Expert Committee to simplify income tax laws headed by Justice (retired) R.V. Easwar has submitted its report to Union Finance Ministry
The 10 member committee has recommended simplifying provisions related to tax deduction at source (TDS), tax refunds and claims of expenditure for deduction from taxable income
It also has suggested several taxpayer-friendly measures to improve the ease of doing business in the country, accelerate process of tax dispute resolutions and reduce litigation
source: Live Mint
Recommendations:
Deferring the contentious Income Computation and Disclosure Standards (ICDS) provisions and making the process of tax refunds faster
Deletion of a clause in IT Act, 1961 that allows the IT department to delay tax refund due beyond six months in case of delay in refunds levying higher interest
IT department should stop the practice of adjusting tax demand of a taxpayer against legitimate refunds due whose tax return is under assessment
Treat stock trading gains of up to Rs. 5 lakh as capital gains and not business income
Tax Deducted at Source (TDS) rates for individuals must be reduced to 5 per cent from current 10 per cent. Dividend income should be treated as part of total income
Exempting non-residents not having a Permanent Account Number (PAN), but seeking to provide their Tax Identification Number (TIN) for the applicability of TDS at a higher rate
Most of the working processes of the IT departments should be conducted electronically in order to minimize direct human interface
Eligibility criteria under the presumptive tax scheme to be increased to Rs. 2 crore from Rs. 1 crore rupees to make it easy for small businesses
Such scheme should be also for professionals
Background:
Union Government had constituted this committee in October 2015 by following up on a promise to provide a fair and predictable tax regime
The committee was tasked to suggest recommendations to overhaul the IT Act, 1961 to remove ambiguities that cause unnecessary litigation and update the laws based on various judgements
What is ICDS?
The Central Government had notified 10 Income Tax Computation & Disclosure Standards (ICDS) effective financial year 2015-16
Objective: To minimising tax related disputes by bringing greater consistency in the application of accounting principles governing the computation of Income
These standards were developed using the old Indian General Audit and Accounting Practices (GAAP)
Main Features:
In case of conflict between the provisions of the Income Tax Act, 1961 and ICDS, the provisions of the Income Tax Act would prevail
No need to maintain separate books of accounts for ICDS. Maintain book only for income computation
Revising the most important facets of reforms proposed by the Bibek Debroy committee & highlighting the pain points of Indian railways –
#1. The process of accounting in Indian Railways is “very complicated”. “It is impossible to figure out what the rate of return on a project is”
The financial statements of Indian Railways need to be re-drawn, consistent with principles and norms nationally and internationally accepted.
#2. Streamline recruitment & HR processes
Remove the multiplicity of channels of recruitment and consolidate the process. At present there are 8 organized Group ‘A’ services in Indian Railways. Deployment to these services is by direct recruitment from UPSC (Civil Service and the Engineering examinations) and also by promotion of Group ‘B’ officers of the department.
The eight services can be broadly categorized in two bigger groupings viz. technical and non-technical services.
#3. Indian Railways should focus on core activities to efficiently compete with the private sector
It should distance itself from non-core activities, such as running a police force, schools, hospitals and production and construction units.
#4. Deploy an independent regulator
Shift regulatory responsibility from the government to an independent regulator as the private sector will only come in if there is fair and open access to infrastructure.
The report recommends setting up a Railway Regulatory Authority of India (RRAI) statutorily, with an independent budget, so that it is truly independent of the Ministry of Railways.
#5. Merge Railway budget with Central government budget
“End gross budgetary support, end this system of paying dividends and therefore you effectively end the railway budget. You not only end the railway budget, you eventually also end the Ministry of Railways and integrate it into a Ministry of Transport.”
Government-constituted expert committee to examine the Possibility of Replacing Multiple Prior Permissions with Pre-Existing Regulatory Mechanism had submitted its recommendations
The 11 member committee was headed by Ajay Shankar, Former Secretary of Department of Industrial Policy and Promotion (DIPP)
The expert committee was constituted by DIPP in April 2015
It was tasked to:
Examine the possibility of replacing multiple prior permissions with a pre-existing regulatory mechanism
Recommend a framework of the proposed regulatory mechanism and draft proposed legislation
Identify safeguards for replacing the system of prior permission and integrating them in the proposed regulatory mechanism
Recommendations:
Introduction of credible third-party certification in most areas of regulation to cut down on multiple permissions needed by investors
Adopting global best practices for emission norms in order to promote ease of doing business in the country
Need for a standing institutional mechanism within the government for an independent regulatory impact assessment
For start-ups:
Steps like Greenfield development and earmarking of mixed land use redevelopment should be undertaken
Start-ups must be exempted from the requirement of seeking building plan approvals would give a boost to the ecosystem
Any inspection of a start-up in cases of actionable complaints should be done only with the permission of an officer at a sufficiently higher level
Environmental Issues:
Ministries of environmentally sensitive sectors should join with the Ministry of Environment and Forests to prepare a 20 year perspective geographical plan
This plan must indicate preferred locations in prioritised categories for their anticipated projects in order to minimise the negative impact of environment
Aimed to review the 2013 Company Law, the Tapan Ray panel proposed over 2000 suggestions and recommendations
Recommendations are aimed at making the transition from Companies Act 1956 to Companies Act 2013 easier, improve Ease of Doing Business and provide better environment to start-ups
Major recommendations:
As per 2013 law, a public sector company is required to seek approval from central government should it want to give total managerial remuneration which exceeds 11% of net profit. The panel has recommended doing away with the provision
Harmonizing disclosure standards between SEBI and Companies Act
The independent director should not have any kind of pecuniary relationship with the company
Defining a ‘subsidiary company‘ in terms of voting rights of the holding company instead of ‘total share capital’ of the holding company.
Removal of provision under Section 2(87), which prohibited the companies to not have more than two levels of subsidiaries
Establishment of an independent body, National Financial Reporting Authority (NFRA), to provide for matters relating to accounting and auditing standards. It is being seen as a major jolt to the Institute of Chartered Accountants of India (ICAI)
Allowing start-ups to issue 50% of the paid capital as sweat equity against existing norms of 25 %
Allowing start-ups to issue employee stock ownership plan (ESOP) to promoters who are working as employees or employee directors or whole-time directors
Only those frauds which involve Rs 10 lakh or above, or one per cent of the company’s turnover, whichever is lower, may be punishable under Section 447 of the companies act
Background:
The enactment of the Companies Act, 2013 is considered to be one of the most significant legal reforms in India in the recent past, aimed at bringing Indian company law in tune with global standards
The Act introduced significant changes in the company law in India, especially in relation to accountability, disclosures, investor protection and corporate governance
In view of the extent and scope of changes, the stakeholders took some time to come to terms with the new regime with the new provisions, and encountered some difficulties in the process
Several representations were made to the Government on the practical difficulties faced during implementation
Though a few immediate amendments were made in May, 2015, the Government continued to receive representations that the Act needed further review
The Committee was thus constituted to-
Make recommendations on issues arising from the implementation of the Companies Act, 2013
Examine the recommendations received from the Bankruptcy Law Reforms Committee, the High Level Committee on Corporate Social Responsibility, the Law Commission of India and other agencies
According to RBI’s recent data, the gross non-performing assets (NPAs) of public sector banks are just under Rs 4 lakh crore, and they collectively account for 90 percent of such rotten apples in the country’s banking portfolio.
In terms of net NPAs, their share is even higher – at 92 percent of the total bad loans reported so far in the banking system. The total NPAs of Indian banks, as a percentage of the total loans, has grown from 2.11 per cent(2008) to 5.08 percent(2016).
In this article we will explain what is NPA, The reason why NPA increased in India and steps taken by Government in recent years to curb the menace of NPA and what else needs to be done.
What is NPA?
The assets of the banks which don’t perform (that is – don’t bring any return) are called Non Performing Assets (NPA) or bad loans. Bank’s assets are the loans and advances given to customers. If customers don’t pay either interest or part of principal or both, the loan turns into bad loan.
According to RBI, terms loans on which interest or instalment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.
However, in terms of Agriculture / Farm Loans; the NPA is defined as under: For short duration crop agriculture loans such as paddy, Jowar, Bajra etc. if the loan (installment / interest) is not paid for 2 crop seasons, it would be termed as a NPA. For Long Duration Crops, the above would be 1 Crop season from the due date.
The problem of NPAs in the Indian banking system is one of the foremost and the most formidable problems that had impact the entire banking system. Higher NPA leads to following adverse impact on Economy:
Depositors do not get rightful returns and many times may lose uninsured deposits. Banks may begin charging higher interest rates on some products to compensate Non-performing loan losses
Bank shareholders are adversely affected
Bad loans imply redirecting of funds from good projects to bad ones. Hence, the economy suffers due to loss of good projects and failure of bad investments
When bank do not get loan repayment or interest payments, liquidity problems may ensue.
Reasons for the rise in NPA in recent years
GDP slowdown: Between early 2000’s and 2008 Indian economy were in the boom phase. During this period Banks especially Public sector banks lent extensively to corporates. However, the profits of most of the corporate dwindled due to slowdown in the global and domestic economy, bans in mining projects, delays in environmental related permits ,Land acquisition hurdles and volatility in prices of raw material. This has adversely affected their ability to pay back loans and is the most important reason behind increase in NPA of public sector banks.
Relaxed lending Norms: One of the main reasons of rising NPA was the relaxed lending norms especially for corporate honchos when their financial status and credit rating was not analyzed properly. Also, to face competition banks were hugely selling unsecured loans .
Priority Sector Lending: There is a myth that main reason for rise in NPA in Public sector banks was Priority sector lending as according to the findings of Standing Committee on Finance , NPAs in the corporate sector are far higher than those in the priority or agriculture sector. However, even if PSL is not the main cause but it is still a cause for rising NPA which can be seen from the fact that As per the latest estimates by the SBI, education loans constitute 20% of its NPAs.
The Lack of Bankruptcy code in India and sluggish legal system makes it difficult for banks to recover these loans from both corporate and noncorporate.
Other factors
Banks did not conducted adequate contingency planning, especially for mitigating project risk. They did not factor eventualities like failure of gas projects to ensure supply of gas or failure of land acquisition process for highways.
Restructuring of loan facility was extended to companies that were facing larger problems of over-leverage & inadequate profitability. This problem was more in the Public sector banks.
Companies with dwindling debt repayment capacity were raising more & more debt from the system.
Why most NPA in Public sector?
Five sectors Textile, aviation, mining, Infrastructure contributes to most of the NPA, since most of the loan given in these sector are by PSB, they account for most of the NPA.
Public Sector banks provide around 80% of the credit to industries and it is this part of the credit distribution that forms a great chunk of NPA. Last year, when kingfisher was marred in financial crisis, SBI provided it huge amount of loan which it is not able to recover from it.
Less Professional management
Political Pressure and interference forces PSB to lend to not so commercially sounds project.
Steps taken by RBI and Government in last few years to curb NPA
Government has launched Mission Indradhanush to make the working of public sector bank more transparent and professional in order to curb the menace of NPA in future.
Government has also proposed to introduce Bankruptcy code which will make it easier for banks to Recover the loans from the debtors.
RBI introduced number of measures in last few years which include:
Tightening the Corporate Debt Restructuring (CDR) mechanism,
Setting up a Joint Lenders’ Forum, prodding banks to disclose the real picture of bad loans, asking them to increase provisioning for stressed assets,
Introducing a 5:25 scheme where loans are to be amortized over 25 years with refinancing option after every five years, and
Empowering them to take majority control in defaulting companies under the Strategic Debt Restructuring (SDR) scheme.
How to curb the menace of NPA?
#1. Short Term measures
Review of NPA’S/Restructured advances- We need to assess the viability case by case. Viable accounts need to be given more finance for turnaround and unviable accounts should either be given to Asset Reconstruction Company or Management/ownership restructuring or permitting banks to take over the units.
Bankruptcy code should be passed as soon as possible. Bankruptcy code will make it easier for banks to recover loans from unviable enterprises.
Government should establish ARC with equity contribution from the government and the Reserve Bank of India (RBI). The established ARC should take the tumor (of non-performing assets or NPAs) out” of the banking system. An ARC acquires bad loans from banks and financial institutions, usually at a discount, and works to recover them through a variety of measures, including sale of assets or a turnaround steered by professional management. Relieved of their NPA burden, the banks can focus on their core activity of lending.
#2. Long term Measures
Improving credit risk management– This includes credit appraisal, credit monitoring, and efficient system of fixing accountability and analyzing trends in group leverage to which the borrowing firm belongs to
Sources/structure of equity capital– Banks need to see that promoter’s contribution is funded through equity and not debt.
Banks should conduct necessary sensitivity analysis and contingency planning while appraising the projects and it should built adequate safeguards against such external factors.
Strengthen credit monitoring– Develop an early warning mechanism and comprehensive MIS(Management information system) can play an important role in it.MIS must enable timely detection of problem accounts, flag early signs of delinquencies and facilitate timely information to management on these aspects.
Enforce accountability- Till now lower ring officials considered accountable even though loaning decisions are taken at higher level. Thus sanction official should also share the burden of responsibility.
Restructured accounts should treated as non performing and technical write offs where Banks remove NPA’S from their balance sheets Permanently should be dispensed with.
Address corporate governance issues in PSB- This includes explicit fit and proper criteria for appointment of top executives and instituting system of an open market wide search for Chairman.
Maritime India Summit 2016 (MIS 2016) is a maiden flagship initiative of the Ministry of Shipping.
Maiden = First time ever. First time ever translates to a higher probability of it finding its way in the IAS Prelims this year.
Why do we say so? If you wrote the IAS prelims in 2014, you would remember the National Biodiversity Express initiative launched by GoI that year and how a few questions from E&B found their source in the released pamphlet. So, no harm in giving this a look, right?
Focus Area for intervention which are important for your review:
Port Modernization
New Port Development
Inland Waterways
Green Initiatives in Ports
Maritime Potential of Indian States
If you are loath to read through the commentary, make sure you go through this infographic (in desktop mode – click on the pic to enlarge) & make quick notes.
source: www.maritimeinvest.in
#1. Port Modernization
India has 12 Major Ports, administered by the Central Government, and around 200 notified Non-Major Ports, administered by the State Governments. In 2014-15, out of the 200 Non-Major Ports, 69 ports were reported to have handled cargo traffic.
Kandla was the last major port built by India – 1950
India plans to add 8 major ports to this list of 12. Source: ET
Fodder points –
The infrastructure sector, particularly the Maritime Sector, is expected to grow significantly with the increase in international and domestic trade volumes
Since about 95% of India’s trade by volume is via the maritime route (Source : NTDPC), there is a continuous need to develop India’s ports and trade related infrastructure to accelerate growth in the manufacturing industry and to aid the ‘Make in India’ initiative.
#2. New Port Development
Why is there a need you may ask?
Capacity Saturation – Ports such as JNPT, Paradip have limited capacity to expand and are saturated with traffic
Non-availability of Ports – There are few specific stretches along the coastline which do not have an operational port. In absence of the port at such locations, the cargo is forced to travel longer distances to use alternate ports
Strategic Locations – The southern tip of India is optimally located as it falls under the East-West trade route. However most of transshipment cargo from India is dependent on ports of Colombo and Singapore. Hence, we need to fulfill this need
Potential Projects? Greenfield major ports to be developed at
Vadhavan (Maharashtra) – MOU was signed by JNPT. Read here.
Sagar Island (West Bengal) – This island, also known as Gangasagar or Sagardwip, is a place of Hindu pilgrimage
Paradip Satellite Port (Odhisha) – What is a satellite port?
Cuddalore/Sirkazhi (Tamil Nadu)
Machilipatnam/Vodarevu
Question: Find out the difference between Greenfield and Brownfield projects. A term often used in PPP parlance.
#3. Inland Waterways
India has an extensive network of inland waterways in the form of rivers, canals, backwaters and creeks. Of the total navigable length of 14,500 km, 5200 km of the river and 4000 km of canals can be used by mechanized crafts.
India has recognized 106 waterways of which 6 are declared as national waterways –
Source: Wiki
#4. Green Initiatives in Ports
Solar and wind based power systems at all the Major Ports across the country
What’s the plan? Solar energy capacity at 8 major ports + Wind energy capacity at 3 major ports
Key initiatives (Fodder points):
The Ministry of Shipping has recently introduced an incentive scheme under which the Ministry will share up to 50% of the total project cost that promote the use of green energy
Anti-fouling System Convention of International Maritime Organization has been incorporated in the Merchant Shipping Act, 1958
If you have time and you want to venture out and see the other heads of developments, do go and visit the website, especially carved out for this summit.
Union Government has launched TADF the under the National Manufacturing Policy (NMP), 2011
Key facts:
TADF will facilitate Micro, Small & Medium Enterprises (MSME) to acquire clean, green and energy efficient technologies
It will also catalyse the manufacturing growth in MSME sector with an aim to contribute to ‘Make in India’ initiative
Implementation: The scheme will be implemented through Global Innovation and Technology Alliance (GITA) which is a joint venture company of CII and Department of Science & Technology
GITA was launched in 2007-08 to stimulate private sector’s investment in Research and Development
Direct Support for Technology Acquisition: Proposals will be invited for reimbursement of 50 per cent or up to 20 lakh rupees of technology transfer fee from Indian industry
In-direct Support for Technology Acquisition through Patent Pool: TADF will provide financial support to MSME’s to acquire patent from across the world based on applications
Patent/Technology would be licensed to selected MSME’s and they will get a subsidy of 50 per cent of mutually agreed value or upto 20 lakh rupees
Technology/Equipment Manufacturing Subsidies: TADF will support manufacturing of equipment for reducing energy consumption, controlling pollution and water conservation
In this regard, subsidy of up to 10 per cent of capital expenditure and machinery will be provided to the manufacturing units subjected to a maximum of 50 lakh rupees
Green Manufacturing–Incentive Scheme: TDAF seeks to facilitate resource conservation activities in industries located in National Investment and Manufacturing Zone (NIMZ)
In this regard, financial support for under incentive or subsidy schemes will be provided for construction of green buildings, energy or water audits and implementation of waste treatment facilities
Union Government has launched SAHAJ scheme for online release of new LPG connections for the consumers as parts of its consumer friendly initiative
Key facts:
Under the scheme, people can apply online for new LPG connection and they need not visit to the LPG distributors for it
SAHAJ facility will enable the customers to post online request for a new connection by filing Know Your Customer (KYC) form by uploading bank account details and photographs
After submitting the details, customer will receive the registration number to know the new connection status
Later, customer can opt for offline or online mode of payment for the new connection
Once payment is done, electronic subscription voucher will be mailed to the new customer
Later distributor will do physical delivery of the Gas cylinder, regulator with hose pipe
Phases:
Initially, the scheme has been launched in twelve cities across the country
In near future, this scheme will be extended to other parts of the country
Twelve cities are Ahmedabad, Bhubaneswar, Bengaluru, Bhopal, Chennai, Chandigarh, Kolkata, Hyderabad, Lucknow, Patna, Mumbai and Pune
An umbrella scheme for integrated development and management of fisheries
Approved by Cabinet Committee on Economic Affairs (CCEA)
It is Central Sector Scheme on Blue Revolution
Will be implemented at an outlay of Rs. 3000 crore for a period of five years in all the states including North East States and Union Territories
Key facts:
The scheme will cover will cover multi-dimensional activities for development and management of inland fisheries, aquaculture and marine fisheries
All activities under ambit of it would be undertaken by the National Fisheries Development Board (NFDB) towards realizing Blue Revolution
The scheme aims at development and management of fisheries and aquaculture sector to ensure a sustained annual growth rate of 6-8%
It focuses mainly on increasing productivity and production from aquaculture and fisheries resources both inland and marine keeping in view the overall sustainability, bio-security and environmental concerns
Components of Scheme:
National Fisheries Development Board (NFDB) and its activities
Development of Inland Fisheries and Aquaculture
Development of Marine Fisheries, Post-Harvest Operations and Infrastructure
Strengthening of database and Geographical Information System (GIS) of the Sector
Institutional Arrangement for Sector
Monitoring, Control and Surveillance (MCS) and other need-based Interventions
Convergence:
It provides for suitable convergence and linkages with the Sagarmala Project of the Ministry of Shipping, Rashtriya Krishi Vikas Yojana (RKVY), MGNREGA, National Rural Livelihoods Mission (NRLM) etc.
It also encourages increasing entrepreneurship development, private investment, Public Private Partnership (PPP) and better leveraging of institutional finance for Fisheries Sector
Union Government on 1 April 2015 launched Faster Adoption and Manufacturing of Hybrid and Electric vehicles (FAME) – India Scheme
The scheme was launched as part of the National Mission for Electric Mobility to boost eco-friendly vehicles sales in the country
Key facts:
Objective: To support the hybrid or electric vehicles market development and its manufacturing eco-system in the country in order to achieve self-sustenance in stipulated period
The overall scheme is proposed to be implemented over a period next 6 years i.e. till 2020
It envisages providing Rs 795 crore support till 2020 for the manufacturing and sale of electric and hybrid vehicles
It also seeks to provide demand incentives to electric and hybrid vehicles from two-wheeler to buses
Implementation: It will be implemented in phases
The Phase-1 will be implemented over a two year period in FY15-16 and FY16-17
Based on the outcome and experience from the Phase-1, it will be reviewed for implementation after 31 March 2017
Then appropriate fund will be allocated for future.
Four focus areas: Technology development, Pilot Projects, Demand Creation and Charging Infrastructure.
In the first two years Rs 260 crore and Rs 535 crore will be spent on the focus areas
The Department of Heavy Industries under the aegis of Union Ministry of Heavy Industries will be will be nodal department for the scheme
