POLICY POINTERS
Central assistance for rural electrification via state govts. 

In order to give a boost to rural electrification, the Planning Commission has decided to route loans to state electricity boards (SEBs) through the respective state governments from the next Annual Plan (2001-2002). 

At present, a portion of the Normal Central Assistance (NCA) is ear-marked for rural electrification under the Minimum Needs Programme (MNP). This portion is then released by the Ministry of Finance as 100 per cent loan to Rural Electrification Corporation (REC). The corporation then lends the money to SEBs. 

Now the total NCA for rural electrification under MNP allocated to state governments would be released directly to them as 100 per cent loan for on-lending to the respective SEBs. This will make the liability of repayments a responsibility of the state governments. SEBs will prepare the rural electrification schemes and they will be scrutinised and appraised by REC. REC will also monitor the programmes which will be implemented by SEBs. The service charges for REC will be decided by the Planning Commission. The budgetary support to REC for equity and loans will continue as in the present system. 

Recovery of Debts Act to be amended

The government has decided to amend the DRT (Recovery of Debts due to Banks and Financial Institutions) Act of 193 through an ordinance to avert the possibility of the 12 debt recovery tribunals throughout the country and the debt recovery appellate tribunal from becoming non-functional on account of court order. 

A decision to this effect was taken by the Union Cabinet in New Delhi on January 12 IT Minister, Shri Pramod Mahajan said. 

The Act was challenged in Delhi High Court, which declared it unconstitutional and void on the grounds that it does not contain provisions for set-off, counter claims or transfer of cases from one tribunal to another. Automatic approval list for FDI expanded

The Union Cabinet on February 1 placed all items for foreign investment under the automatic route except in six categories. The negative list includes items which require an industrial licence, in companies which already have a foreign collaboration, proposals which involve acquisition of shares by foreign investors and areas which have sectoral caps. 

Under the existing policy, licensing is mandatory in sectors like alcohol, cigarettes, equipment of electronics, aerospace and defence, industrial explosives, hazardous chemicals and pharmaceuticals. 

Foreign investment in companies in the small sector will have to seek approval from the Foreign Investment Promotion Board for investment beyond 24 per cent in the equity of the company. 

The Cabinet approved the formation of a ministerial committee to study investment ceilings in various sectors. 

Automatic approval for funding takeover of software cos. abroad

The government has opened the automatic approval route for financing acquisition for software companies abroad with a view to helping the Indian software firms to fully exploit their inherent strengths and become global players. 

According to the revised guidelines, the Indian companies will not be requiring either the approval of the special committee for overseas investment or the government for accessing the ADR /GDR route for acquisition purposes. Also upto 100 percent of the ADR/GDR proceeds can be used for acquisition. 

It was further clarified that the automatic facility would be available only to those companies which have already floated ADR/GDRs and had a track record. 

ECB norms for core projects eased

The Union government has relaxed the external commercial borrowings (ECB) guidelines by permitting the ECB exposure in all infrastructure projects upto 50 per cent of the project cost, enhancing the limit from $ 50 million to $ 200 million for financing equity investment in downstream infrastructure projects and allowing 100 percent prepayment from EEFC accounts. 

According to an official announcement on February 9 the infrastructure projects in power and some other sectors will be permitted to have ECB exposure of more than 50 percent depending upon the merit of the case. The others, however, can increase their ECB exposure to the extent of 50 per cent of the project cost as appraised by a recognised FI/bank. 

States to be a part of reforms : FM

Finance Minister, Shri Yashwant Sinha, on December 30, 1999, said states will be involved as equal partners in second generation economic reforms and indirect tax reforms started last year will be carried forward in the coming budget. 

"My effort will be to fully involve the states in the second generation reforms as in a federal polity it will be difficult to move forward without the involvement of states", Shri Sinha said inaugurating the annual general meeting of PHD Chamber of Commerce and Industry in New Delhi on December 30. 

Govt. lifts barries to FDI inflows 

The Union Cabinet on 01.02.2000 opened up foregn direct investment (FDI) in virtually all sectors, except for four categories. It also cleared hikes in the existing foreign equity limits for several sectors, including pharma and mining and allowed 100 per cent FDI in the film industry as given below: 

List of industries under automatic FDI approval expanded : 

l 100% FDI allowed in film industry and 74% in advertising. 

l FDI limit in pharma hiked from 51% to 74%. 

l 74% to 100% FDI allowed in mining and prospecting. 

l 100% FDI cleared in coal and lignite mining processing for captive use. Govt. approval required for :- 

l FDI beyond 24% in areas reserved for SSI 

l Where the foreign collaborator already has a venture or a tie-up. 

l Foreign/NRI/OCB investor acquiring stake in an existing Indian Company. 

l 74% private sector investment cleared for Bangalore international airport. 

l 11 Members National Commission formed to review the constitution. 

l Indian Road Construction Corporation wound up 

The Cabinet decided to set up a group of ministers to work out separate sectoral caps for FDI. The group will include the Union Ministers for Finance, Commerce, External Affairs, Telecom, Chemicals and Fertilisers and the Minister of State for Small Scale Industries. 

Interest rate cut on small savings 

The Union government has reduced interest rates on small savings schemes and the public provident fund (PPF) to 11 per cent from 12 per cent with effect from 15th January, 2000. No announcement, however, was made with regard to interest rates on the employees' provident fund. 

A year back, on January 01, 1999, the government had similarly reduced interest rates on a host of small savings, income and time deposits schemes managed by post offices by 50 to 100 basis points. However, at that time the government did not alter interest rates on the National Savings Scheme (NSS) and PPF. Before that the rates on small savings scheme were revised on September 2, 1993. 

No double taxation for venture capital fund 

The government has given an in-principle approval to treat venture capital funds (VCFs) as pass through vehicles thereby eliminating instance of double taxation. They will also get a single window clearance from SEBI. 

An agreement to this effect was reached at a high level meeting between officials of SEBI, the Reserve Bank of India, the CBDT and the department of economic affairs (DEA) in New Delhi in the last week of January. 

To facilitate the creation of a single window system for VCFs, a committee has been set up to harmonise rules issue by various agencies like SEBI, RBI and CBDT. The committee would come out with consolidated guidelines which would lay down the eligibility criterion for VCFs to avail of tax concessions and for registration. 

VCFs would only have to register with SEBI, which would verify whether the VCFs are eligible for availing of tax concessions before registering them. Presently, VCFs have to take clearance from the Director of Income Tax (exemptions) for availing of tax concessions under section 10(23FA) of the Income Tax Act. The investors to VCFs also have to take clearance from the RBI, if the investors are foreign. 

Tax Guidelines for venture capital funds liberalised

The Government has significantly liberalised the guidelines for venture capital and provided tax exemption on dividend and long-term capital gains from investments made on or after April 01, 1999 by way of equity shares in a venture capital fund. 

According to an official notification, a new Section 10(23FA) has been inserted in the Income-Tax Act for this purpose. 

It was further pointed out that for availing the exemption, a VCF or VCC would be required to be approved by the Central Government in accordance with the prescribed guidelines. 

Also, a VCC or VCF has been permitted to make investment exceeding the earlier ceiling of 40 per cent in the equity capital of one venture capital undertaking (VCU). 

In addition, the existing limit of investment by a VCF/VCC upto 20 per cent of its total monies raised or total paid-up share capital in one VCU has been increased to 25 per cent. 

IA to be privatised

The government on January 25 decided to offload 51 per cent of its stake in Indian Airlines Ltd. (IA) in favour of strategic partner (26 per cent), public and financial institutions. 

In The Next Issue

Venture Fund

From the Desk of the President 

Prfiles of Member Corporations

(i) Pondicherry Industrial Promotion 
Development and Investment Corportation 
Ltd. (PIPDIC) 

(ii) West Bengal Financial Corporation (WBFC) 

Member Corporations-Their Activities 

News from the States 

Info-Tech

COSIDICI Activities 

Pull-out Supplement

The state of the Indian Economy 

Cosidici Web Guide-2

Check International Search Engines 

Cosidici Cyberquiz-2 

From the Book-Shelf

Review of Being Digital by Nicholas Negroponte and What Will Be? by Michael Dertouzos. 

and many more...