Economic Reforms: INDIA

Question 0

Explain GAAR:

Answer 0

The General Anti Avoidance Rule (GAAR)- proposed by the then Union Finance Minister Pranab Mukherjee during the annual budget 2012-13- is anti-tax avoidance rule, drafted by the Union Government of India, which prevents tax evaders, from routing investments through tax havens like Mauritius, Luxemburg, Switzerland.

According to the draft, GAAR will come into effect from 1 April 2013. As per the guidelines, FII not opting for treaty benefits and ready to pay taxes will not come under GAAR, but those who do opt for dual taxation avoidance agreements will come under its purview.

The Union Government was forced to defer the rules until 1 April 2013, as foreign investors had expressed their reservation about the language used in the rules.

Investors had maintained that the ambiguous language used in the draft of the GAAR could lead to the misuse of the rule.

Question 1

Enumerate important Economic Reforms India should look into in 2014

Answer 1

1. FDI: in retail sector:
   - Building up consensus in the Parliament and allowing MULTI BRAND FDI in the retail sector. This would eliminate the cascading profit margins of the numerous middlemen in the supply chain.
   - The elimination of middlemen–coupled with healthy competition between a few foreign retailers and well-established domestic chains– would keep the price rise in check.
   - This would also send the signal that economic reforms are back on track.
2. GST: As soon as possible:

• Introducing a single Goods and Services Tax at the earliest, so that the cascading effect of the multiplicity of taxes and the attendant delays in the supply chain can be avoided, exerting a dampening effect on the price rise.
• The speedy implementation of GST also send a positive signal to industry that the government meant business.

3. PSUs: disinvestment:

• Expediting the disinvestment of public sector undertakings– an economic reform agenda that has long remained on the back burner.
• This will not only promote operational efficiency, but give a one-time boost to lower budget deficits at least for a few years.

4. Corruption and Scams : Fast track handling of cases:

• Fast track handling of corruption and scam cases which will give a positive signal to industry that all businesses are treated fairly.
• This will go a long way towards reviving the animal spirits which seem to have dimmed somewhat at this time.

5. Unemployment : Accurate statistics for real time policy making:
   - Publishing unemployment rates at regular intervals to help various stockholders to assess the economic situation frequently and to calibrate their policy initiatives.
6. APMC : Bring competition:
   - Competition in the monopolistic APMC ( Agriculture Produce and Market Committee ) wholesale markets would lower trader margins and keep price rise in check.
7. RBI : Selective credit control/ Prudent Manipulation of Interest rate
   - RBI engages in selective credit control, by making banks charge higher rates on working capital loans for private food warehouses, particularly when food price inflation raises its head again, and thereby DISCOURAGING THE HOARDING OF FOOD SUPPLIES.
8. MGNREGS : Improving the output delivery:
   - Improving the output delivery of MGNREGS so that quality construction of bunds, roads, and wells would increase not only employment but agricultural productivity as well.
9. New Technology/Infrastructure/lowering customs duty:
   - Infusing new technology into agriculture (GM crops); building up the agriculture infrastructure; lowering customs duty.

Among others these are the few steps required to meet the future demand, for population growth has outstripped growth in the food grain production by an average of 0.2% per year for the past two decades.