New Capital Goods Policy: 2016

It is for the first time that a national policy has been framed for the capital goods sector.

Know about Capital Goods

Capital goods are goods which are used by businesses to produce other goods and services which are used by consumers. They are usually considered as fixed goods, that cannot be easily converted into cash.

The Capital Goods sector is a $ 32 billion industry in India, covers several sub-sectors in the Indian manufacturing space.

Why Capital Goods sector is important for Indian economy

  • Capital Goods sector has multiplier effect on economy
  • It impacts the growth of other industries as it provides critical inputs, i.e., machinery and equipment to the remaining sectors covered under the manufacturing activity
  • The capital goods sector contributes 12% to the total manufacturing activity
  • The capital goods sector offers direct employment to 1.4 million people and employs 7 million people indirectly

Let’s know some imp things about the policy

It is drafted by a joint task force of Confederation of Indian Industries (CII) and Department of Heavy Industries.

Reason: In the last 3 years, the rate of growth of the sector has been 1% due to overall slowdown and is also one of the weak performer in the manufacturing sector. As against the poor performance of the Indian capital goods sector, the global performance has been robust.

Vision: Building India as the world class hub for Capital Goods.

Nodal Agency: Department of Heavy Industries


  • To increase production of capital goods from Rs. 2.30 lakh crore in 2014-15 to Rs. 7.50 lakh crore in 2025
  • To raise direct and indirect employment from the current 8.4 million to 30 million
  • To increase exports from the current 27% to 40% of production
  • To increasing share of domestic production in India’s demand from 60% to 80%, thus making India a net exporter of capital goods

What does the policy offer to Capital Goods Sector?

It aims to facilitate following things for the capital goods sector:

  • Finance
  • Raw Material
  • Increase skill availability
  • Ensure mandatory standards
  • Promote growth and capacity building of MSMEs
  • More budgetary allocation for various schemes
  • Technology Development Fund is created to improve technology depth across sub-sectors


This is the most critical sector for achieving the vision of “Make in India” as the sector has multiplier effect on other sectors of economy. The policy is envisaged to unlock the potential for this promising sector and establish India as a global manufacturing powerhouse.


Published with inputs from Pushpendra

Any doubts?

  1. Carpe Diem


    PFRDA is responsible for General PF accounts while EPFO for EPF. Is this correct?

    1. Dr V

      PFRDA is responsible for NPS not general PF

    2. Focus Ias

      Yep. That is correct.

  2. Javed Aftab

    how will amending capital gain tax provide relief to retail investors ?

    1. Dr V

      Apart from whatever Ashutosh has wriiten, Capital assets and trading assets are taxed differently. Now shares can be held as capital assets or trading assets or both. in this context, copying from the report
      Very often the tax payers experience difficulty in proving the intention in acquiring the shares and this is
      particularly pronounced in the case of individual tax payers who are not well-versed in keeping accounts, particularly pensioners or home-makers who invest their savings in shares and securities. Committee recommended that
      capital asset shall include shares and securities held by an assessee for a period exceeding 12 months from the date of acquisition and profits shall be taxable as capital gains tax.
      hope, it’s clear now.

    2. Anshuman Rajwansh

      Suggestions also include a new rate of taxing the gains at 15% from the earlier 30% which will attract more Investors.

    3. Anshuman Rajwansh

      According to the recommendations of the committee short term gains up to Rs. 5 lakh which is being raised by selling of shares should not be treated as Business Income. But should be treated as Capital gains. This will encourage retail and entry level Investors to Invest more in Stock Market.
      In income tax law, capital gains are taxed at a lower rate compared to business income.

  3. Devesh Tiwari

    if government really care for labour then they wouldn’t try to amend present labour laws !

FRBM panel report in December; may suggest new deficit goalposts

  1. A government appointed committee to devise a roadmap for fiscal consolidation is likely to submit its report by next month
  2. The NK Singh-led committee to review the FRBM roadmap was set up by the Finance Ministry in May
  3. The 5-member committee is likely to call for a new law to replace the Fiscal Responsibility and Budget Management Act, 2003
  4. It will also suggest new goalposts for the Centre and States’ fiscal deficits

Union Budget to be presented around 1 February: Modi

  1. Source: PM Modi
  2. What: He confirmed that next year’s Union budget will be presented around 1 February
  3. Where: A PRAGATI (Pro-Active Governance and Timely Implementation) meeting
  4. The meeting was to review the work of projects and programmes of the government with state chief secretaries via video conferencing
  5. He asked the state governments to advance their budget schedule, too, so that they are aligned with the Union budget
  6. Last month, the Union cabinet decided to merge the railway budget with the Union budget

Cabinet approves merger of Rail, General budgets

  1. Ending a 92-year-old tradition, the Union Cabinet decided to merge the Railway budget with the General budget
  2. Autonomy: The merger of budgets would not impact the functional autonomy of the railways, but help in enhancing capital expenditure
  3. The cabinet also agreed, in-principle, to advance the date of its presentation in Parliament from the usual February end
  4. The actual date for presentation of the General budget for 2017-18 will be decided by the Govt after taking into account the coming Assembly elections
  5. The Cabinet has also decided to do away with the Plan/ Non-Plan expenditure classification in Budget 2017-18 and replace with ‘capital and receipt’

Special package announced for Andhra Pradesh

  1. Prime Minister made an announcement which, in practical terms, amounts to the treatment of residual Andhra Pradesh as a Special Category state
  2. The package is valid for five years- 2015 to 2020
  3. It revolves around various sections in the A.P. Reorganisation Act, the 14th Finance Commission report recommendations, oral commitment made by the then Prime Minister in February 2014 and the recommendations made by the Niti Ayog in 2015
  4. Centre would authorise the State to take charge of the construction while it would meet the financial needs
  5. CBDT would issue two specific notifications on tax concessions being extended to AP

Overhauling the budgeting process- a reforms agenda

  1. Rail budget: The practice of presenting a separate Budget for the railways is to be scrapped from 2017
  2. Budget documents getting slimmer with indirect tax proposals finding almost no mention after excise duties, service tax and cesses are subsumed under the proposed GST regime
  3. Plan v/s Non-Plan: Abolition of the distinction, to be replaced with capital and revenue expenditure, is also on cards
  4. Time: Until 2000, the Budget was announced at 5 pm & the practice was inherited from the pre-Independence era, when the British Parliament would pass the Budget in the noon followed by India in the evening on the same day
  5. In 2001, the NDA Govt under Atal Bihari Vajpayee changed the ritual and the then finance minister, Yashwant Sinha, presented the Union Budget at 11 am
  6. New financial year: Govt has already set up a committee to examine its feasibility, replacing the existing April-March period

Govt mulls presenting Budget by Jan-end

  1. Why? To complete the exercise before the beginning of the new financial year
  2. Impact: There would be no need for a Vote on Account and a full Budget can be approved in one stage before March 31
  3. Constitution: Does not mandate any specific date for presentation of the Budget
  4. Traditionally: The Union Budget has for decades been presented on the last working day of February and the two-stage process of parliamentary approval takes it to mid-May
  5. Stage 1: As the financial year begins on April 1, the Govt in March takes Parliament approval for Vote on Account for a sum of money sufficient to meet expenditure on various items for two to three months
  6. Stage 2: The Demands and Appropriation Bill, entailing full-year expenditure and tax changes, is then passed in April/ May

Why a new schemes approval system?

  1. Plan v/s non-plan: After doing away with this distinction at the end of 12th FYP (announced in Budget 2016-17), a plan non-plan neutral appraisal and approval system is imperative
  2. This spread of resources: It is because Ministries had started operating small and multiple schemes & as a result it hampered realisation of any meaningful outcomes

New norms for clearing public-funded schemes

  1. News: The Finance Ministry has issued new norms for the appraisal and approval of public-funded schemes as well as to improve the delivery of goods and services to citizens
  2. Approval: No new scheme or sub-scheme can be initiated without the prior in-principle approval of the Department of Expenditure
  3. This will not apply to the announcements made in the Budget Speech for any given year
  4. Empower ministers to approve expenditure proposals of up to Rs 500 crore, up from the previous limit of Rs 150 crore
  5. Administrative Ministries should continuously endeavour to merge, restructure or drop existing schemes and sub-schemes that have become redundant or ineffective with the passage of time

RBI Governor appointed by PMO on the recommendation of Finance Minister

  1. News: The RBI Governor is appointed by the Prime Minister’s Office (PMO) on the recommendation of the Union Finance Minister, the Centre informed Parliament
  2. While the Appointment Committee of Cabinet (ACC) guidelines for appointment of Deputy Governors are still the same, the composition of the search committee has been changed
  3. The RBI Act, 1934: Section 8(1)(a) provides that there shall be one Governor and not more than four Deputy Governors to be appointed by the central government on the central board of RBI
  4. Deputy Governors: Appointed on the basis of ACC-approved guidelines, which stipulate that the search committee constituted for the purpose will recommend the person to be appointed as a Deputy Governor
  5. Change: Now, a search committee, namely Financial Sector Regulatory Appointment Search Committee (FSRASC) has been constituted with the approval of ACC
  6. The committee will recommend names for appointment of Chairperson and Members of financial sector regulatory bodies, including those of the Governor and Deputy Governors

More spending autonomy for Ministries

  1. News: The threshold of non-Plan project expenditure that can be approved by ministries has been raised from Rs 150 crore to Rs 500 crore
  2. The Finance Ministry’s nod will be needed for expenditure between Rs 500 crore and Rs 1,000 crore, beyond which Cabinet approval would be required
  3. Impact: Expected to expedite the appraisal and approval process in the central government ministries/ departments

Tax receipts at Rs.14.6 lakh cr, exceeds estimates

  1. News: The govt collected Rs.14.6 lakh crore in taxes in financial year 2015-16, which is higher than the Budget Estimates and Revised Estimates for the year
  2. Reason: The bulk of the growth in total tax revenues was due to the increase in indirect tax collections
  3. Statistics: Indirect tax collections were 31.1% higher than in the previous financial year
  4. The total collection has exceeded the revised estimates and represents a growth of 17.6% compared to the last financial year

Fertiliser subsidy bill set to shrink next year

  1. News: The next financial year will see the govt’s subsidy bill shrink by about Rs.10,000 crore
  2. Reason: Cut in nutrient-based subsidy rates and the lower price of gas, the key feedstock in urea production
  3. Impact: The reduction in the subsidy bill could help the govt narrow its fertiliser subsidy arrears of about Rs.35,000 crore, which had been carried forward since 2012
  4. Challenge: Achieving a balanced nutrient ratio still remains a far cry, because of price disparity between urea and phosphatic fertilisers
  5. Statistics: The fertiliser subsidy has been estimated at Rs.70,000 crore for 2016-17

Even states are cutting capital expenditure

  1. News: Data on capital expenditure by the govts of 7 major states shows dramatic cut down in capex, just like the central govt
  2. These states include Tamil Nadu, Uttar Pradesh, Gujarat, Rajasthan, Kerala, Madhya Pradesh and Bihar, accounting for slightly over two-fifths of the country’s GDP
  3. Impact: The hope that states will revive capex is fast fading
  4. Statistics: The central govt in the Union budget for FY17 cut the capex growth to 4% compared with 21% in FY16

India’s current account deficit narrows to 1.3% of GDP

  1. News: India’s current account deficit narrowed to 1.3% of the GDP in the fiscal 3rd quarter, as compared to 1.5% in the last year
  2. Reason: Trade deficit during the Oct-Dec quarter narrowed to $34 billion from $38.6 billion during the same period in 2014-15
  3. Challenge: India’s merchandise exports have been declining continuously since Dec 2014 due to sluggish global demand and low commodity prices
  4. CAD: It shows the difference between domestic savings and domestic investment, and conveys the extent of this gap that needs to be bridged by foreign savings

Small savings rates slashed, PPF rate cut to 8.1% from 8.7%

  1. Context: In Feb, Govt. decided to revise interest rates on small savings every quarter
  2. News: Govt. has reduced the interest rates payable on small savings including PPF and Kisan Vikas Patra
  3. Impact: The move will hit the common man the most, as they are the ones who invest in small savings schemes

NPS can now be ‘technically’ tax-free, says pension regulator

  1. Context: Govt.’s bid to bring NPS on par with other pension products
  2. News: The retirement savings accumulated under the New Pension Scheme (NPS) can now be totally tax-free at the time of withdrawal under certain conditions
  3. Budget 2016: It made 40% of NPS accumulations tax-free
  4. How? Under NPS, 40% of corpus is mandatorily annuitised and that is tax free, and with budget announcement, 40% lumpsum withdrawal is also tax free. So, if anyone annuitise 60% of their balance, then it becomes totally tax-free
  5. Annuity: An annuity product allows investors to get a steady monthly income on their accumulated corpus

Learn about National Pension System

  1. NPS is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account
  2. Agency: The Pension Fund Regulatory and Development Authority, under the administrative control of the Finance Ministry
  3. Statistics: It has 1.18 crore members, including state and central govt employees
  4. It has assets of over Rs.1.15 lakh crore

Proposal to tax EPF withdrawn

  1. Context: Govt.’s move to tax EPF withdrawals saw a severe backlash, both in and outside Parliament
  2. News: Govt. has withdrawn the proposal of taxing 60% of EPF withdrawals
  3. Reason: Govt accepted the argument that employees should have the choice of where to invest the EPF withdrawals
  4. Objective: The proposal sought to encourage people to join pension scheme, as withdrawal from the the EPF was tax free, if invested in annuity
  5. Criticism: Taxing EPF withdrawal will reduce the retirement savings of the working class

Special cell set up to gather data on subsidies of other nations

  1. News: The govt. has set up a special cell to compile information on subsidies given by other countries to their industry
  2. Background: In order to tackle slowdown in global trade, several countries have taken measures to protect their domestic industries from unfairly low-priced imports
  3. Objective: The information will help impose duty on subsidised imports and protect local industry
  4. It will also enable Indian industries to file applications before the govt seeking imposition of anti-subsidy duties on subsidised imports of items
  5. Subsidies: Under the WTO norms, it refers to financial contribution by the govt or state agencies resulting in advantages to those players availing it

Budget 2016: A pro-poor push in hard times

  1. News: Budget for 2016-17 attempted to address the distress in the rural economy that has hit demand creation and new investments
  2. Context: nearly Rs. 2.75 lakh crore enhanced outlays for programmes in the social sector, farmer welfare and the rural sector
  3. Target: Finance Minister chose to stick to the fiscal consolidation road map and set a 3.5 per cent of GDP target for 2016-17
  4. Other reforms: in taxation, foreign direct investment, dispute resolution in PPP projects and banking
  5. LPG connections: for BPL families, variable pollution cess on new cars, 60% of EPF savings to be taxable
  6. Healthcare scheme: to protect the poor from high healthcare costs with a cover of Rs. 1 lakh and an additional cover of Rs. 30,000 for senior citizens
  7. Aadhaar Bill: to give legislative backing to the Aadhaar scheme for identifying residents on the basis of their biometrics

Be cautious on new accounting system: CGA

  1. News: The Controller General of Accounts has cautioned the govt before adopting the accrual methods of accounting, due to the costs involved and only few of its departments can benefit
  2. Importance: Accrual accounting is a means to the reforms in public financial management
  3. How? It includes greater accountability and a greater need for operations of the govt to be on commercial lines
  4. Challenge: It will require considerable preparatory work and capacity building of accounting personnel
  5. Criticism: There are inadequacies in the way the budget heads of accounts are currently classified, which needs to be modernised

Learn about Accrual accounting system

  1. Explanation: The accrual accounting recognises the transaction at the time it is made, thereby providing a more current picture
  2. Under it, revenues are reported on the income statement when they are earned
  3. Expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid
  4. Benefit: The method provides a more accurate picture of the company’s current financial position
  5. Challenge: However, it is a more complex and is more expensive and time-consuming to implement

Learn about current accounting system

  1. Explanation: It is based on cash accounting, which recognizes a transaction only when money changes hands
  2. For instance, the revenues are reported on the income statement when the cash is received and expenses are reported when the cash is paid
  3. It is followed by both the union and state governments
  4. Criticism: The XII Finance Commission had pointed out several problems with the current accounting system.
  5. It highlighted the importance of shifting to accrual accounting, which was also reiterated by the XIV Finance Commission

Private finance vital for India to reach climate goals: Survey

  1. News: India will find it hard to meet its variety of obligations to tackle climate change without substantial help from private sector
  2. Context: Successful implementation of the Paris Agreement, SDGs goals and the ambitious targets set out in INDCs will require huge financial resources, cannot be met through budgetary sources alone
  3. Relevance: Leveraging private finance along with public finance, both international and national, will be critical
  4. Benefit: This could benefit from the renewed global focus on adopting and developing green technology
  5. UN’s SDGs: Lay the onus on countries to make significant progress on a wide range of goals including ending poverty and hunger and combating climate change
  6. Survey also notes: Mission on Climate Change and Health is being developed and a National Expert Group on Climate Change and Health has been constituted

Rich feed off subsidies worth over Rs. 1 lakh crore: Economic Survey

  1. News: India’s rich feed off subsidies worth over Rs. 1 lakh crore a year that are meant for the poor
  2. Subsidies on: 6 commodities, 2 public utilities — the Railways and electricity — and 1 small savings scheme, the Public Provident Fund
  3. Context: Form of explicit subsidisation, which is surprisingly substantial in magnitude
  4. Relevance: Rich avail of an 88% subsidy on kerosene and 86 per cent subsidy on LPG
  5. Survey classification: Population on the basis of consumption data collected by National Sample Surveys.
  6. Poor refer to the bottom 30 per cent of the population and the rich the top 70 per cent

Economic Survey estimates 7 to 7.5% growth rate for 2016-17

  1. News: The Survey projected a 7-7.5% GDP growth rate in the next fiscal which could accelerate to 8% in a couple of years
  2. The fiscal deficit target of 3.9% of GDP seems achievable, despite the challenges and lower than projected GDP growth rate during 2015-16
  3. Expectation: There are two factors that can boost domestic consumption- increased spending, if the 7th Pay Commission is implemented and return of normal monsoon
  4. Challenge: Indian economy is currently facing the twin balance sheet problem – the impaired financial positions of the PSBs and some corporate houses

Economic Survey against raising income tax exemption limits

  1. Context: The Economic Survey 2015-16 tabled in Parliament
  2. Proposal: The survey suggests that the govt should refrain from raising exemption limits on income tax
  3. Reason: A natural growth in income will lead to increase in the number of taxpayers, provided exemption limits are not raised
  4. Proposal: It called for a review and phasing out of the tax exemption raj
  5. Reason: It often leads to redistribution toward the richer private sector
  6. Challenge: A cross-country comparison shows that India currently has the lowest number of taxpayers, nearly 85% of the economy still remains outside the tax net

Economic Survey bats for GM crops

  1. Background: Currently, commercial cultivation of Bt cotton is allowed and there is a moratorium on Bt brinjal
  2. Proposal: The survey favoured the use of hybrid and GM seeds along with better MSP, irrigation and national market facilities to boost crop yields
  3. How? The regulatory process needs to be evolved in order to address safety concerns of GM crops
  4. Proposal: Incentivise raising of production of pulses and oilseeds
  5. Reason: The country is heavily dependent on imports for such crops

Project Insight to fight black money

  1. Context: NDA govt’s fight against domestic black money
  2. Project: It is focused on extensive data mining and processing the details of country’s 22.94 crore PAN allottees, with the specific intention of monitoring fund flows across identities and accounts
  3. Aim: To generate an actionable audit trail of high value transactions by way of sequenced transaction history of an individual or entity, where a PAN number has been quoted, in any part of the country
  4. It will be implemented phase-wise during the 3-year period spanning 2016-18
  5. Nodal Agency: Income Tax Department

Learn about EPF, GPF and PPF

  1. General Provident Fund: It is offered to government employees, who can contribute a certain percentage of their salary
  2. Employees Provident Fund: It is mandatory for all organisations with 20 or more employees earning up to Rs. 15,000 a month. However, those earning over the Rs.15,000 ceiling can contribute to EPF on a voluntary basis
  3. Public Provident Fund: It is a savings cum tax savings account offered in India. The fund offers reasonable returns along with income tax benefits

Govt. may penalise higher PF savings

  1. News: The upcoming Budget may penalise voluntary investments of more than Rs.1.5 lakh parked in the Employees’ PF and General PF accounts
  2. Reason: To channelize savings to other alternatives such as the National Pension System
  3. The PFRDA currently has assets of Rs 1.10 lakh crore under its watch and reports to the Finance Ministry
  4. The Employees’ PF Organisation works under the Labour Ministry and has over Rs.10 lakh crore under its administrative control
  5. Experts: It is not a good idea as it would be unfair to deprive an investor of the income that got accumulated on his investments
  6. Criticism: The tax treatment for NPS investments are currently taxable at the time of retirement as opposed to EPF savings that are tax-free

FM inaugurates non-tax revenue e-portal

  1. Context: PMO’s target to switch at least 90% of all official transactions to paperless mode by the end of 2016
  2. Reason: One major way to curb black money is to discourage cash transactions in favour of electronic transactions
  3. News: Finance Minister launched a new e-platform for non-tax receipts
  4. Advantage: It will reduce a lot of the manual work and almost instantly enable the payment at the different categories
  5. Sources of Non-tax revenue: Dividends paid by PSUs, the Reserve Bank of India, etc

Increase excise duty on oil, petroleum for more revenue

  1. Context: To accelerate India’s economic growth by increasing infrastructure spending in 2016-17 budget
  2. Where? Focus on low gestation projects like rural roads, canals, bridges which can result in immediate economic benefits
  3. Finances: Increasing its revenue by excise hikes on oil and petroleum products
  4. Bring revenue deficits under control through an effective tax implementation and collection system
  5. Impact: It can give the govt room to raise infrastructure-related spending

Policy for capital goods introduced

  1. News: The government introduced a National Capital Goods Policy
  2. Purpose: To spur capital goods sector and the Make in India initiative. It aims to turn the country into a world class hub for capital goods
  3. Objective: To increase production of capital goods from Rs. 2.30 lakh crore in 2014-15 to Rs. 7.50 lakh crore in 2025
  4. To raise direct and indirect employment from the current 8.4 million to 30 million by 2025
  5. Key Elements: Availability of finance, raw material, innovation and technology, productivity, quality and environment-friendly manufacturing practices, increasing skill availability, promoting exports and creating domestic demand

Fiscal management far better this year than earlier: CGA

  1. Context: Controller General of Accounts review of fiscal management in India
  2. The News: Expenditure by various departments was spread through out the year as opposed to the huge spending in last 2 quarters in previous years
  3. Criticism: Huge spending in last 2 quarters shows that it was wasteful expenditure; in order to exhaust the budget
  4. Challenge: Timely reporting of the consolidated picture of govt accounts is missing in India
  5. The present govt has ensured that funds are released right upfront, in the beginning

Revenue target to be met, says Adhia

  1. Context: Centre expects to meet the target of Rs.14.49 lakh crore for revenue collection from taxes for the current financial year
  2. How? – The surplus in indirect taxes will be enough to make good the expected shortfall in direct tax collections
  3. Indirect Tax Collection: The govt expects to garner over Rs. 40,000 crore more than the target set for indirect tax collection
  4. This gives an indications of high level of economic activities taking place in the economy
  5. Direct Tax Collection:  The collection from direct taxes is up just 10.9% as compared to last year

Jaitley asks States to raise infra outlay

  1. Finance Minister urged the States to boost spending on infrastructure creation and anti-poverty programmes
  2. Why – Govt. is under pressure to raise public investments to revive the economy
  3. How – By leveraging the increased devolution from the implementation of the 14th Finance Commission’s (FFC) recommendations
  4. State’s Demand –  To release the compensation for phasing out the central sales tax
  5. Do you know? – After FFC recommendations were implemented, the Centre’s share in 58 social development programmes was reduced
  6. This included the important schemes like Sarva Shiksha Abhiyan and the Integrated Child Development Services

Let’s know about National Investment and Infrastructure Fund

  1. NIIF is a fund created by the Govt of India for enhancing infrastructure financing in the country.
  2. The mandate of the NIIF includes investment in commercially viable and stalled projects.
  3. Corpus – Rs. 40000 crore; govt and other investors would contribute Rs. 20000 crore each.
  4. NIIF would be a fund of funds, so there will be multiple alternate investment funds underneath such as stressed-assets fund, renewable energy fund, etc.

Govt. sets up Tax Policy Council headed by Finance Minister

  1. The Govt has created a Tax Policy Research Unit (TPRU) and Tax Policy Council to be chaired by the Union Finance Minister.
  2. The decision is based on the recommendation of the Tax Administration Reform Commission.
  3. Objective- To bring consistency, multidisciplinary inputs, and coherence in policy making.
  4. The TPRU will be a multi-disciplinary body with the objectives of carrying out studies on various topics of fiscal and tax policies.
  5. It will provide independent analysis, prepare and disseminate policy papers and background papers on various tax policy issues.

Let’s know more about Transfer pricing?

Transfer pricing agreements will lead to a positive environment and will bring greater certainty. This greater certainty will lead to more investments flowing into India.

  1. Transfer pricing refers to the setting of the price of goods or services sold between entities within an enterprise.
  2. For example, if a subsidiary sells good or services to its parent company, then the price set for this sale is the transfer price.
  3. This is one of the biggest tax issues is the world today.
  4. Pending cases and issues are also one of the biggest factors keeping foreign investors wary of India.
  5. All those companies, embroiled in transfer pricing issues, are off-shoring companies.

India, U.S. clear 100 transfer pricing cases under MAP

The MAP programmes with other countries like Japan and UK are also progressing well with regular meetings and resolution of past disputes.

  1. One of the significant steps taken by CBDT to boost investment sentiments among MNCs is the landmark Framework Agreement signed with the Revenue Authorities of USA in January, 2015.
  2. This agreement was finalised under the Mutual Agreement Procedure (MAP) provision contained in the India-USA Double Taxation Avoidance Convention (DTAC).
  3. The agreement seeks to resolve about 200 past transfer pricing disputes between the two countries in the IT Services [ITS] and IT enabled Services [ITeS] segments.
  4. The success of the framework Agreement in short period of one year has led to the US Revenue Authorities opening up their bilateral APA programme to India.

Let’s know about new methodology of calculating GDP

  1. Overall, there is a movement of GDP from production to consumption.
  2. It has shifted from final goods to gross value added and from factories to enterprise data under MCA.
  3. Enlarged the scope of financial sector with support of SEBI.
  4. The new methodology takes GDP at market prices into account, which includes indirect taxes and excludes subsidies.

The progress of PMJDY- deposits cross $4.5 billion mark

  1. The PMJDY accounts have deposits of Rs 30,638.29 crore (about $4.5 billion).
  2. As many as 20.38 crore bank accounts were opened as on January 20, 2016.
  3. Accounts with ‘Zero Balance’ have actually shown a significant decline – from 76.81% in Sept 2015 to 32% in Dec.
  4. Also, 8.74 crore of the accounts were seeded with Aadhaar and 17.14 crore account holders were issued RuPay cards.

Open multi-brand retail, e-commerce, education to more FDI: India Inc.

  1. Industry wants the govt. to further ease FDI norms, especially in sectors such as multi-brand retail, education and e-commerce.
  2. They also sought more liberalised norms for the insurance industry.
  3. They have raised concerns on the adverse impact of Free Trade Agreements on local manufacturing
  4. They also demanded support to boost manufacturing, exports and startups.
  5. On the education sector, it said 100% FDI should be allowed in all service companies ancillary to education

Govt. must focus on demand creation: CII

  1. Industry wants govt. to focus on creation of demand in the Budget.
  2. Private sector is not investing because:
    • There is a lack of demand.
    • They have excess capacities due to past investments.
    • The lack of positive sentiments due to the failure to get GST going.
  3. This is reflected in reports that manufacturing is at a 2-year low now.
  4. If these are addressed, there will be definitely a big pick-up in the economy.

Government to focus on access to social security for unorganised labour

The key challenges faced by Indian agriculture are the need to increase productivity by leveraging technology.

  1. To ensure access to health and social security benefits to three labour groups—organised, unorganised and those not employed or below poverty line.
  2. Need-based minimum wage is to be considered as essential part of social security.
  3. The trade unions recommended that contract or casual workers should not be deployed in jobs of a perennial nature.
  4. These workers should be paid the same wages and benefits as was being paid to regular workers doing the same work until they are regularised.
  5. In addition, the trade unions called for a control on spiralling prices and putting an end to government’s divestment in public sector companies.

PMO seeks inputs from economists to stem slowdown, raise profitability

  1. PMO is seeking inputs from govt economists to reassess both the fiscal and monetary policy issues.
  2. There has been a slowdown in India’s nominal GDP growth with latest estimates from the Central Statistics Office.
  3. The Finance Ministry’s mid-year analysis has also put the slowdown into the spotlight.
  4. The mid-year analysis underscored the need for “carefully reassessing” both fiscal and monetary policy stances.
  5. The reason due to which the slowdown in the nominal GDP growth is more pronounced is the decline in the GDP deflator.
  6. The PMO’s move to gain insight into the state of the economy is expected to lead to corrective changes.

Govt unveils medium-term debt strategy

  1. The govt. is planning to switch Rs 50,000 crore high cost debt into instruments of longer term maturity.
  2. The objective is to secure the govt’s funding at all times at low cost over the medium/long term while avoiding excessive risk.
  3. The MTDS is developed for the period 2015-16 to 2017-18 based on the outstanding govt market borrowing as on end March 2015.
  4. The borrowing cost in the domestic market is expected to be lower in 2015-16 due to reversal in the interest rate cycle.

What is MTDS?

  1. MTDS is a Medium-Term Debt Management Strategy recently unveiled by Finance ministry.
  2. The MTDS has been prepared in consultation with the Reserve Bank of India.
  3. The strategy document contains the objectives, risk analysis of govt. borrowings and strategy to be followed.
  4. Aim – To better manage public borrowing.

Govt. opacity leaves Rs. 8,000 cr expenditure unaccounted for

  1. The govt’s finances exhibit opacity in the way some of the funds have been spent.
  2. More than Rs 8,000 crore of expenditure have no accompanying explanation of how and where the money was spent.
  3. As per CAG report, there are 11 heads of govt. spending where more than 50% of the expenditure had no details.
  4. CAG has been highlighting this opacity to the govt. every year since 2008, but almost nothing has so far been done to address the issue.

India well prepared to deal with US rate hike: Finance Ministry

India is well prepared to deal with the impact of the U.S. Federal Reserve interest rate hike and the end of uncertainties will actually help policy makers in emerging economies.

  1. The U.S. Federal Reserve last night hiked interest rates by 0.25 per cent.
  2. This is the first hike in about a decade, signalling a recovery in the US economy.
  3. End of uncertainty and accommodative outlook for future will help policy makers in emerging economies.
  4. Fed’s confidence on recovery is good news for India’s exports, especially for the IT sector.

:( We are working on most probable questions. Do check back this section.

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