Box 1.1

Major Economic Reforms

 

Industry and Services

l The Information Technology Bill to create the legal framework for facilitating electronics commerce in the country, has been introduced in the winter session of the Parliament.

l Tax provisions for housing liberalised and banks permitted to lend up to 3 per cent of incremental deposits for housing.

Infrastructure

l New telecom policy allows multiple fixed service operators and opens domestic long distance services to private operators. It also allows existing license holders of basic and cellular services to "migrate" to revenue-sharing arrangements.

l TRAI reconstituted through an ordinance which envisages clear distinction between the recommendatory and regulatory functions of the Authority. It will be mandatory for Government to seek TRAIís advice on policy and licensing issues. A seperate Appellate Tribunal to hear appeals against the decisions of TRAI and the Government licensor.

l Restructuring of airports through long-term leasing route.

l Indian Railway Catering & Tourism Corporation (IRTC) Ltd. incorporated as a Government Company with the objective of upgrading and managing rail catering and hospitality

External Sector

l Foreign Exchange Management Act, 1999 enacted. The new Act replaces the old FERA. Its provisions are in conformity with a liberalised market in foreign exchange.

l Removal of quantitative restrictions. Import of 894 items made licence free and another 414 items permitted to be imported against SIL in EXIM policy changes announced on March 31, 1999. The Government has further decided to phase out all QRs maintained on BOP grounds by April 1, 2001.

l Incorporation of a new chapter in EXIM policy to boost export of services.

l Free Trade Zones (FTZ) to replace Export Processing Zones and these are to be treated as outside the countryís customs territory.

l Except for a negative list, sectoral limit, and a few explicitly defined constraints, all other FDI will now be under the RBI automatic system. NRIs/OCBs have been permitted to invest under the automatic route in all items, barring a few.

 

 

Financial Sector

l The Insurance Regulatory and Development Act(IRDA) passed by Parliament in December, 1999, seeks to promote private sector participation in the insurance sector, permits foreign equity stake in domestic private insurance companies upto a maximum of 26 per cent of the total paid up capital.

l Ordinance issued to amend the Recovery of Dues to the Banks and Financial institutions Act, 1993. The Amendment strengthens provisions for recovery of dues owed to the Banks and Financial institutions.

l Banks allowed to operate different PLRs for different maturities.

Capital Market

l The Securities Laws (Amendment) Bill, 1999 passed by the Parliament incorporating derivatives and units of Collective Investment Schemes (CIS) in the definition of securities in the Securities Contract Regulation Act,1956.

l CIS Regulations were notified in October 1999.

l Announcement of calendar for issue of Treasury Bills and re-introduction of 182-day Treasury Bills.

l Rolling Settlement has been introduced in 10 select scrips.

l Companies given freedom to determine par value of shares issued by them.

Taxation

l Major Reforms of Central Excise. Eleven major advalorem rates of excise duty reduced to 3, namely, a central rate of 16 per cent, a merit rate of 8 per cent and a demerit rate of 24 per cent.

l The cap on MODVAT credit of 95 per cent of the admissible amount was lifted and restored to 100 per cent.

l Reduction in peak protective customs tariff from 45 per cent to 40 per cent.

l Seven major advalorem rates of customs duty, namely 5 per cent, 10 per cent, 20 per cent, 25 per cent 30 per cent, 35 per cent and 40 per cent were rationalised to 5 advalorem rates, namely, 5 per cent, 15 per cent, 25 per cent, 35 per cent and 40 per cent.

l The provisions relating to amalgamation of companies were rationalised by relaxing the existing conditions for carry forward and set off of accumulated losses and unabsorbed depreciation. In addition new provisions making demerger of companies tax-neutral have been provided.

l With a view to expand the tax base, "One-by- Six" criteria introduced in the 1998-99 budget for identifying potential tax assessees was extended to 19 more cities (from 35) having population of more than 5 lakh.

l Tax holiday benefit extended for cold chains and storage facilities to promote agro-processing.

l Export entertainment industry products given facilities and tax benefits similar to those for export of goods and merchandise under Section 80HHC.

l Historic decision taken to implement domestic trade tax reforms. All States and UTs to implement uniform floor rates of Sales tax by January 1, 2000 and VAT by April 1, 2001. Sales tax based incentivies to be phased out by January 1, 2000.