FDI) in retail, aviation, power exchanges and the broadcasting sector. Also, in a move fraught with political risks, the government raised diesel prices by Rs. 5 a litre — the steepest ever hike — and capped sale of subsidised cooking gas to six cylinders a year for each family. The government has also announced a package to state power distribution companies (Discoms) offering them the option to recast debts totalling nearly Rs. 1.9 lakh crore. But it will likely to raise consumers’ electricity bills as the package comes bundled with a rider that will force Discoms to raise power tariffs at least once a year.
India requires immediate reforms in the areas of infrastructure, land acquisition, manufacturing, taxation, financial sector, agriculture and public finance.
What is the government planning on infrastructure reforms?
India will require an estimated $1 trillion (Rs. 55 lakh crore in current prices) to upgrade its roads, highways, ports and airports over the next five years. Time and cost overruns have been a major bane for India’s infrastructure hit by fund shortages, environmental concerns and delays in government clearances. The government, therefore, is planning to set up a national investment board (NIB) empowered to clear proposals where the investment is above a certain threshold, say, Rs. 1,000 crore.
According to a plan, which was first proposed by finance minister P Chidambaram last week, once the final decision is taken by the NIB, no other ministry or department or authority should be able to interfere with that decision or delay its implementation.
Which are the major tax reforms that are awaiting approval?
A direct taxes code (DTC) and the goods and services tax (GST) are the two major tax reforms measures that are awaiting approval.
What is the status of the DTC Bill?
The DTC Bill aimed at overhauling archaic income tax laws, was introduced in the Lok Sabha in 2011. The parliament standing committee on finance has submitted report with a slew of amendments including raising the income tax exemption limit to Rs. 3 lakh per annum from Rs. 2 lakh at present. No decision has yet been taken on the introduction of an amended bill in Parliament.
A uniform GST will dramatically alter indirect tax structure by replacing the welter of levies with a single tax each for goods and services and stitching together a common national market. A Constitution Amendment Bill was introduced in the Lok Sabha in March 2011, but consensus eludes state governments.
Which are the reforms in the financial sector that are awaiting approval?
Financial sector reforms are critical in pension, insurance and banking sectors to channelise household savings into productive asset creation such as infrastructure projects.
What is the status of the government’s plans to raise the FDI limit in insurance sector from 26% to 49%?
An amendment bill was introduced in the Rajya Sabha in 2008. The parliament standing committee on finance has submitted a report suggesting overhaul of the bill. No decision yet by the government to introduce a modified amended bill.
What about the government plan to introduce banking and pension reforms?
A Banking Laws (Amendment) Bill to empower the reserve bank of India (RBI) to supersede banks’ boards and pave the way for granting licences to new private sector banks was introduced in the Lok Sabha in March 2011 and the standing committee has submitted report recommending major amendments. Likewise, a Pension Fund Regulatory and Development Authority (PFRDA) Bill to pave the way for regulated social security to millions of employees was introduced in the Lok Sabha in March, 2011. The standing committee on finance has submitted report, and the Cabinet had approved 26% FDI in pension sector last year, but many political parties opposed to it.