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India to allow pension funds to invest in capital markets; may abolish BIFR

The government is mulling the abolition of the Bureau of Industrial and Financial Reconstruction, or BIFR, and allowing pension funds to invest in the capital markets, the Council on Trade and Industry informed today.

Reviewing the status of implementation of recommendations at the council meeting, held at the PM's residence in Delhi today and chaired by Prime Minister Atal Bihari Vajpayee, the council said a policy on public sector unit, or PSU, divestment suggested by the Group on Capital Markets involving reduction of government equity in non-core sector PSUs to 26 per cent, has also been put into place.

The council also noted that the Implementation Review Committee headed by Finance Minister Yashwant Sinha has conducted an in-depth review of the status of implementation of the recommendations made by Ratan Tata Committee on Infrastructure.

Several suggestions made by the committee, such as imposition of a cess on diesel and four-laning of major highways of the country, have already been adopted and are under implementation.

The two-hour meeting of the council was attended by Finance Minister Yashwant Sinha, Commerce and Industry Minister Murasoli Maran, Cabinet Secretary Prabhat Kumar, N K Singh, Secretary in Prime Minister's Office, Reliance Industries vice-chairman Mukesh Ambani, Infosys Tech chairman N R Narayana Murthy, Bajaj Auto managing director Rahul Bajaj and the new CII president Arun Bharat Ram.

The council was informed that the recommendations of knowledge-based industry, and administrative and legal simplifications have already been taken up.

Earlier, the prime minister said that economic fundamentals were strong and the foreign exchange reserves had touched a high of $ 35 billion. The gross domestic product, or GDP, is expected to show a growth of more than 6.5 per cent in the current financial year as against 5.9 per cent last year.

"With the old economy becoming stronger and unlimited opportunities in the new economy, we have a new window of opportunity," Vajpayee said, and added that the government will pursue with policies which enable the country to realise its full potential.

High priority will be accorded to building social infrastructure in health, education and rural development particularly rural road connectivity, increasing agricultural productivity and addressing basic human needs , the prime minister said.

Vajpayee pointed out that the rate of inflation was under control and export performance was good. He promised that follow-up action on the recommendations made by all the six groups would continue to be reviewed and monitored by the implementation review committee.

All six groups on various sectors also presented their reports to the prime minister. The salient recommendations of these groups are:

Divestment

• The management and responsibility of the entire divestment process should exclusively be with the Divestment Ministry.
• Stronger PSUs must enter the market first.
• The proceeds of the divestment should not go into the Consolidated Fund of India. They should be used to retire the public debt.
• There should be an awareness-creating programme to tell citizens about the benefits of divestment.
• There must be more expenditure on education, health care and infrastructure, higher growth, more employment, lower interest rates,
• All non-strategic government companies should eventually be brought down to 26 per cent government equity.

Power sector reforms

• Reforms must begin with transmission and distribution, and not with generation.
• For agriculture, tariffs must be increased over a pre-announced three-year period to Rs 0.50, Rs 0.75 and Rs 1.10 per unit.
• Subsidisation from state electricity boards, or SEBs, must be taken away and moved to state budgets.
• Target subsidies should be only for the poor, subject to a threshold monthly consumption of electricity.
• Monolithic SEBs must be broken up into four corporations to look after thermal generation, hydel generation, transmission and distribution.

Textiles

• Uniform structure of fiscal levies across all sectors, except handlooms, must be made.
• Industrial power tariff rates should be made applicable to all sectors of the textile industry.
• Knitting and garments sectors must be removed from small-scale industries purview to improve scale economies and competitiveness.
• Procedures for relocation/closure of unviable units must be simplified.
• A 'brand equity fund' for promotion of 'Made in India' label must be set up.
• Legal and industry knowledge infrastructure must be developed to respond to anti-dumping measures and other new non-tariff barriers.

Chemicals

• Offset of Cenvat (central value-added tax) on fuels must be allowed to improve cost competitiveness.
• Anti-dumping mechanism must be strengthened by developing knowledge infrastructure.
• Scientific knowledge based activities must be encouraged by exempting patented products from all central and local taxes, and upgrading the Patents Office.
• Industry restructuring must be facilitated by providing fiscal incentives for modernisation and allowing closure or relocation.

Tea

• There must be a single-point central Income Tax.
• Wage revisions should be linked to productivity increases.
• Investment must be made in brand building to obtain a higher value in overseas markets.

Sugar

• Sugar sales must be decontrolled fully by removing levy obligation and allow free movement.
• A futures market for sugar must be set up.
• Use of the sugar development fund must be allowed for modernising existing units.

Education

• Primary education must be made compulsory and free. Secondary education should also be compulsory.
• The growing resources in information and communication technologies must be leveraged to bring about smart schools that integrate computers, networks and content.
• Funding for universities must be reduced progressively to make them self-sufficient.

Strategy for WTO meeting

• The relevance of 'special and differential' treatment for developing countries must be re-asserted.
• A substantial reduction of tariffs must be demanded by industralised countries on labour-intensive and low-technology manufacturers must be demanded.
• While ensuring food security and protecting the interests of farmers, greater market access for exportable agricultural products must be sought.
• It must be ensured that sanitary and phyto-sanitary measures do not hurt agricultural exports and establish an effective, credible and unified domestic mechanism.
• Suitable changes in the anti-dumping agreement must be demanded.
• Domestic economic reforms (such as agricultural reform, de-centralisation, administrative, legal and institutional reforms and reforms of the labour laws) must be completed first.
• Macro-economic stability and reduction in government borrowing must be ensured.
• Divestment, privatisation and commercialisation of assets must be in focus.
• The capital markets must be broad-based to attract more Indian investors. Safeguards against 'financial panics' must be put in place.

Healthcare

• Private providers must be enlisted to deliver preventive care.
• A detailed plan for use of information technology in healthcare delivery, referral, training and administration must be readied and implemented.
• Additional tax on areas, which will increase the health care costs, such as use of tobacco and liquor, must be levied.
• The government must focus on primary and preventive healthcare programmes, apart from providing free and affordable healthcare to the indigent and needy sections of the population.

Industry policy

• A clear-cut compliance policy, defining the list of compliances, which an investor has to meet, must be formulated. If all the compliances are met, sanction should be automatic.
• Computerisation and updating of land records (as done in Andhra Pradesh) must be set in motion.
• Use of information technology should be intensive in all government departments.
• The need for government permission for closure/retrenchment/layoff must be abolished. Units should be allowed to close down after paying a mutually agreeable compensation to the employees.

UNI

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