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Govt mulls policies to counter global crisis

By Surajeet Das Gupta & Siddharth Zarabi in New Delhi
Last updated on: October 20, 2008 08:39 IST
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The government is discussing a number of policy measures to insulate India from the impact of the global financial crisis including further banking reform, industrial de-control, auctioning all loss-making public sector units,  foreign investment in retail, amending labour laws and notifying important pending legislation like the Delhi Rent Control Act.

These and other measures (see chart), sources said, have been put up for discussion by the government  to ensure that the Indian economy returns to a trend growth rate of 9 per cent from the next financial year.

India recorded annual GDP growth of 9.4 per cent in 2005-06, 9.6 per cent the next year, and 9 per cent in 2007-08. Growth projections for the current year are markedly more cautious on account of lower expectations from agriculture, industry and services.

'Insulation' pOLICIES
(What's on the table for discussion)
Measure

Intention

Minority stake sale
in profitable, smaller
PSUs to public,
auction of loss-
making ones
Raise resources for
national investment
fund, help firms expand
business, market
boost equity
Industrial
de-control
Sugar, fertiliser, drugs,
petroleum refining
Contract
Labour Act
Firms will get greater
flexibility to rationalise
workforce
Value-added
tax
Convert it into genuine,destination-based tax that tracks inter-state
sales, provides refunds

In recent weeks, forecasters have revised estimates downwards. The Centre for Monitoring Indian Economy now pegs 2008-09 growth at 8.7 per cent, the National Council of Applied Economic Research at 7.8 per cent and Citigroup India at 7.4 per cent.

By implementing pending reforms and moving to liberalise newer areas of the economy, the United Progressive Alliance government believes India can insulate itself from the biggest global crisis since the Great Depression of 1929.

The broad thinking is that the measures be introduced from next year onwards in a calibrated action with continuing monetary measures by the central bank. The steps, however, will be timed in tune with the investment and macro-economic environment.

Among the policy measures under discussion is allowing 100 per cent foreign direct investment in green-field private rural-agricultural banks. Such institutions would be free to set up any number of branches in rural, semi-rural and semi-urban pockets, and in the process lend to farm and allied sectors.

It has also been suggested that such banks be allowed to take over regional rural banks and rural branches of public sector banks.

The government is also pushing for completing the process of selling 5 to 10 per cent equity in previously identified profit-making non-navratna public sector undertakings like hydro-power generator NHPC and Oil India. Navratna companies are profit-making state-owned companies that enjoy a degree of autonomy.

Similarly, the government has called for greater de-control of several industrial sectors, adding that no further tax incentives should be granted unless this takes place.

Among other policy changes under consideration is a modern bankruptcy law to facilitate the exit of failed managements.

A suggestion has also been made to allow foreign direct investment in multi-format retailing starting from food retailing. This suggestion comes with a rider that entrants set up wholesale outlets from which small, unorganised retailers can buy items for at least five years.

An idea has also been mooted to set up an independent environment regulator with complete autonomy and accountability for implementing environmental regulations.

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Surajeet Das Gupta & Siddharth Zarabi in New Delhi
Source: source
 

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