The imminence of Uttar Pradesh Assembly elections, the government’s Arunachal Pradesh fiasco and the recrudescence of violence in Kashmir have already raised the political heat ahead of Parliament’s monsoon session beginning today, but it could still come about as the most productive for the Modi dispensation in terms of legislative outcome and economic reforms. The Constitutional Bill for Goods and Services Tax (GST) looks all set to be passed by the Rajya Sabha as several major parties outside the alliance have pledged support to the crucial tax reform and broad consensus has clearly emerged in its favour among state governments.
Apart form getting past a hurdle on the way towards GST, the monsoon session will likely see the passage of another important Bill that seeks to amend both the Sarfaesi Act and the Debt Recovery Tribunal Act.
This would complement the legislative effort (which got a leg-up in the Budget session when the bankruptcy code was passed) to make resolution of bad loans quicker and recovery by creditors more efficient. For fear of the GST Bill passing muster among RS members sans its support, the Congress party has clearly relented and is understood to have told the government during deliberations over the last weekend that if its demand for a capping the GST rate (at 18%) is accepted in “letter and spirit,” it could vote in favour of the GST Bill. This means the Congress is no longer insisting on a rate ceiling in the Constitution, but could come on board if the Finance Act or a gazette notification mentions it. Unlike income taxes, indirect taxes (like GST) are seldom mentioned in law and are put into effect via executive orders. The government would have no problem in acceding to the latest demand from the Congress because it is rather easier to change a tax rate specified in Finance Act or in an executive order.
In fact, the legislative output of Parliament, which plunged during the final years of the UPA-II, saw a major improvement in the Budget session which cleared both the bankruptcy code and real estate regulation Bill.
Key Bills in Parliament
* GST Bill in RS seeks to amend the Constitution to let states to tax services and Centre tax sales beyond factory-gate
* Composite Bill to amend 4 laws relating to debt recovery tribunals & stamps and depositories: the key objective to expedite resolution of bad loans
* Bill to ban benami transactions and make penalties for violations stricter
* Consumer protection Bill aimed at widening the ambit of and modernising the extant law
* Electricity Bill to segregate distribution network and supply biz & let multiple supply licensees
Government functionaries say that while several reform initiatives have been taken by the government in the administrative and executive domains, its legislative agenda used to be thwarted by an “obstructionist” opposition. They cited major relaxations in the FDI regime that “made India one of the most open economies” in this area, the aggressive roll-out of the direct benefit transfer scheme, Skill India, Start-up India, Mudra Bank Loan Scheme, the capex drive in roads ports and railways and special packages to labour-intensive sectors like garments and piecemeal labour reforms among the measures taken to get the economy into a higher growth trajectory.
A joint parliamentary committee which examined the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, is expected to submit its report early in the monsoon session. The Bill seeks to amplify the secured creditors’ first right to auction assets in order to recover the dues giving them undisputed precedence over state laws, overhaul the functioning of the debt recovery tribunals to avoid huge pendency of cases with them and avoid frivolous appeals by defaulting companies by making it mandatory for them to deposit half the loan amount with the tribunal before filing an appeal. Besides, the Reserve Bank of India’s regulatory powers over asset reconstruction companies will be strengthened.
Along with the bankruptcy code and the institutional structure it would entail, these amendments to Sarfaesi and DRT Acts, would go a long way in making winding up of firms faster and easier and expediting debt recovery. Gross non-performing loans of banks in India are nearing peak levels and may be in range of 8-8.5% by March-end, rating agency Icra said recently.
With the bankruptcy code, the delaying tactics of corporate borrowers when it comes to loan repayment will be foiled. Once the rules under the code are notified and institutions are built, lenders would more easily take over defaulting companies and take management decisions to trigger business recovery and in cases where it is not possible, opt for liquidation. Along with secured creditors, greater rights are being accorded to unsecured creditors and bondholders who currently have no access to a borrower’s collateral. These steps, in concert, would help in the deepening the corporate bond market, which can facilitate long-term financing of infrastructure projects, besides encouraging debt funding by private equity and venture capital funds who would often like to complement their equity exposure in firms by extending loans.
Last week, after a meeting with finance minister Arun Jaitley and new parliamentary affairs Ananth Kumar on the GST Bill, leader of opposition in the RS, Ghulam Nabi Azad said: “We had an in-depth discussion. We gave our point of view, they gave theirs. We put forth our apprehensions and suggestions. We will get back to our leadership and they will get back to their leadership and then we will meet again.”
The Congress has been stubborn in demanding some crucial changes in the GST Constitutional Amendment Bill, including mentioning the GST rate ceiling in the Constitution. The government has indicated that it is willing to drop a plan to introduce a 1% tax on interstate transactions, which was meant to help “manufacturing states.”