ET2019 (16)

The Bankruptcy Code isn't broken, bit it still needs fixing

The govt needs to make the Insolvency and Bankruptcy Code speedier, more transparent and hazard-free.Read full article Two features of the regulatory regime have been central to the current malaise in India’s financial sector. First, until 2015, contrary to international best practice, RBI rules permitted banks to classify restructured loans as standard assets rather than downgrade them to non-performing status. Second, until the Insolvency and Bankruptcy Code (IBC) came along in 2016, the process of exit for defaulting firms and recovery of loans from them was cumbersome, costly and protracted. In good books Fearful that recovery of loans in default would be partial and take a long time, bank managers preferred to restructure loans before they went into default. Under the rules, restructured loans retained their status as standard assets. The incentive to follow this practice was especially high in public sector banks (PSBs), since any write-downs on loans in the event of default and partial recovery carried the risk of attracting the attention of vigilance agencies. As a result, restructured loans with little prospect of full recovery piled up, especially…

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View: Staying out of RCEP is not in India's economic interests

RCEP would have been an easier agreement for India to sign, as compared to any other pacts with US or EU.Read full article Earlier this week, India announced that it was dropping out of the Regional Comprehensive Economic Partnership (RCEP). Its exit came amid a wide array of assertions from commentators — with some claiming that India’s past trade agreements had harmed its economy and that RCEP would do worse, others going further to demand a return to the inglorious days of ‘selfsufficiency’, and yet others insisting that the withdrawal reflected the weakness of the government against the efforts of protectionist lobbies. What were the actual outcomes under India’s past trade agreements? Did they hurt the Indian economy? What lessons do they hold for India with respect to RCEP or other future trade deals?

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View: Selling PSEs improves efficiency, frees government to do business it's meant to do

Partially motivated by efficiency considerations, but largely driven by fiscal squeeze, the government has made some progress in cutting its stake in PSEs since the launch of reforms in 1991.Read full article There is broad agreement among economists that governments should only enter activities that serve a public purpose. Defence, education, health, infrastructure and poverty-reduction programmes fulfil this condition. With some exceptions, manufacturing and services do not. For instance, government manufacturing steel or running hotels serves no public purpose. Instead, this public money could be freed up for investments in infrastructure or education, with private firms filling the gap in the manufacture of steel and running of hotels. Indeed, not having the luxury of the government underwriting their losses and having to compete in the marketplace, private enterprises have agreater incentive to improve efficiency and cut costs.

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How to do $5 trillion by 2024: Cut personal taxes, reform labor laws, sell assets

Modi could follow the model he himself pioneered in the Special Economic Zones in Gujarat back in 2004.Read full article In what is arguably one of the boldest reforms in the last 20 years, finance minister Nirmala Sitharaman has cut the effective tax rate on corporate profits from approximately 35% to 25.2% for existing domestic companies and 17% for new manufacturing companies established before October 31, 2023, provided the companies take no exemptions. For existing companies, the tax rate is now below or equal to those in Japan, South Korea, China, Indonesia and Bangladesh though higher than those in Taiwan, Thailand, Vietnam and Singapore. For new manufacturing companies, the tax rate equals that in Singapore but is below those in all other countries just named. By putting an end to exemptions, the government has greatly simplified the corporate profit tax system and thus eliminated numerous sources of bribes, harassment and tax disputes. Provided the government does not let exemptions slip back into the system, it would have limited future tax disputes to reporting of revenues and costs. Tax inspectors will no…

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View: Arun Jaitley is a formidable lawyer, great communicator and a true human being

As minister of corporate affairs and minister of finance during the first term of Prime Minister Narendra Modi, Jaitley piloted two of the most important reforms — the IBC and the GST.Read full article When Arun Jaitley spoke at Columbia University, which he generously did on multiple occasions, introducing him was a challenge. So distinguished was his career, and so long the list of his accomplishments, that I always feared that my introduction would run longer than the main event. In writing about Jaitley today, I face the same challenge. There is no way to do justice to his accomplishments in the available space. He was India’s leading politician who served with distinction in government as well as in opposition. He was a formidable lawyer, a great communicator and, above all, a true human being who would extend a helping hand to anyone who he thought might need it.

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