After corporate tax cut, FM Sitharaman hints at major reforms in land and capital

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Updated: November 6, 2019 6:25:47 AM

Says ‘firms of size and stature’ to relocate to India; to address issue of market-distorting small savings rates

RBI, real estate sector, Nirmala Sitharaman, China, RCEP pact, Shyamala Gopinath committee, US china trade war, IL&FS crisisFinance minister Nirmala Sitharaman (centre) with The Indian Express executive editor (national affairs)
P Vaidyanathan Iyer and national opinion editor Vandita Mishra at the Express Adda in Mumbai on Tuesday express photo: Nirmal Harindran

Finance minister Nirmala Sitharaman on Tuesday said the government was talking to “companies of stature and size” who had left China to woo them to set up base or relocate here and was in possession of “very reliable intelligence that they will indeed choose India”.

Considering that Vietnam has emerged as an attractive investment destination for multinational firms, she said the east Asian country, too, had certain limitations like the saturation in its labour market. “I am keeping in mind (Vietnam’s) limitations to (hardsell) ourselves (as) attractive destination for investors. So, we are factoring in many things, based on fairly reliable business information, and are putting them into a scheme of offers,” she said.
India recently slashed corporate tax rates to make it competitive among peers.

Speaking at the Express Adda organised by The Indian Express here, she also hinted that the banking regulation Act may be amended to enhance the RBI’s supervisory and regulatory powers over cooperatives and other non-bank entities that practically perform like banks.

Saying India’s decision not to join the 16-nation RCEP pact at this juncture doesn’t amount to its foregoing opportunities to be more integrated with the global value chain or being inward-looking, the FM asserted that the Modi 2.0 government won’t miss the bus again when it comes to taking “reform-based actions” to cut input costs of the Indian industry and make it more competitive.

 

 

Speaking at the Express Adda organised by The Indian Express here, she also hinted that the banking regulation Act may be amended to enhance the RBI’s supervisory and regulatory powers over cooperatives and other non-bank entities that practically perform like banks.

Saying India’s decision not to join the 16-nation RCEP pact at this juncture doesn’t amount to its foregoing opportunities to be more integrated with the global value chain or being inward-looking, the FM asserted that the Modi 2.0 government won’t miss the bus again when it comes to taking “reform-based actions” to cut input costs of the Indian industry and make it more competitive.

Noting that India Inc’s competitiveness is stultified by a broad range of factors “extraneous to them”, Sitharaman admitted that a lot of work was still pending in terms of reduction of cost of capital and electricity and easier land-use policy and stressed that these would now be taken up by the Centre and states with a “sense of urgency”.

On the high cost of capital to the industry, the minister indicated a new regime was in the offing where the “well-intentioned” policies like high small savings rates won’t impinge on a move towards more market-determined interest rates and more expeditious monetary transmission. Steps are being taken to deepen the debt market and increase retail participation in it. One reason for capital being expensive to private investors is the general government “squeezing out” the borrowing market.

“The Shyamala Gopinath committee report talked of opening up of interest rates… We have to find ways to make capital less expensive while also continuing to support senior citizens and (other small savers)”, the minister said.
Analysts believe that market-aligned small savings rates would create a virtuous cycle of affordable rates for investors – from state governments which can now tap more into the small savings kitty rather than market to corporates whose borrowing rates could come down due to the wholesome impact of lower bank rates and reduced government borrowings.

Given the investment famine, Sitharaman’s statement that a government panel had firmed up a list of companies to be talked to in the context of the search for new manufacturing/investments destinations by the likes of Apple (she did not name any firm) owing to the US-China trade war is significant. New Delhi is concerned that smaller countries like Vietnam and Bangladesh are vanquishing the export markets being vacated by China leaving India high and dry.
India had, for instance, a head-start over Vietnam in mobile handsets manufacturing in 2010, but the east Asian country then left India way behind and emerged as major exporter of these products.

On the IL&FS crisis, the minister said the government was keen that no more such institution would fall of the cliff. “The government is concerned why we did not sense it earlier. We need to detect such potential failures before it is not too late”

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