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Twin benefits in reform push

New Delhi, Dec. 31: The Congress-led government is likely to concentrate on a series of reforms in the new year, which would accelerate the pace of economic growth as well as help it win crucial votes in the general elections of 2014.

The first of the growth-cum-vote drivers will be the rollout of the direct cash transfer scheme, which will be implemented from tomorrow in 20 districts and expanded to 42 by March.

Officials said the scheme could be rolled out in all the districts by year-end, depending on the expansion of the centres of disbursal such as neighbourhood retailers, primary health workers and rural co-operatives.

Direct cash transfers will initially focus on scholarships and pensions but can later be used to give subsidies for cooking gas and payouts for the rural employment guarantee scheme to plug the leaks.

Fuel price hike

The next big step, which may not be a vote winner but is considered necessary to fix the government’s account books, will be an increase in the price of diesel and cooking gas.

Though the petroleum ministry wants to increase diesel prices by Rs 10 a litre over the next 10 months, this is unlikely to happen for electoral considerations. North Block officials hope to effect a single steep hike in diesel prices before the Union budget. The budget itself can then be turned into a populist exercise.

However, the real drivers of growth will be rate cuts by banks and issuing of new bank licences.

With the banking amendment act being passed by Parliament, the RBI is expected to issue bank licences to non-banking finance companies and large business houses in the first quarter of 2013.

The RBI is also widely expected to kick in more rate cuts. While interest rate cuts by themselves do not immediately translate into investments, they bring down corporate expenses and allow them room to plan expansions and investments.

Regulator role

Companies are also looking for procedural reforms such as the setting up of a coal regulator.

The Independent Coal Regulatory Authority Bill, 2012, seeks to empower the proposed regulator to decide coal prices. It will also have powers to suspend or cancel licences of errant coal producers. A coal regulator will be seen as a sign that India wants to step up the gas and open up mining to the private sector.

Besides, the government is working to cut the base price for another round of spectrum auctions, which should bring in more money to the exchequer and give telecom firms more radio waves.

Officials say Prime Minister Manmohan Singh is also pushing them to finalise the direct tax code, which would simplify laws, reduce disputes and improve compliance.

However, the proposed reforms in insurance and pension may continue to hang in balance unless the government does a better job at floor management inside Parliament.

The Congress-led coalition may not be able to muster the numbers needed to pass the insurance and pension bills. The insurance bill proposes to hike the FDI cap to 49 per cent. The pension bill proposes to give more teeth to the regulator and allow foreign investment.

 
 
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