Govt. hikes EPF interest rate to 9.5 per cent
New Delhi: Government has hiked the interest rate on Employees Provident Fund (EPF) to 9.5 per cent for 2004-05. The hike is with retrospective effect from 2002-03. At the 9.5 per cent EPF rate, the government deficit will be Rs927 crore.

This was announced by Finance Minister P Chidambaram after a meeting with Prime Minister Manmohan Singh. This is one per cent higher than the interim rate of 8.5 per cent announced for 2004-05.
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FDI limit in telecom hiked to 74 per cent
New Delhi: The government has hiked foreign direct investment (FDI) limit in the telecom sector to 74 per cent. Announcing the Cabinet decision, Finance Minister P Chidambaram said that the FDI cap has been hiked but certain security conditions will be in place.

Communications Minister Dayanidhi Maran believes that this alone will result in a 20 per cent jump in foreign investments in the telecom sector within the next two years from the current Rs10,000 crore.

Industry watchers are expressing concern at the list of restrictions that have been added on. Now companies will need clearance from the Foreign Investment Promotion Board before they can go beyond 49 per cent FDI cap. It will then be the company's job to prove to the government every six months that it hasn't crossed the 74 per cent limit. It will have to ensure that its foreign investors don't have access to technical information. Its Chairman, CEO, Chief Technical Officer and the majority of its board members have to be resident Indian citizens.

Indian security agencies will have to be given blanket access to all traffic. If any of these are violated, the company's agreement will automatically be terminated. The government says such safeguards are essential so that India's security is not compromised.
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Union Cabinet clears National Electricity Policy
New Delhi: The Union Cabinet has cleared the National Electricity Policy that aims at facilitating open access to and the financial turnaround of the electricity sector. Terming the policy as long overdue, Chidambaram has said, "It has been evolved in consultation with and taking into account views of the state governments, Central Electricity Authority, Central Electricity Regulatory Commission and other stakeholders."

It plans to achieve open access as is mandated by the Electricity Act, Chidambaram added.

It also addresses a number of issues like achieving the goal of fully meeting the demand by 2012 by overcoming energy and peaking shortages and making available spinning reserve.

The policy recognises the role of PSUs as well as private sector for generating additional capacity in the system, the Finance Minister said.
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States share in Central taxes up to 30.5 per cent
New Delhi: State governments would be entitled to a 30.5 per cent share of the proceeds from all Central taxes and duties from the coming fiscal. This will be against their existing entitlement of 29.5 per cent.

The Union Cabinet has approved the Twelfth Finance Commission's (TFC) recommendation to devolve 30.5 per cent of the net proceeds of all shareable Central taxes and duties to States during the five-year period from 2005-06 to 2009-10. The move to confer an additional one percentage point share in Central taxes would boost the States' annual revenues by roughly Rs3,000 crore at existing collection levels.

Currently, as per the Eleventh Finance Commission's formula for the period from 2000-01 to 2004-05, States receive 28 per cent of the net proceeds of all shareable taxes and duties (which includes revenues from corporation tax, personal income tax, Union excise, customs duties, service tax but not from surcharges or various cesses).

Besides, they are given an additional 1.5 per cent share in lieu of their not levying and collecting sales tax on sugar, textiles and tobacco products, on which the Centre charges an additional excise duty (AED). This takes the total existing share of States in net proceeds of all shareable Central taxes and duties to 29.5 per cent.

The Finance Minister claimed that the share of the States in Central taxes and duties in absolute terms over the ensuing five-year period would aggregate Rs6,13,112 crore. In addition, States would receive Rs1,42,639 crore as grants-in-aid over this period, including Rs16,000 crore for calamity relief, Rs25,000 crore for local bodies, Rs15,000 crore for maintenance of roads and bridges and Rs56,000 crore for covering their non-Plan revenue deficits.

The other major recommendation of the TFC that was endorsed by the Cabinet was to consolidate all past Central loans taken by the States till March 31, 2004, and re-fix the interest on these to 7.5 per cent, along with a uniform tenor of 20 years. The outstanding loans and advances from the Centre to States as on March 31, 2004, are estimated at around Rs2,15,000 crore, of which over Rs1,14,000 crore represent loans bearing 13 per cent interest covered under the debt-swap scheme. States will now be able to reduce their interest outgo on the balance amount of about Rs1,00,000 crore as well.

"States will gain through interest relief as well as principal repayment rescheduling. Currently, the average interest rate on Central loans stands at around 9 per cent," Mr Chidambaram said. Further, he added that all Central assistance to States henceforth would be made as grants and "no part of our transfers will take the form of loans."

In case States need to mobilise additional resources, they can do so through market borrowings so long as they adhere to the requirements of Central clearance under Article 293 of the Constitution. The Cabinet also accepted the TFC's recommendation regarding debt write-off for States, with this being linked to their adhering to prescribed parameters, including enactment of fiscal responsibility legislations.
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Economic advisory panel to look at ways to increase credit flow
New Delhi: The Prime Minister's Economic Advisory Council (EAC) headed by Dr C. Rangarajan would be looking at ways to enhance the flow of long-term credit to the industry in the wake of the gradual fading away of term lending institutions.

In its first meeting with the Prime Minister, Dr Manmohan Singh, the council has also identified agriculture, employment and infrastructure as some of its immediate concerns.

Dr. Rangarajan said that while the council would look at ways to increase agriculture production, it was worried at the slow pace of employment generation especially in the rural areas. Dr Rangarjan said that the council has decided to provide a report to the Prime Minister every month on the economic development during the preceding month both on the international and the domestic arena. He said the first such report was presented yesterday.

The Prime Minister on his part has asked the council to provide early warning signals on the economy and to bring to his notice any developments that needed his immediate attention. He also asked the council to suggest ways to increase the flow of foreign direct investment into the country.
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SAARC: Limited Multilateral pact gets Cabinet approval
New Delhi: The Union Cabinet has given its nod for the proposed SAARC Limited Multilateral Agreement on the avoidance of double taxation and mutual administrative assistance in tax matters.

The agreement would be signed at the 31st session of the Standing Committee, which is to be held in Dhaka on February 6-7, on behalf of the Governments of all the SAARC members.

The agreement would promote mutual administrative assistance and cooperation in tax matters amongst SAARC members. It would also provide tax relief to students and teachers for pursuing their academic interest. The first meeting of the SAARC members on avoidance of double taxation was held on August 5-7, 1999 at Islamabad.

The responsibility of preparing a draft of the `Avoidance of Double Taxation and Mutual Administrative Assistance in Tax Matters' was entrusted to India. The agreement has 17 Articles, 4 schedules and a protocol.
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