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Economy roundup: Hurdles remain for an interest rate cut

03 October, 2016

As the Reserve Bank of India kicks off its bi-monthly review of the monetary policy this week, speculation is rife over whether the central bank will reduce interest rates. This will be the first time that a six member monetary policy committee, led by new RBI governor, Urjit Patel, will decide on interest rates.

Although Patel has not spoken publicly on the issue, in a recent, closed door interaction with a select group of economists, the new central bank chief had hinted that there may not be a rate cut this time, but in December. Experts feel, that while inflation has eased, the RBI may tread with caution, and hold off a cut, at least for now.

Even as the amnesty window to declare black money assets has ended, the government has said the income tax department will ‘not be vindictive’ while trying to detect tax evasion.

In an interview to The Economic Times, revenue secretary Hasmukh Adhia has said that while the government will not challenge valuations of assets declared by taxpayers under the voluntary disclosure window that ended on 30 September, in cases of gross undervaluation, the valuer will be held liable and not the taxpayer. The scheme has resulted in a disclosure of more than Rs 65,000 crore, leading to a tax mop up of almost Rs 30,000 crore.

Meanwhile, even as the exchequer gets some extra cash from the voluntary disclosure of black money, the government may fail to reach its targets of raisings via the auction of telecom spectrum. The auctions, that kicked off on Saturday, have thus far seen a lukewarm response, with bids worth only a little over Rs 53,000 crore being made during the first two days. Debt laden telecom companies appear to be playing safe, rather than bidding aggressively, with the 700 MHz band finding no bidders thus far. The most action has thus far, been seen in the 1800 and 2100 MHz bands, after five rounds of biding.

The government has set up a four member Insolvency and Bankruptcy Board of India (IBBI), which has been tasked to regulate the functioning of insolvency professionals and insolvency agencies and information utilities under the Insolvency and Bankruptcy Code 2016, The Hindu Business Line said in a report. The IBBI will be headed by former Competition Commission of India (CCI) member Madhusudan Sahoo and will comprise senior officials from the ministries of finance, law, corporate affairs, and the RBI.

The government is reportedly preparing to dilute stakes, to below controlling levels, in several public sector undertakings including the Steel Authority of India Ltd, BEML Ltd, Container Corp of India and some unlisted companies like Cement Corp of India, Scooters India, Hindustan Newsprint and Certification Engineers International Ltd.

The Economic Times reported that the stake sales could see government holding in several of the listed PSUs fall below 49%, so that they are free from its control and are managed professionally. The government could also entirely exit such unlisted businesses that serve no strategic interest, the report said. The latest move is based on a NITI Aayog report. The government has a divestment target of Rs 56,500 crore this fiscal, out of which it has got Rs 22,000 crore thus far.

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Economy roundup: Hurdles remain for an interest rate cut

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