The Hindu – 17 July 14 – For efficient financial markets
The impact of the budget on the financial sector needs to be assessed not just on the basis of allocations made and tax concessions given. < what else is it the basis for??>> From merely being a statement of government accounts, it has become the forum for the government to announce its economic policies for the year. Another important reason why the budget lays more stress on policy matters is that the government has become more of a facilitator than a direct provider of money. The budget’s importance is thus seen in its enabling role. < What is this enabling role?? >> The various announcements concerning the financial sector, for instance,<1.> aim to bring more efficiency to the capital market, the insurance sector and banks, <2.> provide them with resources and < 3.> more generally equip them to function in an increasingly competitive environment, all under robust regulations. Along the way, < 4.> policy logjams are sought to be cleared. < for example>> <A> The composite limit for foreign direct investment in insurance is being raised to 49 per cent from the present 26 per cent. By way of safeguards, it has been proposed that even after the increased infusion of foreign capital, the companies will remain under Indian management and control. The relaxation is overdue, but it is far from certain whether the big insurance companies abroad that remain stressed very badly during the crisis will invest in India in a big way.
<B> For public sector banks that require Rs.2,40,000 crore to meet the Basel III regulatory capital requirements by 2018, the government has proposed equity dilution to domestic retail investors in a phased manner. It will, however, retain majority ownership at 51 per cent, and control. Obviously, more clarifications are needed as the government’s stake in the top-performing banks has come down to below 60 per cent. The remaining 8 to 9 per cent to go down to 51 per cent may not fetch the huge sums required, especially because continued government ownership will dampen valuations. The government has, however, promised greater autonomy to these banks. <C> The budget has proposed tax incentives to investors in Real Estate Investment Trusts and Infrastructure Investment Trusts. <D> The report of the Financial Sector Legislative Reforms Commission will be discussed with stakeholders. <E> In consultation with the RBI, a modern monetary policy framework to meet the requirements of an increasingly complex economy will be put in place. <F> The scope of the ADR/GDR regimes will be expanded. <G> The introduction of uniform KYC norms which can be used across the entire financial sector, and a single demat account for all investments, are customer-friendly measures and should smoothen the way for investors.
Q: ‘The impact of the budget on the financial sector needs to be assessed not just on the basis of allocations made and tax concessions given but as the platform for delivery of economic policies.’ Discuss with suitable proposals from the Budget 2014.
In which topic of the CS Mains syllabi, can this article fit in? –
- Paper -2, Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- Paper -3, Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment. ;Inclusive growth and issues arising from it. ; Government Budgeting.
- Paper -4, Utilization of Public funds; Status and problems; laws, rules, regulations and conscience as sources of ethical guidance; accountability and ethical governance; Work culture, Quality of service delivery
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