Economy (Major Issues) 1st Aug. to 10th Aug. ( By Arun Joshi, Sri-Krishna Institute,9888933043)

Political solution to the stalled GST reform

The Centre, which has already bent backwards to accommodate states' concerns, has yet again showed willingness on its part to accommodate states' concerns on the veto power to the Union Finance Minister.
The Centre decided to have a state finance minster as Vice Chairman of the proposed Joint Council and limit the Union Finance Minister's veto power only to the extent of Central GST.
The Centre has already diluted its stand on a number of issues to get states on board. It has agreed to a three-rate structure for GST, in line with the recommendation of the state FMs panel, under which goods will attract a levy of 20%, services 16% and essential items a concessional 12%. A list of 99 essential items, exempt under the current value-added tax regime, will also be exempted from tax under the GST. It has also offered to compensate the states in full for any revenue loss on account of implementing GST.

Task forces to monitor microfinance institutions

Microfinance Institutions Network (MFIN), a self-regulatory organisation of microfinance institutions (MFIs) in India, has decided to set up seven task forces to monitor and manage the MFIs and look into credit bureau, transparency, code of conduct, human resource development, policy issues, product diversification and media relations.
Addressing a press conference here on Saturday, Vijay Mahajan, President of MFIN, said the organisation had made significant progress in transparency and credit bureau initiatives. It was already in discussions with leading credit bureaus. It was decided that all the 42 MFIN members would participate and co-operate with the task force to create a data base of micro finance clients.
MFIN, earlier this year, had laid out a code of conduct, which underscored fair practices, good governance and responsible lending. It called for limiting borrowers' group loan sizes to less than Rs. 50,000 in total from not more than three microfinance institutions. The code of conduct also wanted the MFIs to share data with the credit bureaus and adopt whistleblower policy in case of violations. Mr. Mahajan said MFIN had also signed up with MFTransparency.org, a global NGO, to promote transparency in the communication of interest rates to clients. It had also created task forces to work on various parameters of responsible lending.

Controversial ordinance set to become law

On August 2, the Securities and Insurance Laws (Amendment and Validation) Bill, 2010, was passed in the Lok Sabha. Contrary to what many were hoping for, the government is not allowing the controversial June 18 ordinance to lapse.
The Bill clearly demarcates the regulatory turf: the unit-linked insurance plans (ULIPs) will be regulated by the IRDA.
However as stated in the accompanying article, the fracas over regulation has since become a secondary issue.
The more controversial aspects of the ordinance, those that impinge on regulatory autonomy, especially of the central bank, have been retained in the Bill and the ordinance is set to become law. A new statutory joint committee to be chaired by the Finance Minister will be set up. It will settle all regulatory disputes over hybrid financial products.
In a weak concession to the numerous critics of the ordinance, the RBI Governor will be the Vice-Chairman of the new committee, a step above other financial regulators. However, it is clear that the Finance Minister will have the last say. It is also not clear what the existing high-level co-ordination committee on financial markets will do, once the new statutory committee comes into being.