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Essay: FDI cap on small scale sector redefined

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  • Published: 21 June 2012*
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  • Words: 743 (approx)
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FDI cap on small scale sector redefined

FDI Cap on Small Scale sector redefined

The Government removed the 24% holding limit on foreign entities in the small scale sector and replaced it with sectoral caps. Thus, these medium and small enterprises will be treated on par with other large players in their respective industries as far as FDI is concerned.

However, Govt. has marked out 21 items wherein non small and medium players would require FIPB approval if they want to bring in FDI greater than 24%. Some of these items are pickles, utensils, bread, stainless steel chairs etc.

Background: Small firms were those that had an investment of upto 5 crore in plants and machinery and less than 24 % ownership by foreign or large enterprises. The old law restricted foreign partner equity participation to 24% and the precursor to any increase had to be de registration as a small scale unit.

Analysis: Owing to relatively high interest rates and the economic climate the small and medium enterprises have been starved of credit for the past few months. Thus, high cost borrowing has been impacting bottom lines of SME’s. Opening up of the sector to FDI will not only reduce interest costs and borrowing dependencies but also bring in better technologies and expertise.

This is a step in the right direction and should unleash a new wave of progress and development in the SME sector which constitutes more than 90% of India’s manufacturing sector.

YS Rajashekhar Reddy dies in Chopper Crash

The dynamic and genial Chief Minister of Andhra Pradesh passed away in the wee hours of Thurday morning after his BELL 430 helicopter went missing over the Nallamala hills on Wednesday.

He was on his way to Chittoor to monitor the execution of the Development programs initiated by the Government.

Analysis: This unfortunate incident is likely to affect the infrastructure sector the most in the state. YSR had started a number of initiatives in the state which included the sanctioning of 54 SEZ’s for AP. He earned the moniker ‘Apara Bhagirath’ ( Today’s Bhagirath) after completing close to 41,000 crores worth of irrigation projects under the Jalayagnam scheme.

The Hyderabad Metro too was his brainchild and it was his forward looking approach that ensured the setting up of TATA advances System Helicopter Unit and NTPC-BHEL Power project.

A lot of this developmental work will be affected if the next incumbent is unable to carry forward the infrastructure creation in the state at the scale and speed YSR did. Also, YSR’s proximity to Sonia and Rahul Gandhi ensured a had a lot of clout in the administrative matters enabling him to bring about these massive changes. Post his electoral victories in 2004 and 2009 he was catapulted to be a national leader and hence could get a lot of SEZ’s approved for AP.

YSR also shared a cordial relationship with industry and led to greater participation of corporate in the states developmental activities. He was perc eived as a visionary and a person who was accessible and responsive.

However, his credibility and propriety was under strain as money laundering and corruption charges were leveled against his son for awarding of number of contracts.

Govt repeals imposition of service tax on goods sent by rail

The Govt. had levied a 10% service tax on goods transported by rail during this year’s budget. This tax was to come into effect from 1st September 2009. In press release, the Government announced its decision to withdraw the imposition of the tax.

Analysis: The Railways had opposed this move owing to a sharp decline in freight revenues due to the economic slowdown. This should provide respite to the railways.

Goods such as Coal, Steel and Cement which are the major users of Indian Railways have seen an uptick in prices leading to lower demand. This tax would have further slackened demand and burdened the consumer. This move also sends out a strong signal on the Government’s emphasis on infrastructure development as these are critical inputs for this sector.

This tax would have also made our exports less competitive and in scenario where we have reported falling exports for 13 months, the tax respite is welcome move.

Although this is a deviation from Government’s stance to widen the tax base and target of collecting Rs 650 Billion from service tax; driving growth is of paramount importance in today’s circumstances.

The Government not only needs to do something it should also be seen to be doing something.

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