IX. OTHER REFORMS
Banking |
Foreign direct
investment (FDI) in the banking companies in India is presently capped at 49 per cent from
all sources under the automatic route. For facilitating the setting up of subsidiaries by
foreign banks, as well as for inviting investment in private banks, this limit will be
raised to at least 74 per cent.
The voting rights
of any person holding shares of a banking company are restricted to 10 per cent
irrespective of his/her shareholding. The Banking Regulation Act, 1949 will be amended to
remove this limitation.
I now also extend
the benefit of Sec. 72A of Income Tax Act to nationalized banks. Any banking company can
now merge with a nationalized bank with consequential tax benefit.
As the
Hon’ble Members know, the Government is determined to contain the problem of
non-performing assets (NPA) and ensure a credit market that functions efficiently.
Following the Budget announcement last year, the Credit Information Bureau has already
been established. It is proposed to provide the necessary legislative support to this
Bureau.
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| Interest rate |
High rates of
interest, in a low inflation regime, clearly act as disincentive to investment. It is,
therefore, important that administered interest rates on public provident fund and other
small saving schemes be adjusted in line with the market rates. Accordingly, rates of
interest on public provident fund, and small savings schemes, etc. will be reduced by one
percentage point with effect from March 1. Interest on relief and savings bonds will also
be reset accordingly. Hon’ble Members may, however, note that the real returns –
adjusted for inflation – offered on these instruments are still a remunerative 6.3
per cent per year; higher than what they were between 1991-92 and 1995-96.
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| Capital account |
Over the last few
months, Government has taken a number of steps to ease restrictions on capital account
mobility. After careful assessment,
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I would
like to announce the following additional steps: |
To enable
diversification, overseas investment under the automatic route will be permitted to
corporates with a proven track record, even where the investment is not in the same core
activity. Further, the current restriction, limiting such investment to 50 per cent of the
net worth of the Indian company, will now be raised to 100 per cent.
Prepayment of ECB
dues under the automatic route will be permitted by removing the current ceiling of US
$100 million.
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The Government is
already considering a major review of sectoral limits for investments by Foreign
Institutional Investors. In order to facilitate their easy entry into the stock markets,
the process of their registration will be further streamlined. Several steps have recently
been taken to ease flows of Capital. There will be more initiatives in this regard.
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| External aid |
Mr. Speaker, Sir,
a stage has come in our development where we should now, firstly, review our dependence on
external donors. Second, extend support to the national efforts of other developing
countries. And, thirdly, reexamine the line of credit route of international assistance to
others. Having carefully weighed all aspects, I propose the following measures:
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While being
grateful to all our development partners of the past,
I wish to announce that the Government of India would now prefer to provide relief to
certain bilateral partners, with smaller assistance packages, so that their resources can
be transferred to specified non-governmental organisations (NGO’s) in greater need of
official development assistance. The current agreed programmes will, however, continue and
reach their completion. Of course, there will be no more ‘tied aid’ any longer.
Having fought
against poverty, as a country and a people, we know the pain and the challenge that this
burden imposes. For the Heavily Indebted Poor Countries (HIPCs), owing overdue payments of
substantial sums to India, I am happy to announce that we will be considering a debt
relief package. This will be announced shortly in consultation with the Ministry of
External Affairs.
I am also happy
to announce that the Government proposes to generally discontinue the practice of
extending loans or credit lines to fellow developing countries. Instead, in future, I
propose to utilize the ‘India Development Initiative’, which I have already
announced, for providing grants or project assistance to developing countries in Africa,
South Asia and other parts of the developing world.
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| Reform and reorganisation
of the Ministry of Finance |
Responsibilities
of the Department of Company Affairs, the Foreign Promotion Investment Board (FIPB), and
the regulation of the new Pension Funds Scheme have recently been added to the Ministry of
Finance. There is, therefore, need to reorganize the Ministry, also to go back to the
simpler and more direct name as the Ministry of Finance. The Department of Company Affairs
is now being absorbed as a Department – and will sadly no longer stand shoulder to
shoulder with Finance.
In the Ministry
of Finance, the Department of Economic Affairs will be restructured and have separate
divisions dealing with economic policy; analysis: international and national; capital
markets; budget; banking; trade and aid concerns; and infrastructure and coordination.
To remain better
abreast of agriculture, an Expert Advisory Council, to advise the Ministry of Finance,
will be set up for agriculture.
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