The Economic Times, Last Updated: Aug 01, 2011
Calendar 2016 was a monumental year of structural and institutional reforms. During the year, we have seen the passage of key reforms such as GST and the Bankruptcy Code, as well as bold and revolutionary decisions including the landmark demonetisation drive.
To ensure this momentum gets stronger in the new financial year, ensuring seamless implementation of both GST and the Bankruptcy Code is vital. The advent of the JAM Trinity over the past two years has seeded a silent revolution that will transform India in the coming years. Now, as digital payments and gateways like the recently launched UPI platform gather momentum this year, we will see major opportunities for the banking and financial system.
Tax benefits will be critical for newly-generated savings of the working youth and also to boost spending. Especially against the backdrop of demonetisation, I believe this will be instrumental in providing an immediate thrust to household incomes & financial savings.
On the direct taxes front, to begin with, the 80C limit can be increased to Rs 3 lakh from current Rs 1.5 lakh; this will also help deepen the mutual fund industry and capital markets, as there is a large pool of funds which needs to be can be incentivised, from the Pay Commission.
As an additional step, I would also encourage bank deposits by reducing lock in for tax rebates to one year (from five years) and raise the threshold for mandatory TDS on interest income to Rs 50,000 a year (from Rs 10,000 currently).
Promote financial savings
As household savings in pension instruments in India is restricted to just 1.2 per cent of the GDP, it is also important to address disparity in post-tax returns of existing schemes like EPF, PPF, NPS by moving towards uniform tax treatment. Reintroduction of inflation indexed bonds to promote financial savings will also significantly lower reinvestment risks for pension, provident and gratuity funds.
Further, it is essential to make financial savings attractive by increasing inflation adjusted post tax returns and introducing product innovation. Granting exemption from reserve requirements for the gold monetisation scheme will reduce costs for banks by 50-100 bps and promote the adoption of E-Gold.
Incentivise cash-less transactions
A progressive, enabling regulatory and licensing framework will be essential for the vital, high growth FinTech sector, in order to safeguard all stakeholders and ensure cost and time-efficient transactions. Creation of a ‘Regulatory Sand-box’ for quicker turn around will further drive innovation in the sector.
Progressively enable lower cost of funds
I expect institutional reforms like GST to play a critical role in improving economic efficiency and lowering economic costs in the medium term. Against this backdrop, a vibrant Corporate Bond Market is essential for infra growth – a new trading platform for corporate bonds (on lines of government bonds) must be institutionalised; further, banks should be allowed to hold 0.5-1.0% excess SLR in high quality corporate bonds (AAA/ AA+).
Further, calibration of sectoral risk weights for bank lending in select sectors such as Affordable Housing and Renewable Energy, will be a sure-shot step to drive credit appetite. The Government may also look at relaxing guidelines for end use of ECBs, with relevant risk mitigants, to reduce cost of funds.
Provide support to MSMEs
Given the nature of their business, many MSMEs are facing short term liquidity crunch due to demonetization. To help this key sector tide over this transient issue, I believe a refinance window at RBI can be opened up (under SIDBI). Such a facility will also cushion the sector during the ongoing transition to a new ‘less cash’ norm.
Additionally, I believe there is a need for creation of a Centralized Portal and Repository for updated bank account details of all MSMEs. Close to 90% of India’s MSMEs are partnerships or proprietorships. Such a portal, with Udyog Adhaar linkage, will increase transparency of MSME financial data, enable automating financial assessment real time, thereby reducing decision making time and leading to further reduction in interest costs by 1 per cent.
The year gone by has laid the foundation for critical reforms in the country. Building on this, I believe India is at the beginning of a strong growth trajectory, with the banking sector playing the role of the principal change agent in this exciting journey.
– By Rana Kapoor ,MD & CEO, YES BANK and Chairman of YES Institute
Source- https://economictimes.indiatimes.com/plans.cms?planGroup=ETPNoTrial&dc=MT_3_49&cardType=1