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Government approves merger of 3 state-owned banks

NEW DELHI, Jan 2: India’s cabinet has approved the merger of state-run Vijaya Bank and Dena Bank with Bank of Baroda, the government said on Wednesday, in a step aimed at cleaning up the country’s banking system.

India had announced the merger plan last year amid growing concerns over rising bad loans in the banking sector. Banking sector reforms are a major plank of Prime Minister Narendra Modi’s government’s plans to revive lending which has slowed as banks struggle with bad debt.

The merged bank will become India’s second largest public sector bank and will “help create a strong globally competitive bank”, the government said in a statement.

The merger will come into force on April 1, the government said.

Printing of Rs 2,000 note stops, currency still valid

NEW DELHI, Jan 2: India has stopped printing Rs 2,000 notes in a bid to slowly reduce their circulation, said a highly placed government source.

The cut in circulation does not mean the Rs 2,000 notes will become invalid. In all likelihood, the denomination will be gradually phased out. The decision comes on the back of suspicion in the Modi government that the high-denomination banknote was being used for hoarding, tax evasion and money laundering.

The RBI, India’s central bank and currency-issuing agency, did not respond to an email seeking comment. The Rs 2,000 note was introduced in November 2016, after the government demonetised Rs 1,000 and Rs 500 denominations as part of an exercise pitched as a crackdown on black money. At that time, to counter the massive cash shortage, the government flooded the country with new Rs 2,000 notes.

As of March 2018, the total value of the currency in circulation was Rs 18.03 lakh crore, of which Rs 6.73 lakh crore, or 37 per cent, was in Rs 2,000 notes, and Rs 7.73 lakh crore, approximately 43 per cent, in Rs 500 notes. The remaining was in the lower denominations.

When the Rs 2,000 note was introduced, the Narendra Modi government was criticised for bringing out a note of such a high denomination considering it had cancelled the Rs 1,000 note.

Opposition parties had argued that the Rs 2,000 note would further help money launderers and tax evaders, and backfire on one of the government’s stated aims for demonetisation — checking tax evasion and money laundering.

These fears seemed to have come true last April when many Indian cities reported a massive cash shortage.

The government suspected cash hoarding ahead of state elections, as well as stocking of money by people in the aftermath of the PNB-Nirav Modi bank fraud. The income tax department also reported massive seizures of Rs 2,000 notes during this period.

The critics included bankers, with Uday Kotak, the managing director of Kotak Mahindra Bank, questioning the government’s move to bring in Rs 2,000 notes while phasing out Rs 1,000 notes.

The squeeze in the circulation of the Rs 2,000 notes started some time back. The RBI’s annual report, released in August 2018, showed that only 7.8 crore notes of the Rs 2,000 denomination were added in 2017-18, taking the total number of bills in circulation to 336.3 crore as of March 2018. In 2016-17, 328.5 crore Rs 2,000 notes were in circulation.

The share of the Rs 2,000 notes in the total currency in circulation has come down as well: In March 2018, it was recorded at 37.3 per cent, a fall of nearly 13 percentage points from 50.2 per cent as of March 2017. In contrast, the printing and circulation of the new Rs 500 note has been stepped up. India added 958.7 crore Rs 500 notes in 2017-18, with 588.2 crore notes in circulation the previous year. The share of the Rs 500 notes in the total currency in circulation has increased too, from 22.5 per cent in March 2017 to 42.9 per cent in March 2018.

Govt doubles export incentive on onions

NEW DELHI, Dec 28: The Union Cabinet has cleared a proposal to grant higher export incentives for onions, a move that is aimed at improving the domestic prices of the commodity whose lower-than-profitable rates have hit growers in states such as Maharashtra and Karnataka.

Onion exporters will now qualify for a 10% export incentive, up from 5% earlier, under the so-called ‘Merchandise Exports from India Scheme (MEIS)’, which is administered by the directorate-general of foreign trade. The scheme mainly offers duty benefits to exporting Indian traders, which vary across products and export destinations.

“The export incentives granted for onions under the MEIS from existing 5% to 10% is in the interest of farmers. This will result in better price for onion in domestic markets,” a government statement said on Friday.

While this isn’t a direct export subsidy but an export incentive in the form of duty relief, the move will make exports more viable, which in turn is expected to encourage overseas sale of surplus onions from the domestic market, thereby helping improve prices.

“It may be noted that onion arrivals have increased in the market due to which the prices in the mandis are subdued. To contain the situation, it has been decided by the government to encourage exports of onions so that the domestic prices stabilise,” the statement added.

In July 2018, an incentive of 5% was announced for onions. The doubling of the export incentive now means that onions get the highest ever incentive offered for export of any agricultural commodity. One of the reasons for the current spell of low prices in states such as Maharashtra is the arrival of fresh harvests and simultaneous release of old stocks, which farmers were holding in anticipation of higher rates.

A larger crop in Pakistan and China, which also export onion, has undercut Indian exports, another reason for depressed domestic prices.

According to the Association of Onion Exporters’ president Ajit Shah, Pakistani onion were going for about $170 a quintal, while Indian exporters need at least $240 to be profitable.

Till October this year, the value of India’s onion exports was $264.12 million.

TVs, movie tickets to get cheaper

NEW DELHI, Dec 21: The GST Council on Saturday cut tax rates on a number of items, including vegetables, movie tickets, television sets up to the screen size of 32 inches and digital cameras, among others, providing relief to the middle class and farmers ahead of next year’s general elections.

The rate cut on about two dozen items came four days after Prime Minister Narendra Modi indicated the trimming of the highest tax slab of 28% after the ruling Bharatiya Janata Party’s (BJP’s) recent election losses in the heartland states of Madhya Pradesh, Rajasthan and Chhattisgarh.

“All the decisions taken today would have a total revenue implication of approximately Rs 5,500 crore in the whole year,” said finance minister Arun Jaitley, who is also the chairman of the GST Council.

After the 31st meeting of the panel, Jaitley, however, expressed optimism about meeting the fiscal deficit target of 3.3% of the gross domestic product (GDP) in the current financial year.

Jaitley said barring two (cement and automobile parts), all other commonly used items have been removed from the top slab, which will now have 28 items. Now only sin (tobacco and tobacco products) and luxury products are left in that slab and they would remain there, he said.

About a dozen automobile parts and cement, though commonly used, could not be brought down from 28% to 18% because of their huge revenue shares, he said. The total GST collection from auto parts is typically about Rs 20,000 crore in a financial year. The contribution of cement is about Rs 13,000 crore in a financial year.

The council felt that the trimming of these rates could be “too steep at the moment”, Jaitley said, adding that air conditioners and dish washers continue to remain at the top slab because these items are mostly used by the affluent segment of the society.

GST rates on implements often used in agriculture — such as pulleys, transmission shafts and cranks, re-traded or used pneumatic tyres — have been reduced from 28% to 18% to provide relief to farmers. Parts and accessories of carriages meant for differently persons have been reduced from 28% to 5%.

GST on air travel by pilgrims using non-scheduled or by chartered flights will now attract 5% duty for the economy class and 12% for the business class. At present, such flight operations attract 18% GST. The move will particularly help pilgrims taking flights for Mansarovar Yatra or the Haj.

The council has reduced the tax on movie tickets up to Rs 100 from 18% to 12%. Tickets priced over Rs 100 will now attract 18% tax instead of the earlier 28%, Jaitley said, adding that the move will have a revenue implication of about Rs 900 crore.

In a relief to transporters, the council has also decided to reduce GST rates on third party insurance premium of goods-carrying vehicles from 18% to 12%. In order to encourage financial inclusion, the council has exempted services supplied by banks to account holders of basic savings bank deposits under the Pradhan Mantri Jan Dhan Yojana (PMJDY).

The new rates will be implemented after they are notified by the government. A notification is expected by the month-end, finance ministry officials said. Jaitley asked businessmen to pass on the benefits of lower taxes or to face action in accordance with the law.

Jaitley said the GST rate rationalisation was an ongoing process. The council is considering proposals to rationalise taxation on residential properties where built-up flats are outside the jurisdiction of GST but under-construction properties attract 12% tax.

“We are glad that the GST Council has recognised the issue. We are, however, disappointed that the expected drop in GST rates for under-construction houses hasn’t come in during this session, but hopeful that there will be a positive outcome in the next committee meeting in January,” said Shishir Baijal, chairman and managing director, Knight Frank India.

The council has also resolved several issues faced by the industry, including taxation problems faced by solar projects.

Transfer of excess reserve to govt may bring down RBI rating: Raghuram Rajan

NEW DELHI, Dec 17: Former RBI Governor Raghuram Rajan has cautioned that transfer of excess reserve to the government may bring down rating of the central bank. Rating downgrade of the RBI from ‘AAA’ would make borrowing costlier for the central bank and will have implication for the entire economy.

Asked if the transfer of excess reserve by the RBI to the government could lead to downgrade of the rating, Rajan said: “It depends on how much. It may not be an issue now...may be an issue at some point of time. That’s one concern”. This is something both the government and RBI should discuss before reaching some conclusion, he told a news channel in an interview.

“We are ‘Baa’ country. We are barely investment grade. Sometime, we need to undertake international transactions which require really high credit rating. For example swap we did in 2013. So, for that we need unimpeachable balance sheet. Why don’t we keep the RBI as an unimpeachable balance sheet with AAA credit rating that requires certain amount of equity,” he said.

Highlighting that profit of the central bank largely comes due to devaluation of Indian currency, Rajan said keeping a portion for the contingency reserves, RBI usually pays entire profit.

“RBI can pay profit and not whatever it holds for contingency reserves for movement up and down. For example, rupee that depreciated could also we should accommodate for that,” he said. There seems to be a tussle going on between the RBI and government over various issues, including transfer of excess capital of the apex bank.

Last month, the RBI board decided to set up a high-level committee soon for examining the Economic Capital Framework (ECF) to determine the appropriate levels of reserve the central bank should hold. Asked whether he also faced pressure when he was the governor, he said there is always a pressure on the central bank to pay the government more.

“I had it as well. I wrote a letter to the RBI when I was chief economic advisor saying perhaps the RBI should look at how much it needs to hold. When I came to RBI as governor I set up a committee which essentially said we have enough capital to pay out our entire profit.

“The three years that I was Governor, we paid the highest dividend in RBI’s history to the government. The issue at stake is not that anymore. The issue is more than that. It’s not just the profit, they want the excess. And the Malegam Committee had opined that you cannot pay more than the profit,” he said.

Rajan, who was RBI governor for three years till September 2016, is currently teaching at the Chicago Booth School of Business.




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Govt’s ex-economic adviser says notes ban was draconian, monetary shock


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