Box 1.1

Economic Reforms Continue

Industry

  • Delicensing of coal and lignite, petroleum (other than crude) and its distillation products and bulk drugs.

  • Delicensing of sugar.

  • Dereservation of coal and lignite and mineral oils.

  • Companies were permited to buy-back their own shares subject to restriction of buy-back to twenty five per cent of paid-up capital and free reserves.

  • A National Task Force on Information Technology and Software Development submitted a 108 point Action Plan in July 1998. The recommendations have been accepted by the Government and directions for their implementation have been given to all concerned departments.

  • Patent bill approved by Rajya Sabha and subsequently promulgated through an Ordinance.

  • A number of items, including some farm implements and tools, have been removed from products reserved for exclusive manufacture by SSI sector.

Infrastructure

  • The Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 have been amended to provide for private investment in power transmission.

  • Following enactment of the Electricity Regulatory Commission Legislation, the Central Electricity Regulatory Commission was set up, with enabling provision for states to establish their own independent regulatory commissions.

  • The Urban Land (ceiling and regulation) Act, 1976, repealed through an ordinance.

  • The policy for issuing licenses for providing Internet services has been announced. There will be no license fee for the first 5 years and after 5 years a nominal license fee of Rupee 1 wilbe charged.

  • A National Integrated Highway Project merging the golden quadrilateral connecting Delhi, Mumbai, Chennai and Calcutta with the East-West (Silchar to Saurashtra) and North-South ( Kashmir to Kanya Kumari) corridors has been launched.

  • A new Telecom policy is under preparation.

          Trade Policy

  • The Apri1998 Exim policy delicenced 340 items of import by moving them from the restricted list to OGL.

  • India unilaterally removed all quantitative restrictions on imports of around 2300 items from SAARC countries with effect from August 1, 1998.

  • A Free Trade Agreement was concluded on 28 December, 1998 between India and Sri Lanka which will result in zero import tariffs for most commodities on both sides by 2007.

  • Payment of interest on dues to exporters for delays in duty drawback/refund of duty beyond two months.

  • The scope of Export Promotion Capital Goods scheme at zero duty has been extended further to certain specified bio-technologies and small scale engineering industry.

  • Extension of tax holiday for EOU/EPZ to 10 years.

  • Permission to set up Private Software Technology Parks (STPs) for export.

          Foreign Direct Investment

  • Projects for electricity generation, transmission and distribution and construction and maintainance of roads, highways, vehicular tunnels and vehicular bridges, ports and harbours have been permitted foreign equity participation up to 100 per cent under automatic route. The automatic route is subject to a ceiling of Rs. 1500 crore on foreign equity.

  • FDI permissible under Non-banking Financial Services now includes "Credit Card Business" and "Money Changing Business".

  • Multilateral financial institutions have been allowed to contribute equity to the extent of shortfall in NRI holdings within the overall permissible limit of 40 per cent in private sector banks.

  • FDI up to 49 per cent equity has been allowed subject to license, in the companies providing Global Mobile Personal Communication by Satellite (GMPCS) services.

  • Unlisted companies are permitted to float Euro issues under certain conditions.

  • End-use restrictions on GDR/ADR issue proceeds have been removed except those on investment in stock markets and real estate.

  • Indian companies permitted to issue GDRs/ADRs in the case of Bonus or Rights issue of shares, or on genuine business reorganisations duly approved by the High Court.

          NRIs

  • The aggregate ceiling for investment in a company by alNRIs/PIOs/OCBs through stock exchanges has been made separate and exclusive of the investment ceiling available for FIIs.

  • Investment limit by a single NRI/PIO/OCB has been enhanced from 1 per cent to 5 per cent of the paid up capital.

  • Aggregate investment ceiling for NRIs/PIOs/OCBs has been raised from 5 per cent to 10 per cent of the paid up capital of a company. In the case of listed Indian companies the ceiling can be raised to 24 per cent under a General Body Resolution.

  • NRIs/PIOs/OCBs are permitted to invest in unlisted companies subject to the prevailing norms, procedures, and ceiling applicable in case of listed companies.

  • The Government is finalising a scheme for persons of Indian origin (PIO) for issue of PIOs card which would facilitate a visa free regime to them along with same special economic, educational, financial and cultural benefits.

          Foreign Institutional Investors

  • FIIs permitted to buy or seltreasury bills and government securities in both primary and secondary markets within overall approved debt ceilings.

  • Authorised Dealers have been permitted to provide forward cover to FIIs in respect of their incremental equity investment in India.

  • Transactions among FIIs with respect to Indian stocks will no longer require post facto confirmation from the RBI.

  • 100 percent FII debt funds have been permitted to invest in unlisted debt securities of Indian companies.

         External Commercial Borrowing

  • Proceeds of ECB can now be deployed for project related rupee expenditure in alsectors subject to certain conditions.

  • The Government has delegated ECB approvals to RBI up to US$ 10 million under all the ECB schemes.

  • ECB eligibility under the scheme for exporters has been raised to three times the average export performance during the last three years subject to a maximum of US$ 100 million.

  • Average maturity requirement for ECB under the long term maturity window which is outside the ECB cap has been reduced.

  • Domestic rupee denominated structured obligations have been permitted to be credit-enhanced by international banks/international financial institutions/joint venture partners.

  • Prepayment of ECB by Indian corporates has been allowed if this is met out of inflow of foreign equity.

Financial Sector

  • Prudential regulations for banks tightened to require provisioning for Central and State Government securities, Government guranteed loans, and general provision for standard assets.

  • Risk weight of 2.5 per cent for market risk of government securities, 20 per cent for state government guaranteed advances in default and 100 per cent for foreign exchange open position.

  • Minimum Capital to Risk-weighted Asset Ratio (CRAR) for banks to rise to nine per cent by Apri2000.

  • Assets in the substandard category to be classified as doubtful after 18 months instead of 24 months, by March 31, 2001.

  • Regulatory framework for NBFCs rationalised Companies which solicit public deposits to comply with revised norms.

  • Number of companies whose shares must be traded in de-materialised form increased. Rolling settlement introduced for de-materialised shares.

  • Conditions for public issue by infrastructure companies eased.

  • Primary issues to be compulsorily through depository mode.

  • 100 per cent book building permitted for issues above 25 crore.

  • Bill for strong independent Insurace Regulatory Authority, and opening of Insurance and Pension funds to private companies introduced in Parliament; proposed to allow 26 per cent foreign equity and additional 14 per cent NRI and FII holding.

  • Bill introduced in Parliament for amending the Securities Contracts (Regulation) Act, 1956 so as to widen the definition of "Securities" to cover derivative contracts.

  • New bill for Foreign Exchange Management, to replace FERA, introduced in Parliament.

          Taxation

  • All the gifts made on or after 1.10.98 exempted from payment of gift tax by Finance (No.2) Act, 1998.

  • Tax holiday increased from 5 to 10 years to industrial undertakings set up in the free trade zones and units in the software technology parks.

  • Tax holiday benefits extended to inland waterways, inland ports, radio-paging, trunking and EDI Network and domestic satellite service.

  • Administrative measures to improve reporting and widening the tax base include: (i) introduction of a simple one page taxpayer-friendly return form called, ‘SARAL’, applicable to all non-corporate tax payers; (ii) making it obligatory for assesses to quote their PAN or GIR number in respect of certain high value transactions; (iii) the presumptive taxation scheme, introduced in 1997-98 budget in 12 cities ,extended to 23 more cities in India taking the totacoverage to 35 cities and two additional economic criteria added; and (iv) introduction of a new scheme called "KAR VIVAD SAMADHAN SCHEME" to recover the money locked in litigation both in direct and indirect taxes.
  • Reduction in import duty on 75 specified machinery from 25 per cent to 15 per cent to encourage investment in the information technology sector.
  • Reduction in basic import duty to a level of 5 per cent ad valorem on many items related to information technology.
  • A number of items which were earlier exempted from excise duty, would now attract nominal duty of 8 percent.
  • Excise duty on a number of products, which were attracting a low rate of duty raised by 5 percentage points.
  •    The coverage of service tax was widened to cover 12 more services.