India and neighbors

Border standoff: India warns of serious impact

Face-off in Doklam

Parliament and State Legislatures

For a more representative House

Security

Not all rosy with border infrastructure

Indian Economy. Planning, Growth and Employment

How will the Centre ensure States’ finances are not hurt?

TRAI pitches for lower GST

RBI says bank funding can’t be substituted

At stroke of midnight, India gets a ‘good and simple tax’

Entering the age of GST

 

India and neighbors

Border standoff: India warns of serious impact

Face-off in Doklam

Security

Not all rosy with border infrastructure

Read the following analysis over the above issues – India China Bhutan standoff over Doklam Plateau


Parliament and State Legislatures


For a more representative House

Read the following analysis for the above article:- Inefficient Working of Parliament


Indian Economy. Planning, Growth and Employment


How will the Centre ensure States’ finances are not hurt?


Context

  • Right from its initiation, it was perceived that implementation of the Goods and Services Tax will not go in favor of States in terms of finance
  • Reaching at a consensus with regard to the compensation the Centre would have to pay States for any losses they might incur due to the implementation of the new indirect tax regime, was a huge point of conflict

What is the Issue?

  • The GST is a destination-based tax, and as such is viewed as being to the advantage of the consuming States and to the detriment of the producing States
  • The producing States like Maharashtra, Tamilanadu, Gujrat, Haryana and Karnataka had raised objections to the implementation of GST, forcing the Centre to agree to a formula for compensating them in the event of a loss of revenue.

What has been Done ?

  • The 14th Finance Commission advised the Centre to provide 100% compensation to States for their revenue loss after implementation of GST for the first three years.
  • The fourth year would bring 75% compensation, and the fifth year 50% compensation.

Further Conflict

  • The advise put forward by the Commission did not pacify the States who demanded full compensation for five years.

Issue Resolved

  • The Centre agreed to this demand in December 2016, settling one of the most contentious issues delaying GST.

What were the Issues with this Compensation?

  • A huge problem that arised in front of the Centre was – how it was going to finance this compensation package, which experts estimated could be as much as Rs. 55,000 crore.
  • The GST, once implemented, will subsume almost all the cesses levied at the moment, including Swachh Bharat Cess and Krishi Kalyan Cess.
  • Other cesses like the education cess on imported goods and the cess on crude oil will remain under GST.

Way Out as decided by the Govt.

  • The government needs extra revenue to compensate the States, and so the GST Council decided to impose additional cesses for five years on certain goods over and above the highest tax bracket of 28%.
  • These additional cesses, however, will be removed after five years

 


TRAI pitches for lower GST


Context

The Telecom Regulatory Authority of India has pitched for a reduction in the GST rate for telecom services.

Details

  • TRAI has asked the Department of Telecom (DoT) to approach the Finance Ministry with two issues:
  • Reduction in GST rate to 5%cent from the current 18%
  • Treating telecom as core infrastructure sector and economy enabler in India
Telecom Regulatory Authority of India (TRAI)

Ø  The Telecom Regulatory Authority of India (TRAI) is the regulator of the telecommunications sector in India.

Ø  It was established on 20 February 1997 by an Act of Parliament to regulate telecom services and tariffs in India.

Mission:

Ø  To create and nurture conditions for growth of telecommunications in India and thus enabling the country to have a leading role in the emerging global information society.

Objective:

Ø  To provide a fair and transparent environment that promotes a level playing field and facilitates fair competition in the market.

Universal Service Obligation Fund (USO Fund) levies:

  • TRAI has repeated its suggestion to reduce the USO fund levies to 3% of the adjusted gross revenue from the current 5%.
  • Post reduction, the applicable uniform rate of licence fee would become 6% from the present 8% of the adjusted gross revenue.
Universal Service Obligation Fund (USOF)

Ø  Established in 2002, the USOF is headed by the USOF Administrator who reports to the Secretary, Department of Telecommunications (DoT).

Ø  The Indian Telegraph (Amendment) Act, 2003 gave statutory status to the Universal Service Obligation Fund (USOF)

Ø  The USOF’s main aim is to provide universal telecom services and ensure that even the unconnected areas in the country reap the benefits of inclusive development.

The main functions of the USOF are:

  • To provide widespread and non-discriminatory access to quality ICT services at affordable prices to people in rural and remote areas.
  • To provide an effective and powerful linkage to the hinterland thereby mainstreaming the population of rural and remote parts of the country.

How does it work?

Ø  The funds come from Universal Service Levy (USL).

Ø  The USL is charged from all the telecom operators on their Adjusted Gross Revenue (AGR).

Ø  These are then deposited into the Consolidated Fund of India, and prior parliamentary approval is required for dispatching.

 

Spectrum Charges:

  • In a meeting between the regulator and telecom operators on June 15, the operators had raised concerns over differential spectrum usage charges (SUC) as there was no uniformity in the SUC for different telecom operators.
  • TRAI has also asked the DoT to relax payment period for auctioned spectrum.
  • At present, operators pay 25% or 33% as upfront charges of total spectrum price and the remaining is paid over a ten-year period after a moratorium of 2years.
  • TRAI has suggested 10% of the bid amount as initial payment with the remaining payment spread over 18 years for spectrum payments in the 700/800/900/2100/2300/2500 MHz bands
What is Spectrum Usage Charges?

A spectrum usage charge (SUC) is payable by the licensees providing mobile access services, as a percentage of their Adjusted Gross Revenue (AGR).

SUC is payable as per the spectrum slabs/ rates notified by the Government from time to time.

Significance

  • The telecom industry is currently sitting on a debt of Rs 4.6 lakh crore.
  • It would be a sigh of relief for the telecom industry if the Department of Telecom accepts the recommendations of TRAI.
  • The recommendations if accepted are expected to ease the financial burden of telecommunication companies and keep services affordable.

 


RBI says bank funding can’t be substituted


Context

  • Banks are increasingly retrenching credits whereas mutual funds, non-banking finance companies (NBFCs) are continuously offsetting the retrenchment effect.
  • Does this implies that role and relevance of Bank funding in on decrease?

What is the Issue?

  • Retrenchment of credit by public sector banks is partly offset by NBFC’s, mutual funds and capital markets. They are meeting companies debt needs quite extensively
  • Apparently it might look like that NBFCs, mutual funds and capital markets in unison has become a perfect substitute of public sector lending
  • But the Reserve Bank of India (RBI) in its Biannual Fiancial Stability Report said that such alternative sources of funding cannot replace bank loans

Explanatory Facts

  • Banks’ share in the flow of credit, which was about 50% in 2015-16, declined sharply to 38% in 2016-17.
  • But in spite of this, aggregate share of flow of capital to the commercial sector was not affected.
  • During 2016-17, while deposit growth of scheduled commercial banks picked up, credit growth remained sluggish, putting pressure on net interest income (NII), particularly of the public sector banks (PSBs)
  • While profitability ratios of such banks showed a marginal increase, public sector banks continued to show a negative return on assets (RoA).
  • A striking feature is that while gross NPAs of the banking sector had increased in March 2017 compared with September 2016, overall stress declined due to reduction in restructured standard advances.
  • Gross non-performing advances (GNPAs) ratio of all banks rose from 9.2% in September 2016 to 9.6% in March 2017.
  • During the same period, the stressed advances ratio declined from 12.3% to 12% due to a fall in restructured standard advances. This was seen in agriculture and retail sector.
  • However, the stressed advanced ratio in the industry sector increased.

Cause

  • There has been a sharp increase in private placements of debt by non-financial entities and net issuance of commercial papers (CPs).
  • The aggregate share of these two in total credit flow to commercial sector increased to 24.3% in 2016-17
  • Apart from that, there is an increasing intermediation of credit by mutual funds

Way Forward

  • Steps to restore the health of the banks is an urgent need right now
  • Banking sector needs immediate structural reforms
  • Impending NPAs is a huge crisis that the banking sector is dealing with. Solvinng the NPA crisis is a necessary condition
  • Banks will have to be more prudent and conscious with regard to their lending terms so that the sector can avoid the massive scale default payments that it is currently witnessing

 


At stroke of midnight, India gets a ‘good and simple tax’


Context:

  • India’s biggest tax reform since Independence, rolled out on 1st July, 2017.
  • The new good and simple GST (Good and Service Tax) ushers in a ray of hope for the economic pillars of the country.

Significance:

  • To serve the purpose of national integration, GST today will help integrate India’s economy.
  • The introduction of GST is not only a tax or economic reform but also a social reform that will nudge people on the path to honesty and benefit the poor the most.
  • The practice of giving out informal bills would come to an end as the GST presented an opportunity to stop black money and corruption.
  • The new GST will open up  chance for the common mass to do honest business.
  • The initiative would end the spectre of tax terrorism and Inspector Raj that India’s businesses have had to endure for long.

Conclusion:

  • Initially, even though a number of shortcomings may emerge but it is similar to the introduction of the VAT (value-added tax) regime which met resistance initially.
  • The GST Council, Centre and States should continuously improve and refine the GST in the same spirit that the country has seen till now.

 


Entering the age of GST


Context:

  • GST is expected to meet country’s economic growth for a long run but along with it there’s a challenge to untangle the initial shortcomings.

Pros and Cons

  • The objective of including real estate within a reasonable time period is appreciated because besides expanding the tax base, this will help in fighting black money.
  • GST will unify multiple taxes into a single tax and reduce compliance and administrative cost in the long term, do away with levies like octroi and ensure a more unified market.
  • GST will also reduce cascading on account of levies like octroi, purchase tax and central sales tax and make the economy more export-competitive.
  • The country might see a significant increase in revenue productivity of income tax as the seeding of PAN in GST registration will make it difficult for businessmen to evade the tax.
  • But it is to be noted that, petroleum products are excluded and cascading on that account will continue — they contribute over 35-40% of revenue from indirect taxes.
  • Also, being an amalgamation of rates it robs benefits from lower administrative, compliance and distortion costs.
  • The GST puts additional burden on administration, increases the compliance cost and the load-bearing capacity of technology needed for providing input tax credit with multiple rates by matching every invoice.
  • The requirement of e-way bills for inter-State movements has also been a cause of concern.

The short term atrocity in economy:

  • Because of GST, the short-term disruption in the economy depends  how well the transition is planned and how fast the economic agents will adjust to the new normal.
  • For example, the disruptions caused by demonetisation continues to haunt large parts of the unorganised economy even though economy had been substantially remonetised.
  • Transporters will soon find that the tax paid on fuel cannot be credited against the GST payable on the transportation services rendered by them.
  • There are questions about the rates of tax, mandated compliances and errors in transition.
  • Moreover, investment activity is virtually at a standstill, with everyone waiting to see how the reform pans.

Conclusion:

  • In a nutshell, any major tax reform could lead to disruption, and the complexity of the structure and the untested technology platform adds to the fear.
  • It is very difficult to predict the impact of short time disruptions and the discontent they create.
  • The government could have used the time until September to provide greater clarity and test the technology through some dry runs to ensure a smoother transition.
  • The much wanted growth acceleration will take place only in the long term when the transaction cost of businesses comes down.

 

 

 

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