Narendra Modi's Act 1: Govt on right path to raising spend and checking inflation, says Barclays

Jul 21 2014, 10:51 IST
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Narendra Modi government is already reducing various layers of bureaucracy to improve efficiency, says Barclays Narendra Modi government is already reducing various layers of bureaucracy to improve efficiency, says Barclays
SummaryWith 50 days complete for Narendra Modi govt, Barclays does an early assessment of its tenure.

Administrative changes in the central ministries–senior bureaucrats have direct access to the PM–focus on accountability with ministries required to make presentations on targets and achievements.

* The Budget announced an eBiz platform that will make all business and investment-related clearances available online with an integrated payment gateway.

Controlling the system leakage—Expanding the Aadhar Unique Identity Project: The government will expand the Aadhar unique identity project (UIDAI), raising the enrolment target to 100 crore (from 70crore), expanding the Aadhar-based Direct Benefits Transfer (DBT) schemes (e.g. direct transfer of LPG subsidies into beneficiary accounts) and also linking other projects such as the e-passport system with the Aadhar project.

Kick-starting the investment cycle: The government appears poised to kick-start the investment cycle, but overall, proposals have been modest at best. In the budget, the government promised to achieve 25km/day of road construction in FY15–a big jump from 8km/day in FY14. Issues with three critical railway links for coal transportation–stuck for a long time on various issues–are being resolved with at least one project now on track. With the ministries of power, road and transport and environment on the drawing board for new policy path for their respective sectors, more developments may emerge in the coming months.

o Longer-term measures include FDI liberalisation in defence, insurance (composite cap on both raised from 26% to 49%), railways and real estate (eased minimum entry requirements, etc), which will improve fund-raising for capital projects; and proposed high-speed and bullet-train networks on the PPP model.

o The budget allowed complete tax pass-through of Real Estate Investment Trusts (REITS) and an additional, Infrastructure investment trusts (INViTS) of a similar structure in the infrastructure sector. This is a long-term positive for attracting cheaper long-term financing for commercial real estate and infrastructure projects.

o The budget relaxed the terms for issuance of debt funds used for infrastructure investments by banks and IFCs

(infrastructure finance companies). It allowed banks to raise long term funds for lending with minimum regulatory requirements on CRR/SLR and PSL (cash reserve ratio/statutory liquidity ratio and priority sector lending).

Tax Reforms

o Future tax law amendments will not be applied retrospectively and all fresh cases of tax disputes arising out of retrospective amendments of 2012 will be examined by a high level committee (HLC) before any action is initiated.

o Reduction in tax litigation: resident tax payers can obtain advance ruling in respect of income tax liability above a certain threshold. The Budget has proposed setting up

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