Amid mounting pressure from India Inc and fears of a rating downgrade by Standard & Poor’s looming large, the United Progressive Alliance government may opt for reforms like partial decontrol of diesel prices, introduction of the Direct Taxes Code (DTC) Bill and the new Companies Bill in the monsoon session of Parliament. It may also tweak the norms for foreign direct investment (FDI) in single-brand retail.
However, reforms related to FDI in multi-brand retail, pension and commodity futures markets would have to wait, as no consensus has been reached on these.
With belligerent ally Trinamool Congress supporting Pranab Mukherjee’s candidature in the Presidential elections, the government is now likely to woo the alliance partner on contentious reforms, sources say. However, officials in the Prime Minister’s Office (PMO) said the government was walking a tightrope on these reforms, and it was in no mood to confront its allies.
Under these difficult circumstances, the government is weighing partially decontrolling diesel prices to meet the Budget target of keeping subsidies at 1.9 per cent of the gross domestic product this financial year. However, this move, too, is likely to face stiff opposition from political parties, as both wholesale price- and retail price-based food inflation are in double digits.
The government has already floated a Cabinet note on the new Companies Bill, after it was vetted by a Parliamentary panel. It may, however, find it difficult to table the food security Bill in the monsoon session of Parliament, which starts next month. A Parliamentary panel looking after the food Bill is likely to send its report to the government in 30-45 days. Therefore, tabling the revised Bill in the session, after securing the Cabinet’s approval, might be difficult, said sources privy to the development.
However, the DTC Bill may come up in the monsoon session. The General Anti-Avoidance Rules (GAAR) would also be included in the DTC Bill, to be tabled in Parliament. A panel under tax expert Parthasarthi Shome would, however, reframe the draft rules to address concern raised by foreign institutional investors and countries suck as Mauritius.
The Goods and Services Tax (GST) Bill ran into rough weather after an empowered committee of state finance ministers had asked the finance ministry to first release compensation for a cut in central sales tax from four per cent to two per cent. Though former finance minister Pranab Mukherjee had approved the release of the compensation, so far, the funds have not been released. States have been asking for Rs 19,000 crore of compensation for 2011-12, of which only Rs 6,000 crore was given to these.
A Parliamentary standing committee on finance, headed by former finance minister Yashwant Sinha, is yet to give a report on the constitutional amendment Bill on GST, for which it has sought feedback from stakeholders.
In its last two meetings, the Cabinet had deferred a Bill to amend the Forward Contract Regulation Act (FCRA) to give more teeth to the Forward Markets Commission and open the doors to options trading in commodity futures.
A proposal to allow FDI into domestic airlines is also stuck.
A senior PMO official said, “It (reforms) will obviously not be a Diwali dhamaka, but steps would be taken incrementally.” On reforms that need Parliamentary approval, the government’s approach would be to reach a consensus, rather than any confrontation, he added.
