Pranab seeks opposition, states’ help for rolling out GST

New Delhi: The Centre today sought cooperation of the opposition in Parliament and states for introduction of Goods and Services Tax (GST) from next fiscal, saying the move would help control fluctuation in prices of items including petrol, reports PTI.

"The bill (for constitutional amendment) has to be introduced in this session, has to be examined by the standing committee, it has to be ratified by 15 states.

Otherwise, there will be another delay... I seek cooperation of the entire House," finance minister Pranab Mukherjee said while replying to the discussion on a motion on inflationary pressure on the economy in Lok Sabha.

He said the empowered committee of state finance ministers (FMs) are meeting on GST today.

"The empowered committee of state FMs, they are meeting... if we can do that not only petroleum products, but also the entire range of products that can be covered will be under (the new tax) mechanism and it will be a win-win game," he said.

He added that the levies on petroleum products account for 34% of states' revenues.

"Petroleum sector is an important revenue yielding measure, 34% of the states' revenues comes from petroleum products. In 2009-10, Rs 72,000 crore was raised by states. I know petroleum prices should be rationalised, but how can we do it?" he said, suggesting that GST would help bring down volatility in prices of petrol in domestic markets.

Mr Mukherjee also sought the opposition's cooperation for including even petrol in GST.

However, the discussion so far on GST between the Centre and states has excluded petroleum products from the purview of new indirect tax regime.

State finance ministers are meeting here today to discuss the Centre's proposal of a 3-rate structure for roll out of GST from 1 April, 2011, which would subsume various indirect taxes.

They will also discuss the constitutional amendments required to roll out this new indirect tax regime, which will replace the excise duty and service tax at the central level and value-added tax at the state level, besides the cess, surcharges and local taxes.

He asked for collective effort of the opposition to help him bring the constitutional amendments, reminding that the BJP in its own manifesto in the last Lok Sabha elections had promised to roll out GST.

"If we can do it (introduce GST) then the entire spectrum of services tax, excise and value added tax (VAT) will be brought under the constitutional mechanism. We shall have to do it collectively."

Last month, finance minister Pranab Mukherjee proposed a three-rate structure for GST-20% for goods, 12% for essential goods and 16% for services.

States and the Centre are proposed to equally tax the common base of goods and services.


Takeout financing: Will foreign banks gain more than their Indian counterparts?

In yet another attempt to ensure more funding  for infrastructure, the RBI last month opened up the sector to the ‘takeout financing’ scheme. However, a few industry sources believe this move will help foreign lenders more

The Reserve Bank of India (RBI) has issued banking guidelines for 'takeout financing' in the infrastructure sector. While the step has been taken to ensure easy infrastructure funding, it will depend on how much domestic banks will show interest in this scheme. According to bankers, the model will be more beneficial for foreign banks.

Last month, the RBI reviewed its External Commercial Borrowings (ECB) policy and put in place a scheme for takeout finance. Accordingly, it decided to permit takeout financing arrangement through ECB, under the approval route, for refinancing of rupee loans availed from domestic banks by eligible borrowers in the seaport & airport, roads (including bridges) and power sectors for the development of new projects.

Under the new process, the corporate developing the infrastructure project should have a tripartite agreement with domestic banks and overseas recognised lenders for either a conditional or unconditional takeout of the loan within three years of the scheduled Commercial Operation Date (COD).

"I am not even sure whether the model will take off at all. The model proposed will not benefit domestic banks or borrowers. It will help only foreign banks in this process," said an investment banker, who did not wish to be named. A number of sources from domestic banks echoed the same view.

"It is not a bad idea in theory. However, in practice, I doubt whether many banks would want to offer this route. They are right in a way to say that the model would prove more beneficial to foreign lenders or banks," said Clyton Fernandes, senior analyst, Anand Rathi Securities.

However, this move might also help domestic lenders. "It will help them (local banks) manage their asset-liability mismatch in a better way. By selling these loans, they can also earn a certain fee," said Mr Fernandes.

On the other hand, credit growth and loan-book growth numbers are likely to be lower if banks opt for takeout financing. "Certain investors are looking at a headline growth number (maybe 20% or 25%), so such investors may be a little disappointed. Thus the growth number would be impacted, but on the other hand, it would be good because right now a number of banks have a number of instances of mismatches in assets and liabilities," said the analyst.

Therefore, going forward, are domestic banks expected to go for takeout financing aggressively? The future and success of this scheme will depend on the credit demand across sectors.

"In a way, if economic growth is strong and credit demand is more broad-based, I think that domestic banks would not be much worried. If all the demand is coming from infrastructure, I don't think banks would want to take these loans off their books. If credit growth is going to be more broad-based, they may go for takeout financing," added Mr Fernandes.

"For any new scheme or regulation, if the banks are not happy, they do approach us. However, we have not heard anything from domestic banks on takeout financing. Thus, they should have no issues with it," said an Indian Banks' Association (IBA) official, who preferred anonymity.


RBI punishes KC Chakrabarty, but move raises critical issues

RBI’s decision to strip Dr KC Chakrabarty of many important portfolios raises broader issues about transparency in the central bank’s functioning

The Reserve Bank of India's (RBI) decision to strip deputy governor Dr KC Chakrabarty of many of his powers on 3rd August has caused a flutter in the banking and financial world. While there are plenty of those who correctly argue that the outspoken Dr Chakrabarty had no business expressing a view different from the official line so soon after the monetary policy (he said that the central bank would have no option but to raise its key policy rates more to control runaway inflation), it has also raised issues about the central bank's independence and whether contrary views are permitted within the central bank.
On 3rd August, the RBI stunned bankers by stripping Dr Chakrabarty of important portfolios such as urban and rural cooperative banks, administration, personnel management, Right to Information and Payment & Settlement Systems.

We learn that Dr Chakrabarty has been very vocal about his views within the bank and even had a spat of sorts with some bank chiefs in a meeting prior to the announcement of the credit policy. Bankers tell us that the RBI itself was keen to raise rates more aggressively, but softened its decision after a meeting with the finance ministry.
These bankers say that while the RBI governor may have publicly protested the finance ministry's move to encroach on its autonomy with regard to settling jurisdiction issues, it is a fact that the governor takes cues, if not instructions, from the finance minister before deciding interest rate changes. This time too, there are rumours that the RBI softened its stand after a meeting at Delhi.
Interestingly, while governor D Subbarao may have stripped Dr Chakrabarty of key portfolios, he personally was a hot topic of discussion on the banking grapevine. Having taken a stand against the finance ministry's views on the Security & Insurance Laws (Amendment and Validation) Bill 2010 on regulatory jurisdiction, there were rumours that Dr Subbarao would step down. However, the Bill has been passed without any such move on his part.
Interestingly, while Dr Chakrabarty's outburst was an anomaly, he has plenty of sympathisers who are raising issues that are bound to haunt the RBI in the coming days. For instance, many question whether the RBI allows any dissent in the discussion process. They also want some transparency and accountability in its decision-making process. For instance, it is pointed out that barring the European Central Bank, most leading central banks publish monetary policy discussions in the public domain after a lag of six to eight weeks. It is these discussions that reveal to the world whether a specific central banker is a policy hawk or a dove. More importantly, they are forced to be accountable for their views and argue them out.

Without any transparency whatsoever, in any aspect of RBI's functioning, there is no way for people to know the process of arriving at policy decisions. For instance, is monetary policy dictated by a powerful governor or the result of a frank and open discussion? Does the RBI then stick to its decisions or is it influenced by the finance ministry to modify its stand?

If governor Dr Subbarao is really keen on preserving RBI's autonomy, voluntary disclosure and more transparency will be an important step. If the RBI decides to release its discussions with a lag, it will be the best way of guarding against interference and influence by the finance ministry.

By the way, if the RBI does this, it must take care not to go the way of the Securities and Exchange Board of India. The capital market regulator took the bold decision to put its board agenda and the minutes of its decisions in the public domain. But the manner in which it functions and what is reported to the public has done nothing to enhance confidence in its functioning.



Mahesh Khanna

6 years ago

Expecting the details of the nasty intruge into the ivory tower,which could have stripped the important portfolios of Dr. K.C. Chakrabarty'.

Sara Najmi

6 years ago

The RBI Act though amended many a time has not seen any change to ensure its autonomy&indepedece in relation to Monetary Policy . No wonder that RBI Governor behaves like an extended Arm of FM. Monetary Policy should under the Act be put in the Exclusive Domain of the Central Bank. Till this happens it is not possible to expect the Centrl bank to do what it must keep doing.

Mahesh khanna

6 years ago

A clean honest man would have to meet such a fate some day or the other but it has come too early.


6 years ago






P K Biswas

6 years ago

Looking forward to more details from Sucheta Dalal, who was instrumental in exposing the scam in 1992. RBI and Finance Ministry have always packed the top positions by choosing sycophants and yes men/women.

B Rajaram

6 years ago

We love staid bankers who look solid. Central Bankers had maintained an image of mystery and a dignity of the office which I believe , are essential in the otherwise , one minute a news story world with attention span of no more than a few minutes. Practical reality of interaction with Government and working together cannot be overlooked. No one but the TV channels and TRP business benefit from open spats at higher rungs in the name of transparency. The dignity of the institution too will degenerate as it is happening with the Parliament after TV coverage. We are still puerile and not mature enough.


6 years ago

After the departure of Dr.Y.V.Reddy, RBI has become another department of the Finance Ministry seeking and obeying instructions and abdicated its responsibility of safeguarding the interest of the depositors.Dr.Reddy was not given extension for the sole reason of his independent stand and his understanding of the future and taking preventing actions well in time to save the economy.The present governor has no clue of what is coming and that is why in at many occasions he was pleading his ignorance of what is going to happen.Since liberalization we have never had such a pliant RBI Governor and the present inflation is mainly due to the faulty actions of the present Governor.
Unless RBI takes an independent view and take drastic action without pressure by interested industrial lobbies we will face the same problem that has resulted in the global financial meltdown.
I also like to recall the comment made by an Nobel laureate that Had US got a Governor like Dr.Reddy they would not have faced the sub-prime crisis.

Ch kalyanachakravarthy

6 years ago

i wish to know what is the exact order issued on Dr Chakraborthy, will RBI release that to the public ??. Is the monetory or credit policy by RBI is such hush hush affair ???


6 years ago

A very indelicate move by the RBI.
It would be advisable to publish the internal discussions after a time lag of 6 weeks. FRB of USA follows this - a procedure which was adopted more than a decade ago.
Dy governors are perceived by the public as representatives of the RBI and not as heads of any particular dept within the organisation. While a dy Governor may not generally stray into areas not of his direct responsibility, it should not be a water tight division of responsibility. Some broad working arrangement among the Dy Governors can be laid down.

R Balakrishnan

6 years ago

RBI has DG's and ED's. Surely, one of the levels is superfluous. And, of late the RBI seems to be clearly functioning like a subsidiary of North Block. RBI has a bloated self opinion and worldwide Central Banks have failed again and again. They do not even what is inflation.
Glad that Mr KC is outspoken. We need more like him and not wimps who are ED/DG's.

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