Citizens' Issues
PM Modi says ready to make changes in Land Bill

Modi said his government wanted to make changes in the Land Act passed during the UPA tenure because all Chief Ministers had said it was against farmers’ interest and hampered development and infrastructure creation

 

Facing resistance on the Land Acquisition Bill, Prime Minister Narendra Modi on Friday expressed readiness to make changes in the proposed legislation as he reached out to opposition for support, saying they should shed politics and not make it a prestige issue.
 
“We should not have ego that there can be nothing better than what we did. When you passed the Land Act (in 2013), we stood shoulder to shoulder with you. We knew that you want to take political mileage out of it. Still we stood by you,” he told Congress in the Lok Sabha.
 
Modi, who was replying to a debate on the Motion of Thanks to the President’s address, said his government wanted to make changes in the Land Act passed during the UPA tenure because all the Chief Ministers had said it was against farmers’ interest and hampered development and infrastructure creation.
 
“...When our government was formed, CMs of all parties said in one voice: Please think about farmers, they want irrigation and infrastructure. You made such a law which is against farmers’ interest."
 
“Are we so arrogant that we will ignore the voice of CMs in a federal structure? Can we ignore farmers’ interest? Is it not our responsibility to correct the mistake, if any? Whatever you have done, we are not rejecting it. Do not weigh this in the balance of politics,” he said.
 
Seeking the support of opposition in the passage of the bill, which he claimed was in farmers’ interests, he said, “If you feel there are still any shortcomings, I am ready for any changes in it....Don’t make it an issue of your prestige.
 
He said there should be no ego and all parties should work together to correct the mistakes in the previous act.
 
His expression of readiness to make changes in the proposed new Land Acquisition bill comes against the backdrop of opposition by some allies as well as opposition parties.
 
The new bill is aimed at amending the law passed over a year back. 
 

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Economic Survey sees FY16 growth at 8.1% to 8.5%

The Economic Survey suggests incremental changes in a host of areas – from manufacturing 

 

The Economic Survey, tabled in the Parliament on Friday has estimated economic growth between 8.1 and 8.5% FY2015-16. “In the coming year, real GDP growth at market prices is estimated to be above 0.6-1.1 percentage points higher vis-a-vis 2014-15,” the Survey for 2014-15 said. Growth rate in 2014-15 is estimated at 7.5%. The important takeaways from the Survey are that it expects 8.1-8.5% growth in GDP next year, which looks doable given that growth was 7.4% this year. In addition, inflation is expected to be 5-5.5%, which is lower than the RBI target of 6%. Current Account Deficit is also assumed to be 1% of GDP assuming benign oil prices.
 
However, while expecting economic growth above 8%, the Survey has also cautioned on big bang reforms. It says, “Big-Bang reforms as conventionally understood are an unreasonable and infeasible standard for evaluating the government’s reform actions.” 
 
 
The Survey presented by Finance Minister Arun Jaitley argues for a three-pronged strategy to improve the investment climate and reduce the backlog of stalled projects. This includes,
 
1. The Survey recommends revival of public investment in short term, to act as an engine of growth in infrastructure sector. It argues that public investment cannot be a substitute for private investment; but is required as a complement and to crowd it in.
 
2. Creative solutions need to be devised to strengthen institutions relating to bankruptcy, says the Survey. This will ensure that exit options are available. This will also ameliorate over-indebtedness that lowers the capacity to generate new investments. Towards this end, it contemplates setting up of a high-powered Independent Renegotiation Committee.
 
3. Economic Survey highlights the need for reorientation and restructuring of the public-private partnership (PPP) model. This is expected to make them more viable in future. 
 
According to the Survey, total stock of stalled projects stands at Rs8.8 lakh crore or 7% of GDP. "In private sector, credit related factors dominate, while in the public sector, delay in regulatory clearances is the primary reason. Stalling of projects has put tremendous pressure on the balance sheets of the corporate sector and public sector banks. This in turn, limits future private investment, thus completing and perpetuating a vicious cycle," the Survey says.
 
The Survey predicted a persistent, encompassing, and creative incrementalism, qualitatively similar to that already on display in the nine months of the Narendra Modi-led government. Overall, the Survey laid out a coherent policy agenda that differed in significant ways from the one currently being implemented. 
 
The Survey also listed four factors for the higher growth. First, the Government has undertaken a number of reforms and is planning several more and their cumulative growth impact will be positive. A further impetus to growth will be provided by declining oil prices and increasing monetary easing facilitated by ongoing moderation in inflation. 
 
Here are the highlights of the Economic Survey...
 
Acceleration in growth
Growth in FY15 settled at 7.4%, mostly driven by the industry and services sector
 
Declining price levels
WPI has registered moderation at 3.4%, while CPI has moderated to 6.2% up to December 2014.
Structural shifts in inflation are due to lower oil prices, deceleration in agriculture prices & wages and improved household inflation expectations
 
Stagnating trade outcome
The trading environment is becoming more challenging as the buoyancy of Indian exports has declined with respect to world growth, and as the negotiation of mega- regional trading arrangements threatens to exclude India
 
Improved Balance of Payments
Current account deficit (CAD) declined sharply from a record high of 4.7% of GDP in FY13 to 1.7% of GDP in FY14, which increased marginally to 1.9% in H1 FY15
 
Foreign exchange reserves increase to $ 328.7 billion at end January 2015
 
Fiscal deficit is expected to be contained at 4.1% as mentioned in the budget estimates.
 

 

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‘Make in India’ will fail without a better Companies Act
Between April-December 2014, new companies incorporated have dropped by over 40%. By subjecting private companies to restrictions on lending, restrictions on dealing with related parties, the new Companies Act has completely throttled the need to ease doing business in India 
 
The ambitious ‘Make in India’ campaign by Prime Minister Narendra Modi to make India a manufacturing hub will increase investment and employment. One would expect that this will mean an increase in the number of companies being incorporated since foreign investment in India through companies is common and preferred. However, as per data available on the Ministry of Corporate Affairs’ (MCA) website the number of new companies incorporated between April to December 2014 has dropped by over 40% over the corresponding period in the last year (http://mca.gov.in/MinistryV2/CompStat_IFCompLLP.html). On the contrary, the number of limited liability partnerships (LLPs) incorporated has gone up by 67% during the same period. Companies Act was made onerous by the Congress-led government.
 
The difficulty of doing business in India affects foreign direct investment or FDI. The provisions of FDI framed by the Reserve Bank of India (RBI) allow investment in India only through a company under the automatic route. Of course, investment through other vehicles such as LLPs is also allowed after seeking necessary approvals from the government, but company is the most preferred vehicle since it involves lesser timeline and lesser pre-conditions. It is also from here that the real problem starts.
 

Effect of the Companies Act

 
According to the Annual Census on Foreign Liabilities and Assets of Indian Companies: 2013-14  published by the Reserve Bank, out of the 13,686 companies which filed foreign liabilities and asset (FLA) in 2013-2014 to report inward direct investment, 13,313 companies were unlisted. Out of these unlisted companies, majority companies are usually private companies and for obvious reasons till the Companies Act, 1956 (Act, 1956) was in force. With a number of exemptions under the Act, 1956, private companies were the most preferred route for FDI in India. In fact, most of the renowned foreign companies doing business have set up private companies in India such as Coca Cola (India) Pvt Ltd, Ebay (India) Pvt Ltd, IBM (India) Pvt Ltd, Yahoo Software Development (India) Pvt Ltd. However with the enactment of Act, 2013, the dynamics of doing business in India have been topsy-turvied since the Act, 2013 treats private companies at par with listed companies! 
 
Where world over it is common to see that private companies are least regulated, India seems to be following a convoluted approach by first subjecting the private companies to very strict regulation and then providing for exemptions. 
 
The Companies Act, 1989 and Companies Act, 2006 in the UK has provided a number of exemptions to small private companies. In fact, the JJ Irani Committee Report, way back in the year 2005, underlined the need to deregulate private companies. However, the Act, 2013 has instead done the opposite. 
 
By subjecting private companies to restrictions on lending, restrictions on dealing with related parties, the need to ease doing business in India to make the ‘Make in India’ campaign a success has been completely throttled. Of course the Government did try to rectify this botch up by introducing certain exemptions to private companies albeit with certain conditions, even that has been pending since July, 2014. It is thus no wonder that the numbers for incorporation of companies in India have shown such a drastic fall.
 
The only way ahead to savour any chances of making business in India any easier is by making amendment to the Act, 2013 first by providing much needed exemptions to private companies. The Government instead has directed its attention to other legislations such as land acquisition bill, GST Bill which will assume importance only when there are enough companies to do business in India. By subjecting private companies to face similar brunt of regulations as listed companies, it is the Act, 2013, which needs top most attention when it comes to making amendments.
 
(Nivedita Shankar is a Company Secretary and works as senior associate at Corporate Law Services at Vinod Kothari & Company)

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COMMENTS

Ramesh Toshniwal

2 years ago

Will u treat a patient only after he dies. Private ltd cos are dying under a government which claims to improve ease of business. Do the government want that only the big companies survive and no new aspiring business should dare to a company. Hale for all ,

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