To plug GST evasion, government may soon launch e-invoice provision

In order to pull the plug on GST evasion, the government is working on a mechanism wherein businesses with a turnover exceeding a particular amount will have to generate electronic invoice either on a government portal or on the Goods and Services Tax (GST) portal.

Such businesses — above the specified threshold — will initially get a unique number for every e-invoice generated.

“The unique number can be matched with the invoices reported in the sales return and taxes paid,” a senior government official told Moneycontrol.

Going forward, businesses will be required to generate an e-invoice recording the entire value of sales.

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Last Updated : May 06, 2019 01:14 PM IST | Source: Moneycontrol.com

Policy | Why the MSP is not lifting agricultural prices

Nafed and other agencies are sitting over 35 lakh tonnes of pulses procured over the last three years.

Moneycontrol Contributor@moneycontrolcom
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Siraj Hussain 

Year after year, the Commission for Agriculture Cost and Prices (CACP) comes out with detailed analytical reports on price policy for major crops and support prices are declared by the government. The recommendations on price usually receive media attention but non-price recommendations, which are largely in the domain of reform process, are ignored. Due to a lack of political consensus, the government finds it difficult to implement non-price recommendations. So, Minimum Support Price (MSP) is used as an instrument to satisfy farmers.

The declaration of higher MSP may satisfy critical voices for the time being, but in due course media attention shifts to some other pressing issue. As a result, higher MSP remains only a paper tiger. In 2018-19, kharif and rabi MSPs for several crops were substantially hiked and farmers of paddy did benefit due to procurement. In the case of cotton, the prices remained higher than the MSP due to global factors.

While farm leaders demand that all farmers should receive MSP, the organisations handling procurement at the national level (FCI, Nafed, SFAC) are not enthusiastic about bringing more commodities under the ambit of procurement. In the case of wheat and rice, the procured stock is distributed under the PDS at a hefty cost to the government. The economic cost of FCI for wheat and rice in 2019-20 is Rs 25.06 and Rs 36.02 per kg, respectively, but the centre sells at Rs 2 and Rs 3 per kg. Thus, the Centre bears food subsidy of Rs 23.06 per kg on wheat and Rs 33.02 per kg on rice.

A similar dispensation for pulses and oilseeds procured by agencies (mainly Nafed and SFAC) is not available, and the stock is being carried for several years. When such stocks are sold in the open market, the agencies incur losses, which are to be reimbursed by the central government. Nafed incurred a loss of Rs 748.5 crore for groundnut pods procured in Kharif 2013. For chana procured in rabi 2014, Nafed’s loss was Rs 185 crore. By 2016, Nafed’s losses had mounted to Rs 1,083 crore. It was only in March 2018 that the government facilitated settlement of Nafed’s debt with banks.

Nafed and other agencies are sitting over 35 lakh tonnes of pulses procured over the last three years. While this stock will be helpful in containing price rises in case of deficient monsoons, a delay in the disposal of stock may impact the quality and will increase the economic cost. If losses on account of pulses and oilseeds procured in the last two years are not promptly reimbursed, Nafed may face a similar situation again.

At the state level, procurement agencies are worse off. Most of them are ill-equipped to handle even wheat, paddy and rice which they have been procuring for decades. In most states, paddy procured is handed over to rice mills and they deliver the rice to agencies over a 6-8-month period. Very few state agencies have an adequate number of quality control professionals required for the maintenance of stock. In states where a large quantity of wheat or rice is procured, several employees have been punished for quality deterioration, acceptance of the poor quality of rice, recycling, theft and fraud.

The substantial increase in MSP of kharif and rabi crops in 2018-19 has to be examined in this context. Without any reference to demand and supply, and global prices, the government announced MSP by giving 50 percent return over the paid out cost incurred by farmers. Thus, the MSP of kharif crops of Jowar and Bajra was increased by 42 percent and 37 percent, respectively. MSP of Safflower, a rabi crop, was increased by 20.6 percent but the market price is currently ruling at Rs 3,700-4,000 per quintal against the MSP of Rs 4,945. Any state agency procuring safflower at MSP would incur a huge loss.

Further, when the government holds large stock, the private trade is scared as it fears the government selling the stock at highly subsidised prices. The withdrawal of private trade further depresses the price in the open market.

At the height of the farm crisis last year, the government announced the Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA) which raised false hope as if the government would be able to secure MSP for all the 24 crops –7 cereals, 5 pulses, 8 oilseeds, raw cotton, jute, copra and dehusked coconut. The scheme was to have three components—Price Support Scheme (PSS), Price Deficiency Payment Scheme (PDPS) and Pilot of Private Procurement & Stockist Scheme (PPPS). PDPS and PPPS have remained only on paper and even PSS operations are limited to pulses and oilseeds, that too in some states only.

Those who understand commodity operations knew that it is not possible for any government to procure all the produce at MSP.

Ironically, the sugar industry which is required to pay the fair and remunerative price (fixed by the government), irrespective of the market price of sugar, is incurring huge losses causing delayed payment of sugarcane dues to farmers. This forces the government to come out with package after package for the sugar industry so that it can pay FRP to farmers. In the process, India produces excessive sugar and farmers in some states have to wait for more than a year to get paid. This is not all. India is facing some serious questioning in WTO for its policies on sugarcane.

In the last two years, several states have experimented with direct income support (Rythubandhu in Telangana and Kalia in Odisha) which prompted the centre to implement PM-Kisan on the eve of elections. It is not yet settled whether direct transfers can replace MSP for all crops or it should be paid to those farmers whose crops are not procured by the government. It is accepted by everyone that it is much easier to administer direct income support than physically procure all crops at MSP.

According to the Agricultural Policy Monitoring and Evaluation Report of OECD (2015), China provided Xinjiang cotton farmers a direct subsidy of CNY 2,000 ($323) per tonne from 2014/15. A pilot target price programme with a direct subsidy for soybean producers was introduced in 2014 in four northeast provinces of Heilongjiang, Jilin, Liaoning and Inner Mongolia.

Since India is always in election mode, similar reforms in India would require broad political consensus, in the absence of which, MSP would continue to be offered as a lollipop without seriously meaning to deliver fair price and income to farmers. The task is cut out for the new government.

Siraj Hussain is a Visiting Senior Fellow at ICRIER. He retired as Union Agriculture Secretary.

First Published on May 6, 2019 01:13 pm
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Last Updated : May 06, 2019 04:36 PM IST | Source: Moneycontrol.com

Government mulls performance-based review of export promotion councils

Niti Aayog and the Commerce Ministry are in discussions to evaluate the EPCs.

Kamalika Ghosh@GhoshKamalika
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In a bid to boost exports, the government is planning to begin a performance-based evaluation of the export promotion councils (EPCs) after receiving a directive from the Prime Minister’s Office (PMO).

Over two dozen EPCs could face closure or would have to undergo restructuring in case they are unable to meet their targets.

“The PMO some days ago suggested that we should see if any of the EPCs need support in order to boost exports. Later, the Niti Aayog decided to rank these councils. Some meetings have been held and we are still working on the process,” a senior official told Moneycontrol on condition of anonymity.

The government is evaluating the EPCs in a bid to increase their share of Indian exports in the product markets catered to by these EPCs.
“Discussions are also on on assigning mutually agreed upon targets to these EPCs and in case they fail to achieve them, they might face closure of have to be restructured,” the official said.
Niti Aayog  and the Commerce Ministry are in discussions to evaluate the EPCs. After the completion of the process, the EPCs will be ranked as part of an ongoing policy of developing indices and ranking on real-time basis.
Each council promotes a particular group of products or projects or services. The EPCs are funded by the government under the Market Access Initiative (MAI) and Marketing Development Assistance scheme to give support to export promotion.
The government spent Rs 270 crore in 2018-19 on MAI and has allotted Rs 300 crore for the current fiscal. Increase in export share of these councils, the extent of penetration into existing markets, and efforts to explore and enter new markets are some of the parameters being considered for evaluation of the EPCs.
First Published on May 6, 2019 04:35 pm
Last Updated : May 03, 2019 11:00 AM IST | Source: Housing.com

Macro Management | Should India move to full capital account convertibility?

The risk for a developing country like India has increased due to the adoption of unconventional policies in advanced economies

Rajesh Kumar@Rajesh_views
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The idea of full capital account convertibility keeps emerging in the public discourse from time to time. Last week, Reserve Bank of India’s (RBI’s) Deputy Governor B.P Kanungo addressed the issues in his remarks at the FEDAI (Foreign Exchange Dealers Association of India) annual conference in Beijing. In 2015, then RBI governor Raghuram Rajan had said that the central bank intends to move towards capital account convertibility. In 2006, then Prime Minister Manmohan Singh argued that there is merit in moving to fuller capital account convertibility and urged the central bank to come up with a roadmap. Consequently, RBI constituted a committee under the chairmanship of veteran central banker S.S. Tarapore, who chaired the committee on capital account convertibility in 1997 as well. In a way, it is encouraging that the policy establishment keeps reflecting on the issue, as foreign capital can help supplement domestic savings in achieving higher investments, which is necessary for sustaining higher growth.

But the big question remains: is India ready for capital account convertibility? The Tarapore committee defined capital account convertibility as “… the freedom to convert local financial assets into foreign financial assets and vice versa. It is associated with changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by, the rest of the world. CAC can be, and is, coexistent with restrictions other than on external payments.”

While India has been gradually opening up the capital account, it is often argued that as it integrates with the global economy, India will need to fully open up. Opening up the capital account is an attractive proposition as it could bring more capital at a lower cost and help fund investments.

However, it is also important to note that free movement of capital has risks and India has done well to adopt a gradual approach. Over the years, financial crises in different parts of the world, such those in East Asia and Latin America has moulded the global view in this regard. Notably, the International Monetary Fundin 2012, for instance, said: “Liberalization needs to be well planned, timed, and sequenced in order to ensure that its benefits outweigh the costs, as it could have significant domestic and multilateral effects…There is, however, no presumption that full liberalization is an appropriate goal for all countries at all times.”

Similarly, the Tarapore committee had said: “FCAC [full capital account convertibility] is not an end in itself, but should be treated only as a means to realise the potential of the economy to the maximum possible extent at the least cost.” However, it further argued that the flow of foreign capital is imperative as India has huge investment needs.

Therefore, it is important to allow the kind of capital that will benefit the economy with minimal risk. Kanungo highlighted the broad policy in the above-mentioned speech. The preference is to be given to flows in the real sector compared to the financial sector. Further, equity flows are more desirable than debt flows. In the equity segment, direct investment is better than portfolio flows. In the debt category, long term debt flow, and debt denominated in rupee are better suited. In terms of the further liberalisation of the capital account, India needs to reassess usual preconditions, such as “price stability, fiscal stability and stability of the financial institutions and markets.”

India runs one of the largest budget deficit among its peers and needs to significantly contain expenditure. Persistent large deficits are a risk to financial stability. In terms of price stability, while the inflation targeting framework is showing initial signs of success in containing inflationary expectations, it’s too early to declare victory on the price front. Further, the financial system is not in a desirable state. Banks, particularly in the public sector, are saddled with bad debt. India also needs to deepen its financial markets to handle the unrestricted two-way flow of capital.

Overall, India needs a lot of groundwork before fully opening up to foreign capital. Additionally, moving to full convertibility on the capital account would affect the RBI’s ability to manage the exchange rate.

Besides, the risk for a developing country like India has increased due to the adoption of unconventional policies in advanced economies, which can result in higher inflows or a sudden stop, depending on the policy stance. In such a situation, India needs active management both to retain competitiveness and preserve financial stability.

Therefore, Indian policymakers need to watchful. Although it is correct that India requires foreign capital to fund investments and maintain higher growth, it needs to be cautious while liberalising the capital account, especially for debt flows, as they tend to be more volatile and destabilising. Differently put, India needs higher foreign direct investment to push growth, but it is not prepared to handle the unrestricted flow of debt capital.

First Published on May 3, 2019 11:00 am
Last Updated : May 01, 2019 02:15 PM IST | Source: Moneycontrol.com

To plug GST evasion, government may soon launch e-invoice provision

Businesses with a turnover exceeding a particular amount will have to generate electronic invoice either on a government portal or on the Goods and Services Tax (GST) portal.

Kamalika Ghosh@GhoshKamalika
Representative Image

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In order to pull the plug on GST evasion, the government is working on a mechanism wherein businesses with a turnover exceeding a particular amount will have to generate electronic invoice either on a government portal or on the Goods and Services Tax (GST) portal.

Such businesses — above the specified threshold — will initially get a unique number for every e-invoice generated.

“The unique number can be matched with the invoices reported in the sales return and taxes paid,” a senior government official told Moneycontrol.

Going forward, businesses will be required to generate an e-invoice recording the entire value of sales.

Businesses would be given a software which will be linked to the GST portal for generating e-invoice. The threshold can be fixed on the basis of the value of invoice.

“E-invoice needs to be generated either on the basis of turnover of the registered person or value of invoice. Maybe it should be based on turnover threshold so as to avoid splitting of sales,” the official said.

The process of generating e-invoice would be similar to the one being followed for e-way bill on ewaybill.nic.in or GST payments.

The move is expected to replace the requirement of generating e-way bill for movement of goods, as invoices would be generated through a centralised government portal. Currently, e-way bill is required for moving goods exceeding Rs 50,000.

A committee, comprising central, state tax officials and GST Network Chief Executive, has been set up to look into the feasibility of introducing the e-invoice system to streamline generation of invoices and ease compliance burden. The committee is expected to give an interim report in June.

The new system is expected to check GST evasion. The focus of the government is now on anti-evasion measures to increase revenue and  compliance.

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