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Friday, July 11, 2014

But Jaitley has Set the Stage for Bold Reforms

Jul 11 2014 : The Economic Times (Bangalore)
BY INVITE - On an Even Keel, But Jaitley has Set the Stage for Bold Reforms

No sector-specific bold reform, but no adverse tax proposal either. This is what marks Finance Minister Arun Jaitley's maiden Budget. It is a Budget on an even keel. The markets, which had initially shown some disappointment, soon returned to their ebullient mode.It is important to recognise that the new government has been in office for only six weeks. While the grander vision of the government was presented in its manifesto, the Budget essentially reflects the same vision. It is perhaps in this context that some critics feel that the Budget lacked any new radical reform or proposal. It is only in the following Budget that one would be able to offer a fair assessment of r this government's performance.
Putting in place suitable tax benefits for i REITS and Infrastructure Investment Trusts such as the pass-through status, clarity on capital gains tax and income be l ing tax-free in the hands of investors are good measures. Similarly , the thrust on I housing by increasing allocations for both rural and urban housing reflects the commitment to alleviate the shortage of housing in the country . The enhanced fiscal benefits by `50,000 each on the principal and interest components on a housing loan will be beneficial for the middle class.
The disappointment is on FDI proposals.
India is in dire need of funds, especially if it wants to once again attain GDP growth rates of 6-7%. The government has also acknowledged that it needs to improve the ease of doing business in India.
In the defence sector, FDI so far has been negligible. If India wants to reduce its defence imports and increase manufacturing and technology know-how, increasing FDI to 49% will not encourage much foreign investment. There is hardly any difference in shareholder rights between 26 and 49%. I believe the government should have offered 51% FDI in defence, with approvals on a case-by-case basis.
A limit of 49% FDI in insurance had first been proposed in 2004. One fails to understand why this budget has proposed an increase to 49% in insurance through the approval route when 26% FDI is allowed under the automatic route.
Overall, Arun Jaitley has made a good beginning and one looks forward to bolder measures over the course of the next five years of the government.

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