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UPA gets moving on reforms

UPA gets moving on reforms

New Delhi: Finance minister Pranab Mukherjee on Tuesday pushed ahead with the United Progressive Alliance (UPA) government’s economic reforms agenda by introducing new legislation on banking and indirect tax even though the government is under pressure in Parliament on account of political controversies.

Legislation to reform banking and a Bill to amend the Constitution to facilitate goods and services tax (GST) were introduced in the Lok Sabha on Tuesday, both budget promises. They will be followed by more Bills to reform pension and bring some more areas of banking and financial services in line with requirements, the minister said in the Lok Sabha.

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The developments came in the wake of the UPA being subject to pressure in Parliament on account of recent political controversies, which could make it more challenging for the government to drum up support for the legislation. The UPA, which could not transact any major legislative business during the winter session due to a belligerent opposition, has had to cut short the budget session. Both Houses of Parliament are to be adjourned until further notice on 25 March. The budget session was initially scheduled to go for a three-week recess on 16 March before reconvening from 4-21 April.

“The confidence really stems from the fact that the national interest is above politics," said Manish Tewari, Congress party spokesperson. “It is important to harmonize your tariff regime with the global tariff. These are issues above politics. I hope the opposition would heed this imperative and will not hold it ransom to partisan politics."

The government has to show determination, said Balveer Arora, former head of the political science department at Jawaharlal Nehru University, on the UPA’s decision to press ahead with economic reforms.

“It cannot be seen as lacking will and determination, especially at a time it is gearing up to crucial state elections," he said. “But (whether) the firmness and the will it shows will yield results has to be seen."

The banking reforms Bill was introduced almost six years after the UPA unsuccessfully tried to push it through Parliament in its first stint in power from 2004-09.

The highlights of Tuesday’s banking Bill are that it arms the Reserve Bank of India (RBI) with the extra powers it wants to allow industrial groups to float banks (Mint, 3 March). The Bill gives RBI the power to supersede a bank’s governing board for up to a year, ask for financial and other details from associate companies of banks, and also insulates the banking sector from the provisions of the Competition Act and the Competition Commission of India. RBI’s absolute powers over banks has been insulated from any other legislation or regulator.

Other than empowering RBI to deal with an expansion of the banking industry, Tuesday’s Bill also allows banks to issue more instruments to raise capital and brings voting rights in private banks in line with shareholding. In nationalized banks, the maximum permissible voting rights have been enhanced to 10% from the current ceiling of 1%.

Reforms in the financial sector were supplemented by a new initiative to break the deadlock between the Centre and the states in GST negotiations. The constitutional amendment Bill on GST introduced on Tuesday proposes a flexible superstructure for GST and leaves details to be worked out at a later stage.

GST aims to build a common market in India by scrapping tax barriers between states. The introduction of GST is expected to bring about a more competitive business environment and eventually lower prices for consumers.

An important outcome of Tuesday’s Bill on GST is that some of the people engaged in the deadlocked negotiations are bound to change.

“The constructive thing is the shift in the forum for debate on GST to a parliamentary standing committee from the empowered committee of state finance ministers," said Satya Poddar, partner at audit and consulting firm Ernst and Young Pvt. Ltd. “The empowered committee had become dysfunctional."

“Ultimately, it is just tabling of the Bill. It will go to the standing committee, where a consensus could be hammered out. A lot of differences will get ironed out there," Tewari said.

The GST Bill kept alcohol and petroleum derivatives such as diesel and natural gas out of the purview of GST. In addition, the Bill tried to offset states’ fears of losing fiscal autonomy by adding a provision that the top decision-making body would take a consensus approach. In its first draft of the Bill given to states in 2010, the Centre gave the Union finance minister special power to veto decisions of the GST council, the top decision-making body.


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