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Bring amnesty scheme to curb black money

March 14, 2012 19:38 IST
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Srichand P Hinduja, Chairman Hinduja Group

To regularize political funding and eliminate its corrosive influence of corruption.

Concern about corruption has moved to the centre stage and impacted business confidence and FDI flows, besides hurting the government and its image.

This is a cancer which must be addressed.  Unstructured, non-institutional political funding is the root of corruption in India.

Electoral reforms may be introduced to regularize and make political parties accountable for the funds received.  It should be made mandatory for them to maintain separate accounts of election expenditure for audit by recognized firms under the control of the Election Commission for subsequent submission to the Lok Sabha.

State funding of political parties' election expenditure can be part of a large scheme of political, electoral and taxation reform to stop the flow of money into parallel economy.

Amnesty Scheme to make accountable, the unaccounted money allegedly stashed away in offshore destinations.

As is well known, many developed economies have opted for 20% to 30% tax to make such money accountable. Switzerland is now responsible to debit the tax and regularize such funds.

The Government of India could consider entering into similar agreements with the countries so that unaccounted wealth abroad comes to India, gets taxed at an appropriate rate. Such recovery will help the country in reducing its fiscal deficit and making investment for public good.

(iii)       Fiscal Consolidation

The fiscal deficit in 2011-12 is expected outstrip the budgeted 4.6% of GDP.

Bold action must be taken to trim consumption subsidies and create fiscal space for investments to spur growth. 

Our leaky delivery systems require linking of social spending to targets and results. 

Preparatory changes should be made for a transition to GST, which will reduce the deficit by raising more revenue. 

Rates closer to 10% each for the Central and State GST would make eminent sense.

(iv) Alleviation of Poverty – Setting up of Social Improvement Fund

The lack of rural employment sees millions of people migrate to the cities where they inevitably end up in slums.  Aside from the obvious issues to do with health, sanitation and security that are hallmarks of life in the slums, there is a hidden peril of corruption.  The city's newcomers often end up working in the black market or make their living from crime. 

There are approximately 300 million well-off people in India and a similar number living in extreme poverty.  A Social Improvement Fund may be created to provide job opportunities to the poor. The urban rich and well-off people may be given tax incentives for contributing to the Fund.

The Fund can be used to create satellite townships or cluster of rural villages that are given specialist enterprise status by the Government to encourage new business.

If economic growth comes from small projects around rural and semi-urban areas in healthcare, education, water, energy and physical and electronic connectivity, it will accelerate alleviation of poverty and job creation. Lives could be transformed in months rather than years or decades. 

People when lifted out of poverty, they become consumers of every thing from electricity to gadgets and clothing. A small investment now ensures growth in the market for the future and this will be appreciated from the political and economic angle.

(v)        Banking related Issues

Synchronization of RBI norms and tax laws:

Disputes with tax authorities at various stages of the banks have been a cause of anxiety.  A huge number of cases are pending at various levels arising out of different stand taken by Income Tax Department than the guidelines issued by Reserve Bank of India to banks.  Banks follow RBI norms and tax Authorities take a short term view on a number of these issues.  The outstanding disputed amounts are shown as contingent liabilities.

Common issues of disputes relate to (i) swap cost, loss on Forward Exchange Contracts (in both these cases, banks book expenses on accrual basis and Department does not allow the expenditure),  (ii) Provision against NPAs, (iii) Disallowance on expenditure incurred in relation to exempt income (Department has issued formula-driven disallowances due to which banks suffer heavy disallowances).

It is advisable to ensure that guidelines issued by Regulator should be acceptable to Income tax Department to avoid wasteful expenditure on litigation.

Infrastructure financing:

Banks may be allowed to mobilize long term infrastructure bonds as permitted investments either under section 80CCF where investor gets deduction of Rs. 20,000/- against such investments or by way of tax free bonds as allowed to infrastructure companies where interest earned on these bonds will be exempt under section 10(15) in the hands of investor and banks will be obliged to provide infrastructure finance out of these funds.  This will give a push to infrastructure sector and ALM support to banks.

TDS threshold on interest on term deposits:

TDS threshold in respect of interest on term deposits kept with banks u/s 194A (the current TDS threshold of Rs. 10,000/- results in a very heavy administrative cost to discharge the obligation) should be increased to a higher level.

Amendments to Banking Regulation Act 1949:

A number of legislative changes are pending covering Voting Rights, Common  directorship, issue of preference share capital by private banks, etc.  There is urgent need to carry out these amendments.

(vi)       Foreign Direct Investment (FDI)

The importance of FDI for the development of physical and social infrastructure for all inclusive growth and job creation needs no emphasis.

Several key economic reforms such as further opening up of retail and insurance business, land acquisition for infrastructure, etc. are pending.  FDI flows are losing their momentum.

Opening of multi-brand retail sector will lead to establishment of backward and forward linkages to enhance the income of the farmers and rural artisans.

Sectoral caps on FDI deny the country access to technology, goods and services that could enhance the security of the country, and make industry and agriculture more productive, lower their costs and ultimately pass on those lowered costs to people of India.

Policy framework of FDI needs a review to simplify the procedures and remove bottlenecks like land acquisition and fuel linkages which impede implementation and make India an attractive destination for investments.

Agriculture Reforms

Agriculture development has been central to the country's growth strategy as delineated in the previous Budgets.

Volatility in food price continues adversely affecting people with marginal income.

Investment in agriculture and rural sector should be encouraged by injecting competition into market access by farmers and reducing intermediation.

Policies and / or laws, which interface with a large section of the country's population, would erode substantial benefits potentially emanating from a national market and the presence of competition across all sectors.

There should be focus on unification and harmonization of agricultural markets through policy changes.

Competition in agriculture is not only about the farm-to-fork supply chain, it is also about input markets. Seeds, pesticides, agro-chemicals, fertilizers, power and water are obvious examples.

Budgetary measures should support policies in agriculture to increase supplies, rural income and employment and reduce volatility in food prices.

Incentives for NRIs to make investments in India

An impediment to NRIs investing is the prohibition on OCBs (Overseas Corporate Bodies). A large number of NRIs have their wealth in corporates.  The OCBs should be permitted to invest as long as proper disclosures are in place and "Know Your Customer" information is suitably provided.

By lifting the ban on OCBs and simplifying the procedures for individual NRI investments, the market will be widened with more players.

Overseas Indians investment and taxation to be on par with resident Indians in all respects.

The present law of Trust may be amended to monitor and introduce the concept of International Trust.

Presently overseas Indians are not allowed to purchase agriculture land. It is suggested that permission be granted for overseas Indians to purchase or take on long term lease (over 10 years) the farm land for agriculture, horticulture and plantation activities. This will enable the overseas Indians to bring in latest technology and modernize agro production.

Union Budget 2012-13: Complete coverage
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