Monday, October 15, 2012
Indian government unveils policy basket to counter staggering growth and downgrade risks
The government also announced a plan to divest its stake in five companies. The rate of withholding tax on overseas borrowings has been reduced to 5% from 20%. The lower rate will be applicable for overseas borrowings made after
July 1, 2012
and before July 1, 2015.
Borrowings under a loan agreement or by way of issue of long-term
infrastructure bonds that comply with External Commercial Borrowings
regulations as administered by the RBI would be eligible for benefits of the
concessional tax regime. The RGESS an initiative intended to support first-time
equity investors not only expects to promote a ‘equity culture’ in India and
discourage investments in gold, but also aims to revive the mutual fund
industry, which has now been included in the scheme along with exchange traded
The government set in motion a second wave of reforms, approving proposals allowing foreign investors to own up to 49% in insurance firms and pension funds. Signaling the government's intent to continue with reforms to boost economic growth and investor sentiment, the Cabinet cleared all amendments to the insurance bill. The cabinet also cleared the Pensions Bill and allowed FDI in Pension Funds. It also took the cap in the pension sector to 49 per cent following the insurance sector. The proposed changes to both the bills will now have to be cleared by both houses of the Parliament before they can come into effect. Till now, 26 per cent FDI was allowed in the insurance sector while the pensions business was closed to foreign investment. Looking to better serve the interests of all stakeholders, the government approved amendments to Companies Bill 2011, including changes related to spending on CSR activities. The proposed legislation will bring the law on the subject of corporate functioning and regulation in tune with the global best practices so that there is further improvement in corporate governance in the country through enhanced accountability and transparency. A provision has been introduced to make expenditure on Corporate Social Responsibility (CSR) mandatory. Giving a reform boost to commodity markets, the government approved the FCRA Bill that seeks to provide more powers to the regulator Forward Markets Commission (FMC) and allow a new category of products and to facilitate entry of institutional investors.
A segment within the government has been leaning towards cash transfers to poor households as the way out to deal with an unwieldy subsidy bill estimated at Rs 2.5 trillion (on three major subsidies—food, fuel and fertilizer). The government is set to step up its push for cash transfer of subsidies with two pilot projects validating the assumption that it would lead to significant savings for the government while enhancing benefits for users.
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