The government has decided not to impose a ceiling on the tax-free bonds that central public sector undertakings can float in the next fiscal.
For the current fiscal, the finance ministry had set a ceiling of Rs 300 crore (Rs 32 billion) and allocated sub-limits to central public sector undertakings for raising resources to part fund their annual plans.
According to government officials, a decision has been taken in principle to allow central public sector undertakings to raise as much resources as they need from the market.
"The idea is to phase out the tax-free bonds since there is significant implicit revenue foregone because of the tax-free status of these bonds," an official said.
These bonds are different from the tax-free bonds -- Section 88 benefits in the Income-Tax Act --issued by financial institutions for funding the infrastructure sector.
Financial institutions would, however, continue to raise funds by floating tax-free bonds, the official added.
The government sets the annual ceiling at the beginning of every fiscal based on recommendations of the Planning Commission.
When contacted, a Planning Commission official said, "The decision to phase out the tax-free bonds was taken also to prevent the liability from falling upon the Centre, which usually guarantees such bonds."
Similarly for municipal bodies, the government had set a Rs 200 crore (Rs 2 billion) ceiling for the current fiscal, based on the proposals received by the ministry of urban development from various municipal bodies.
The official said there was a move to increase the ceiling for such bodies in the next fiscal.
"There is a committee in the urban development ministry that vets the proposals of the municipal bodies and recommends a ceiling to the finance ministry. The process of setting the annual ceiling for 2004-05 is yet to be completed," the official said.