Coming: Higher FDI cap in Defence sector; a new GST timeline; primary market push

The first Budget of the Narendra Modi Government will be big on reforms that will help revive investor confidence and put the economy on a higher growth trajectory, according to senior government sources.

Finance Minister Arun Jaitley is expected to present the full Budget in the first fortnight of July. Relaxation of the Foreign Direct Investment (FDI) regime for various sectors, including Defence; a new timeline for the Goods and Services Tax (GST); clarity on retrospective taxation, and measures to boost the primary market are expected to be part of the big-reform Budget.

“Do not expect any major policy announcement before the Budget,” a top Government functionary told Business Line. The Government has to complete the entire Budget exercise by July 31.

FDI in Defence

FDI in defence will be among the key decisions in the Budget. The Department of Industrial Policy and Promotion has already floated a note for inter-ministerial consultations. The note proposes three options: 49 per cent, 74 per cent and 100 per cent FDI for the defence production sector.

In its manifesto, the BJP has promised to strengthen the Defence Research and Development Organisation, while encouraging private sector participation and investment in the sector, including FDI in select defence industries.

Once the consultation process is over, a call will be taken on whether to revise the cap or not. However, Government officials said that irrespective of the limit, clearance would have to follow the Foreign Investment Promotion Board route.

Currently, FDI regulations prescribe a 26 per cent limit, with FIPB approval, in defence. However, any proposal for more than 26 per cent is referred to the Cabinet Committee on Security, which looks into whether the proposal is likely to result in access to modern technology.

Experts believe raising the FDI limit will give all-round benefits. “From both a strategic and commercial perspective, it is in our interest to have defence manufacturing units located in India.  This will also help to stimulate the economy, save valuable foreign exchange and create skilled jobs in the country,” said Dhiraj Mathur, Leader (Aerospace and Defence), PwC India.

GST timeline

The other key reform will be a new timeline for the GST, which was initially scheduled to be implemented from April 1, 2010. Jaitley has already initiated a move to resolve contentious issues such as compensation by calling for a meeting with State Finance Ministers next month. Based on the discussions with the States, he is likely to announce a new implementation timeline. The Finance Minister will move a Bill to amend the Constitution and pave the way for the new tax regime.

Primary market push

Efforts are also on to give the primary market a boost in order to help corporate entities mobilise money for various projects. The Budget is likely to have a blueprint to promote the primary market, such as a higher quota for retail investors, following which market regulator SEBI will bring out rules and regulations. SEBI has already started working on thenew norms.

(This article was published on May 30, 2014)
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