Economy Watch May June2012 v1

7/31/2019 Economy Watch May June2012 v1

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HIGHLIGHTS Explaining FICCI 12 point agenda to revive economic growth

Government should eschew the temptations of a premature welfare state and announce animmediate moratorium on any additional expenses on doles

Expedite the implementation of the Goods and Services Tax (GST)

Ease the monetary policy

Do not pass the Land Acquisition Bill in its current form

Provide fiscal stimulus for investments across sectors

Push through with FDI policy reforms in areas where action is possible outside the ambit ofParliament multi-brand retail, civil aviation etc

Extend the price decontrol mechanism to diesel and other oil products

Take steps to energize the coal sector by fostering competition

Strengthen frameworks for raising funds for infrastructure financing in the economy throughinstruments like Municipal Bonds etc

Pursue the objective of food security through productivity increase and agriculture marketingreforms

Fast-track implementation of critical policies and projects like National Manufacturing Policy,National Electronics Policy, PCPIR etc

Address the issue of repatriation of black money to immediately mitigate the BOP situation byentering into global revenue sharing agreements

Economic Affairs and Research Division, FICCIDr. Soumya Kanti Ghosh:[email protected](with inputs from Nibedita Saha & Sakshi Arora)
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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THEME WATCH: FICCIS TWELVE POINT ACTION AGENDA FOR

STIMULATING ECONOMIC GROWTH

Emphasizing the need for a unified approach fortackling economic crisis, FICCI has recentlyunveiled a twelve point agenda for stimulatingeconomic growth.

In principle, FICCI believes that the currenteconomic problems are largely a result ofdomestic factors like delays and uncertainityover key economic legislations, lack of fiscalconsolidation, monetary tightening, projectdelays on account of factors including stalledenvironmental clearances, problems in landacquisition coupled with a prolonged pause inreforms and an atmosphere of unwillingness indecision making in bureaucracy.

It may be noted that FICCIs twelve point actionprogram to address the crisis situation are thefollowing

1. Government should eschew thetemptations of a premature welfare stateand announce an immediatemoratorium on any additional expenseson doles

2. Expedite the implementation of theGoods and Services Tax (GST).

3. Ease the monetary policy4. Do not pass the Land Acquisition Bill in

its current form5. Provide fiscal stimulus for investmentsacross sectors

6. Push through with FDI policy reforms inareas where action is possible outsidethe ambit of Parliament multi-brandretail, civil aviation etc.

7. Extend the price decontrol mechanismto diesel and other oil products.

8. Take steps to energize the coal sectorby fostering competition.

9. Strengthen frameworks for raising fundsfor infrastructure financing in theeconomy through instruments like

Municipal Bonds etc10. Pursue the objective of food security

through productivity increase andagriculture marketing reforms

11. Fast-track implementation of criticalpolicies and projects like NationalManufacturing Policy, NationalElectronics Policy, PCPIR etc.

12. Address the issue of repatriation ofblack money to immediately mitigate the

BOP situation by entering into global revenuesharing agreements

In this context, it is essential to elaborate onsome of the above points briefly so as to have abetter understanding of the immediate steps thatneeds to be taken to prevent the economy fromslipping into recession and stimulating growth atthe same point of time.

FOCUS: EXPEDITE GOODS AND SERVICETAX IMPLEMENTATION: ONE TAX ONENATION

India is going to witness its biggest indirect tax

reform ever through introduction of Goods andServices Tax (GST). This reform, with the helpof 115

thConstitutional Amendment Act, attempts

to consolidate the indirect tax structure in Indiaalongside broadening the tax base by capturingvalue addition in the distributive trade andanticipated augmentation in compliance.

Presently the indirect tax structure in Indianecessitates multiple taxes and thereby involvesa number of compliance requirements. Theindirect taxes in the country can be broadlyclassified as- Central Government taxes, State

taxes and taxes levied by Local Governments.Some taxes are levied and collected by samegovernment but some others are levied andcollected by different governments. In addition,tax rates are not also uniform across the countryleading to mere additional complexities for thetax compliers.

After missing three previous dates, the CentralGovernment aims newly targeted timeline tointroduce GST in India. India being a federalcountry and powers of taxation being clearlydefined in the constitution, every state issovereign in levying and collecting diverse state

taxes beside the Centre having their ownconstitutional rights to gather taxes. Existingindirect taxes in India can be listed down as thefollowing matrix.

GST is a composite tax on goods and services.It is effectively a tax on value accumulation atevery stage and a supplier at each stage isallowed to set-off through a tax credit


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mechanism. GST is going to be a consumptionbased levy and destination principle would begermane in usual course. It is anticipated thatGST will be charged on the price actually paid orpayable for supply of goods and services.

Table 1: Pre-GST Indirect Tax Structure inIndia

Levy Collection

Basic Customs Duty (BCD)

@ generic rate of 10%

Additional Customs Duty

(ACD) or Countervailing

Duty (CVD) in place of

Excise Duty @ generic rate

of 10.3%

Special Additional Customs

Duty (SACD) in place of VAT

@ 4%

Cess levied as a percentage

of aggregate duties of

customs @ 3%

Central Excise Duty @

generic rate of 10.3%

Additional Excise Duties

Service Tax @ 12.36%

Central Sales Tax (CST) @

2% NA

CENVAT

Central Sales Tax @ 2% NA

State Value Added Tax

(State VAT) varies between

4% to 15%

Luxury Tax @ 15% to 30%

Taxes on lottery, betting

and gambling

State Cesses and

Surcharges related to

supply of goods and

services

Entry Tax varies between

0% to 15%

Purchase Tax

Entertainment Tax @ 15%

to 45%

Entertainment Tax levied by

the Local Bodies

Octroi varies between 0%

to 7%

CustomsDuty

Excise

Duty

CentralGovt.Levies

StateLevies

LocalLev

ies

Taxes

Source:FICCI Research

As one of the major ground works to introduceGST in India, value added tax (VAT) wasbrought into the system to replace pre-existingcentral excise duty and multi-point sales taxationat the states. Principle of VAT is to tax goods on

the value addition at each stage. VAT not onlyopened up the mode to reduce burden ofmultiple taxation but also held back unhealthycompetition among the states concerning salestax rates. Even after these achievements, therewere several shortcomings in the CENVAT aswell as in the state-level VAT structure.

It is important to note that GST is not going to besimple summation of VAT and service tax. GSTis expected to lead to revenue gain for thegovernment through broadening of tax base andimprovement in tax compliance. Anticipatedpost-GST indirect taxes in India can be listeddown as the following matrix.

Table 2: Post-GST indirect tax structureenvisaged in India

Levy Collection

Basic customs duty

(BCD)

Central GST or CGST

State

Govt

State GST or SGST

Entertainment Tax

levied by the local

bodies

Octroi

Centr

al

Govt

Municipal/

localgovt

Taxes

Source:FICCI Research

Although, GST aims at the consolidation ofdifferent indirect taxes under an overarchinglegislation, the effectual tax burden may

augment for industries in certain sections,leading reduction for industries in certain others.In the post-GST regime, input credits in thesupply chain are expected to be made faultlesslythereby leading to elimination or reduction ofcascading effect of taxes to certain extent. As aresult, reduction in the general price level ispredictable.

Proposed Structure

GST is proposed to be introduced in India in theform of dual structure. Dual GST structure isplanned to have defined functions andresponsibilities for the centre and the states. It isclear that there is going to be two components-one levied by the centre or known as centralGST (CGST) and the other levied by the statesor known by State GST (SGST). TheEmpowered Committee recommended theimposition of GST on the basis of negative listand for little exclusion if needed. Both the CGSTand SGST are supposed to operate over


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common and an identical base. As per therecommendations, CGST and SGST are goingto be applicable to all dealings of goods andservices made against consideration excludingthe exempted goods and services plus thetransactions below the agreed threshold limits.Concessional GST rate for necessary goodsand goods of basic importance alongsidespecial rate for precious metals are also beingdiscussed and proposed. It is assumed thatGST is proposed to be introduced with a rate of16% (CGST @8% and SGST @8%). In casethe supply of goods or services destined to beexported out of India, then the transaction wouldbe taxed at zero rates. In other words, theexporter will be allowed to export the goods orservices without charging any tax.

Prerequisites

As obvious, prologue of GST requiresconstitutional amendment proposing to allow theCentre to levy taxes beyond the manufacturingstage. To be introduced in the state level, it ismandatory that states should be given the powerto levy tax on all services which was until nowbeen merely with the centre. With itsintroduction, GST is also proposed to confiscateCST as it bears no set off respite and acts as atwist in the VAT system. A sound IT platformacross the country is needed to put togethercentral and state indirect taxes administration.

This common IT structure, discussed as GSTNetwork (GSTN) will allow tax compliers acrossthe states to use their PAN, as the taxrecognition number for payment of all indirecttaxes. Some other basic prerequisites include-basic framework of GST law be common for allStates, all States should implement GSTtogether, single registration and identification forassessee both under CGST and SGST,electronic filing of statutory forms and payments,procedural simplification for registering and filingof returns, Harmonized System of Nomenclature(HSN code) forming the basis of productcategorization for both CGST and SGST etc.

International Experience

Till now more than 135 countries have adoptedthe GST/ VAT system successfully. Its neutralityprinciple towards international trade ended it asthe favorite substitute to customs duties in thebackground of liberalization. There exist manydivergences in the approach through which VAT/

GST are executed around the world. In thosecountries where VAT/ GST have been adoptedover the years it on average accounts for twentypercent of total tax revenue. Few countries likeCanada, Australia, New Zealand and Singaporename their tax systems as GST based. Asunderstood, India being a federal country isgoing to follow the GST model pursued inCanada although execution of the GST inCanada followed a centralized form contrastingto the model of dual GST anticipated in India.Different experiences in GST implementationcan be summarized in the following table.

Table 3: Different experiences in GSTimplementation

Australia Canada New Zealand

Parliamentary

Process

Rejected at

election 1993.

Accepted at

election 1999.

Imposed without

election and

through

appointment ofsenators.

Imposed

without

election.

Year of 2000 1991 1986- 1989

Rates 10% 15%Initially 10%

then 12.5%

Threshold

requirement for

registration

US$ 50,000 US$ 50,000 US$ 20,000

Exemptions

Food,

Education,

Health,

Financial

supplies

Financial supplies,

Owner-occupied

housing

Limited

Effect on

economic

growth

Introduced

during

sustained

economic

growth period

Introduced in

midst of major

recession,

criticized ascompounding

problems

Introduced at

the end of

recession,

subsequent

upswing

Revenue Effects

Revenue

exceeded

expectations

Revenue

exceeded

expectations

Revenue

exceeded

expectations

Effect on

Current

Account

Slight

improvement

since

introduction

Dramatic

Improvement

since introduction

of GST, NAFTA

Rapid

immediate

improvement,

longer term

stabilization

Effect on

Underground

Economy

Limited

observed

change in

underground

economy size

Large observed

increase,

particularly in

construction

industry

Some

observed

increase

Source: An Empirical Note on the Comparative MacroeconomicEffects of the GST in Australia, Canada and New Zealand, Universityof New England School of Economics, 2004

Effect on Indias GDP

FICCI estimates that the proposed GSTstructure, which will be replacing almost all theindirect taxes levied on goods and services bythe Indian Central and State governments, isestimated to increase the potential GDP by at


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least 1%.

Table 4: Proportion increase in GDP post-GST: A Simulation

dy/dt

(25% tax)

dy/dt

(14% tax)

dy/dt

(14.5%

tax)

dy/dt

(15% tax)

dy/dt

(15.5% tax)

dy/dt (16%

tax)

0.25029 0.14 0.145 0.15 0.155 0.16

c'Y 4745005 4745005 4745005 4745005 4745005 4745005

c'(1-t) 0.451695 0.52 0.52 0.51 0.51 0.51

1-c'(1-t) 0.548305 0.48 0.48 0.49 0.49 0.49

dy/dt 8653945 9847340 9786159 9725733 9666049 9607094

Change in dy/dt 1193395 1132214 1071788 1012104 953149

Proportion

increase in Y

(current prices)

13.79% 13.08% 12.38% 11.70% 11.01%

GDP deflator 10% 10% 10% 10% 10%

Proportion

increase in Y

(constant prices)

3.79% 3.08% 2.38% 1.70% 1.01%

Source: RBI & FICCI Research

Note: c=marginal propensity to consume, t=post GST tax

rate, dy/dt=change in GDP due to a change in the existingtax rate

A quick glance at Table 5 reveals that a uniformGST rate of 16% would lead to a 1% increase inGDP. However, one small assumption that isworth mentioning is that the present tax rate isapproximately 25%. Also, any tax rate within therange 16% to 14% would lead to an increase ofGDP by as much as 3.7%.

FOCUS: LAND ACQUISITION,REHABILITATION AND RESETTLEMENT

BILL

The National Land Acquisition and Rehabilitationand Resettlement Bill are going to replace theLand acquisition act of 1894 which had prevailedtill date.

FICCI believes that the current Land AcquisitionBill should not be passed in current form.Independent estimates reveal that the impositionof this bill would push up project costs by around40%. In principle, as per the bill, the land buyerswill have to pay four times the market price in

rural areas and twice the market price in urbanareas.

The bill further prohibits the acquisition of fertileagricultural land beyond 5% per district in India,which would have a negative impact onindustrialization. As argued by Amartya Senprohibiting the use of fertile agricultural land forindustries is ultimately self-defeating. It hasbeen seen that all major industrial zones have

been built on fertile land such as Manchester,London, Munich, Shanghai, etc since industrialproduction produces products many times morethan the product produced by agriculturalproduction.

The draft bill also does not allow for free markettransactions between willing buyers and willingsellers, which would come in the way ofdevelopers obtaining land for industrial activityon a voluntary basis at a market competitiverate. The act also does not place any limit on thetotal compensation package to be offered ornumber of claimants.

International Scenario

The American Land Development Code grantsextensive land acquisition powers to local

governments to accomplish any purposeconsistent with the planning policies of thegovernment. The code also attempts to resolveissues on the valuation of the land to beacquired under eminent domain as it allows thelandowner to inflate his land price by producingevidence. Unlike the new bill drafted in India, theAmerican Land Development code does notmake the price of the land to be acquired fourtimes in case of rural areas at once, therebyincreasing the fixed costs of industrialization.

The Korean Land Development Corporation has

six ways of acquiring land and it allows thelandowner to negotiate with the price of landexcept in case of Eminent Domain wherein itprovides the land owners with benefits of taxprivileges. There should also be a similarplatform wherein landowners can bargain withbusiness houses and the government with theland price in India, since the compensationpackage discussed in the draft bill to besanctioned in December, 2011 may hit thereality sector.

The Thailand National Housing Authority sets

the maximum price it will pay for acquiring theland. The limits of the price are decided keepingin mind various economic, social anddevelopmental factors. In Ecuador the landacquisition mechanism is carried out mostly withvoluntary purchase and sale transactions.


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FOCUS: PUSH THROUGH WITH POLICYREFORMS AND FAST TRACKIMPLEMENTATION OF CRITICAL POLICIES

FICCI believes that the Government of India canimmediately push through policy reforms in

areas outside the ambit of the Parliament (FDI inretail, aviation etc). Interestingly, a FICCIanalysis suggests that as on January, 2012 asmany as 26 bills were pending in the parliament(of which 6 were related to Governance, 9 wererelated to Education and 11 were related tofinancial sector. We urge the Government topush through these bills quickly.

Table 5: Anti-Corruption Bills pending in theparliamentSerial

#Anti-corruption

Status as on Jan,

2012

1 The Lokpal and Lokayuktas Bill, 2011

2 Whistle Blowers Protection Bill, 2011

3

The Right of Citizens for Time Bound

Delivery of Goods and Services and

Redressal of their Grievances Bill, 2011

4The Judicial Standards and

Accountability Bill, 2010

5

The Prevention of Bribery of Foreign

Public Officials and Officials of Public

International Organizations Bill, 2011

6The Benami Transactions (Prohibition)

Bill, 2011

Passed by LS & are

now before the RS

Under

consideration ofStanding

Committee

Source: FICCI Research

Table 6: Education Bills pending in theparliament

EducationStatus as on Jan,

2012

The Educational Tribunals Bill, 2010

The Institutes of Technology

(Amendment) Bill, 2010

The National Institutes of Technology


The Indian Institute of Information

Technology, Design and Manufacturing,

Kancheepuram Bill, 2011

The Prohibition of Unfair Practices in

Technical Educational Institutions,

Medical Educational Institutions and

University Bill, 2010

The Central Educational Institutions

(Reservation in Admission) (Amendment)

Bill, 2010

The National Accreditation Regulatory

Authority for Higher Educational

Institutions Bill, 2010

The Higher Education and Research Bill,

2011

The National Academic Depository


Passed in the LS but

pending before the

RS

Reported by

Standing

Committee

Under

consideration of

Standing

Committee



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Table 7: Finance & Business Bills pending

Finance & Business Status as on Jan, 2012

The Direct Taxes Code Bill,

2010

The Companies Bill, 2011

The Mines and Minerals

(Development and

Regulation) Bill, 2011

The Prevention of Money

Laundering (Amendment)

Bill, 2011

The Indian Trusts


The Pension Fund Regulatory

and Development Authority

Bill, 2011

The Forward Contracts

(Regulation) (Amendment)

Bill, 2010

The Coal Mines

(Nationalization)


The Mines (Amendment) Bill,2011

The Insurances Laws


The Securities and Exchange

Board of India

(Amendment)Bill, 2009

Under consideration of the

Standing Committee

Reported by Standing

Committee


Additionally, FICCI believes that special stressmust be laid on policies like NationalManufacturing Policy and National ElectronicsPolicywhich has the potential of creating 28 to

100 million jobs in the coming decade. Suchpolicies are particularly welcome as they will beproviding gainful employment to the growingyoung Indian population. India needs to createsubstantial amount of job by the year 2025 so asto reap the benefit of the demographic dividend.It is believed that a chunk of such employmentopportunities would be generated from themanufacturing and IT sector.

FOCUS: PROVIDING FISCAL STIMULUSACROSS SECTORS LIKE ABOLISHING MATON INFRASTRUCTURE ETC

The concept of MAT was introduced originallyunder section 115J by the Finance Act, 1987

with effect from 1988-89 and was reintroducedwith a few changes under section 115JA witheffect from 1997-98 and under Section 115JBwith effect from April 2001.

MAT was introduced to bring Zero Taxcompanies under the income tax net. As perMAT, if the income- tax payable computed isless than MAT liability, then the tax payable forthat year equals MAT liability.

Provision of MAT is however not applicable to:

Income from business of developing,maintaining, and operating certaininfrastructure facilities

Income from units in specified zones orspecified backward districts

Income of certain loss-makingcompanies

Export profits

Interestingly, in order to widen the tax base, thegovernment has proposed to impose 18.5%Alternate Minimum Tax (AMT), a variant of MATon sole proprietorship and partnership firms.

Figure 1: MAT rate in India over the years


Why MAT may be not desirable

MAT creates industrial disparity ascapital intensive industries viz Iron &Steel, Cement etc have to pay morethan software industry. Thus it willreduce investments in Infrastructure.


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By not allowing credit of tax paid by wayof minimum alternate tax, this tax is inthe nature of wealth tax

It will clearly be an additional burden toloss making companies

In case of long gestation projects, thistype of tax will further increase the costof projects and might even make theprojects unviable.

It will result in double taxation. This willaffect the financing of less reputedcompanies as they are not able toprocure finance directly.

MAT & Infrastructure

The introduction of MAT on the infrastructurecompanies have raised concerns In effect, thelevy of MAT on infrastructure companies not

only nullifies the very objective of tax holiday, butalso results in cash outflow during the initialperiod.

For example, the concept of MAT runs againstthe tax holiday granted to infrastructure underSection 80 IA of the IT Act. Also, infrastructureprojects are normally fixed duration projectsafter which assets need to be transferred to theGovernment free of cost. Hence, developershave limited period for the recovery of theirinvestment, considering the losses in initialyears due to lower capacity utilization. It is

important that the Government provides fiscalincentive in terms of tax holiday to enabledevelopers to recover money in later years.Revenue for developers in most of theinfrastructure projects are either regulated orthere are intense competition among differentplayers so developers have limited pricing powerto increase prices for generating higher profit ontheir investment.

Considering the requirement of good qualityinfrastructure for the growth of the economy, it isessential that infrastructure projects remain

profitable for the private sector. Profit generatedby infrastructure projects would be furtherinvested by infrastructure developers for thecreation of infrastructure facilities and if theyincur losses, it will inhibit private sectorinvestment in the infrastructure sector which isdire need of the economy.

Contrary to popular perception, fiscal incentiveprovided by the Government will not result in net

revenue loss to Government as due to intensecompetition and competitive bidding processfollowed by the Government for allotment ofthese projects, developers will transfer most ofthe benefits to the Government in terms ofhigher royalty or upfront premium in case ofports, road and airport projects or lower tariffs toconsumers in power projects.

FOCUS: FAST TRACK IMPLEMENTATION OFCRITCAL PROJECTS

Delay of public sector projects is a commonphenomenon in India, with time and costoverruns have become a phenomenonassociated with most of the public sectorprojects This chronic problem with the publicsector units in India generally arise due todesign errors, unexpected site conditions,

increases in project scope, weather conditionsand other changes.

FICCI believes that fast track implementation ofsuch stalled projects (primarily in excess of Rs150 crore) are critical in the Governmentendeavour of promoting growth in the currentscenario.

Figure 2: Sector wise projects as a % of Totalprojects:

Source: MOSPI & FICCI Research

Sector wise analysis depicts that the highestnumber of projects currently under monitor /delayed are in Railways and the Transportsector, with the Power sector also containing aconsiderable share in total projects.

Sector wise analysis

As per the 315th Flash Report on Central


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Sector Projects for projects worth 150 Croresand above dated January 2012, the total costoverrun incurred by the Central Governmentwas approximately 17% above the original cost(Figure 3).

Figure 3: Analysis of cost overrun overoriginal estimated costs (figures in RsCrores)

-5.0

15.0

35.0

55.0

75.0

95.0

115.0

500

50500

100500

150500

200500

AtomicEnergy

CivilAviation

Coal

Fertilisers

Steel

Petrochemicals

Petroleum

Power

Railways

RoadTransport&

Shipping&Ports

Telecommunicatio

UrbanDevelopment

WaterResources

Latest Approved Anticipated Cost Cost Overrun (%)


As figure 3 reveals, cost overrun is the highest inthe Railways and Water Resources sector. Thehigh cost overrun in projects under the Railwaysmay be attributable to hold-ups in obtainingenvironmental clearances, stringent landacquisition process, lack of coordinationbetween states and other law and orderproblems. The cost overrun was the least incase of the Telecommunications and Fertilizersector.

Regional Analysis

A region wise study indicates that South, Eastand West India had the most number of projectsunder monitor with South India alone havingaround 100 projects worth more than 150crores. Additionally, projects in North East ofIndia suffer the highest cost overrun with respectto original sanctioned costs with cost overrun asmuch as 58%. Multi state projects have the leastcost overrun among all regions with the costoverrun being as low as 4.2% of original costs.

Figure 4: Region wise analysis of costoverrun (figures in Rs Crores)


We also estimated the cost overrun per projecton a region wise basis. The results clearly showthat in North India cost overrun per project ashigh as Rs 470 crores.

Table 8: Cost Overrun per Project-Regionwise:

Region No of ProjectsCost Overrun per Project

(Crores)

North 66 470.3

North East 50 458.6

Central 49 71.0

East 99 196.0

South 100 238.0

West 94 157.5

Multi State 97 54.2

Total 555 217.5 Source: MOSPI & FICCI Research

To summarise, there is an urgent need to fasttrack these stalled projects on a priority basis.The overall picture does not portray a healthypicture for the infrastructural sector at this pointof time and it may be prudent ideas to kick startthe process of reforms by expediting theclearances for stalled projects on a case-to-case

basis.


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FOCUS: FOSTERING COMPETITION IN THECOAL SECTOR

The availability of coal has become a majorconcern. This is hurting industry and taking adirect toll on power generation and

manufacturing. Coal India still retains itsmonopoly position in coal production. Indiascoal reserve is estimated to be over 280 billiontones. However, coal exploration has beenunsatisfactory. Coal production is estimated atCAGR of 5.6% between 11

th& 12

thPlan in the

business as usualscenario and 7.8% under anoptimistic scenario. Coal based generation isexpected to rise at 9.8% CAGR by end of 12

th

plan. The table below provides company wisecoal production.

Table 9: Company wise Coal production (inmillion tonnes)

CompanyTarget

2010-11

Actual

upto Dec

2010

Achievement

(%)

2009-10

(Actual upto

Dec 2009)

Growth

(%)

CIL 460.5 299.52 65.04 295.51 1.36

SCCL 46 36.33 78.98 36.55 -0.6

Others 65.87 33.56 50.94 33.6 -0.12

Total 572.37 369.41 64.54 365.66 1.02 Source: Ministry of Coal

In the context of coal availability, there has been

a massive shortage of domestic coal leading tolarge scale domestic coal deficit in the powersector. The important reasons for such ashortfall are due to:a. Dispatch of coal by CIL has been almost flat

for the past 2-3 years (refer to the tablebelow)

b. Demand for indigenous coal registered aCAGR of 7.47%, whereas Supply registereda CAGR of only 5.83%

c. Dependence of Imported coal has increasedfrom 6% to 13% in the past 3 years

Table 10: Company wise Dispatch (in million

tonnes)

AAP

TargetActual

Achievement

(%)Actual % Growth

CIL 338.42 310.06 91.6 301.09 2.98%

SCCL 42.672 44.952 105.3 44.692 0.58%

April-Dec(2010) April-Dec (2009)

Company

Source: Ministry of Coal

As per an independent research, India, who isconsidered to be the 3

rdlargest coal producer

next to the US, has a coal mining productivity of0.58 tonnes per year which is 1/10

thof the US.

This is a serious concern and needs to beimmediately addressed as domestic andimported coal prices are on a rise which, in turn,is jeopardizing the economics of the powersector. With the latest Fuel Supply Agreement,the impact on coal imports is likely to go up.

FICCI believes that the Government mustconsider introduction of commercial mining withparticipation of private coal production / coalmining companies. Selection of privateparticipants by competitive bidding should beencouraged. Also, the Coal Mines(Nationalization) Act, 1973, should be amendedto facilitate progressive phasing in of

commercial mining and de-linking coal miningfrom designated end-use. This apart, measuressuch as expediting the proposal on competitivebidding of coal blocks and developing rationalguidelines, capacity Building in coal companiesto undertake underground mining with advancedtechniques and in-built safety measures to tapfuture reserves, adherence to the Ultra MegaPower Project for development of coal blocksand appropriate pricing policy for surplus coalmined at captive units need to be taken so as toenergize the coal sector. It is believed that agraduated and controlled breakup of the Coal

India Limited will both create competition andease the fiscal situation. Also, coal supply topower companies should be as per the NewCoal Distribution Policy 2007.

FOCUS: REPATRIATION OF BLACK MONEY:MITIGATING THE BOP

The White Paper brought out by theGovernment on the issue of Black Moneyalludes to a scheme whereby someGovernments between themselves have enteredinto special administrative agreements for

revenue sharing. As part of these agreements,the Government would get a share of taxes onassets held by their residents abroad withoutdisclosing identity.

FICCI believes that the government shouldurgently hold discussions on this subject andarrive at a methodology in a time bound mannerto enter into similar agreements.


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As per estimates, the total black money stashedabroad is approximately Rs 45 lakh crores whichis about 50% of Indias GDP, and is 9 times thesize of Indias fiscal deficit. It is estimated, evenif 10% of such black money is brought back tothe system, India can generate a fiscal surplus.

To ensure the growing menace of black moneyis curtailed in the future, it is suggested that taxincentives should be given for encouraging useof debit, and credit cards as these lead to audittrails.Also, one of the four different pillars in itsstrategy to curb the growing amount of blackmoney, has been the introduction of theproposed GST which FICCI has beenpropagating.

Economy Watch May June2012 v1

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