More than a month has passed since the BJP government was sworn in. Enough time for the new ministers to sink their teeth into knotty economic issues. While Finance Minister Yashwant Sinha is busy with pre-Budget meetings, fresh policies on sectors such as patents, textiles, tourism, aviation, insurance and power are being finalised. Policies on these issues will be announced in eight to 10 weeks, the Government has promised.

Industry associations are engaged in the annual scramble to get their word across to policy makers. The Confederation of Indian Industry (CII) has proposed major revamp in the existing law regarding mergers, amalgamations and acquisitions.

In its pre-Budget memorandum submitted to Sinha the chamber stated that the definition of amalgamation under the Income Tax be reworded as "amalgamation would mean any amalgamation under a scheme approved by the court under Sections 391/394 of the Companies Act, 1956". The chamber feels that this wouldensure that all benefits under the Income Tax Act would accrue, on court approving the scheme under the Companies Act.

In respect of merger proposals covering sick companies and sanctioned by BIFR under Section 17(2) , CII is of the view that the Central Board of Direct Taxes should extend all the benefits available under the Income Tax Act to such merged or amalgamated companies, whether or not any particular technical condition necessary for availing those benefits is fulfilled or not.

The Associated Chamber of Commerce and Industry of India (Assocham) wants the Government to treat dividends remitted by foreign joint ventures (JVs) and subsidiaries to parent companies in India at par with domestic dividends. In its pre-Budget memorandum on direct taxes, the chamber has said that JVs and offshore subsidiaries are trading arms for global business and dividend remittances made by them should be exempted from income tax payment.

Alternatively, a specified percentage of the dividend income brought in byconvertible forex may be allowed as a deduction on the lines similar to the proposed provisions relating to export turnover or software exports. Sinha promised industry captains that decisive steps in the forthcoming Budget will reverse industrial slowdown and will put an end to the inspector raj.

In a pre-Budet meeting with industrialists under the aegis of FICCI, CII, Assocham and FIEO, Sinha, however, rejected suggestions by a section of the industry to allow a higher fiscal deficit to stimulate demand. The Finance Minister said the economy may not be able to bear the burden of a high fiscal deficit of Rs 85,000 crore.

Overhauling banks

The banking and finance sector is set for a serious overhaul. While no policy has been announced two key reports submitted to the Government have made suggestions of closing weak banks, and merging banks and financial institutions to strengthen their operations.

The Narasimham Committee on financial sector has recommended among other things dilution ofGovernment's stake, merger of public sector banks and true reflection of the non-performing assets which were pulling down the growth of banks. The committee headed by former RBI governor M Narasimham has submitted its report for the second time on financial sector reforms. It submitted its first report in 1991 to the then Finance Minister Manmohan Singh. The committee is believed to have recommended separation of RBI's role as monetary authority from that of a regulator of the banking system.

Another report by the Khan Committee on harmonising the role and operations of development financial institutions (DFIs) and banks has set the agenda for universal banking. The working group, which submitted its summary recommendations to RBI governor Bimal Jalan, strongly pitched for banking licence for financial institutions and mergers between strong banks and institutions. The report as has asked for the establishment of a "super-regulator" to supervise and coordinate the activities of multiple regulators in orderto ensure uniformity in regulatory treatment.

The seven member group headed by IDBI chairman S H Khan has recommended that management and shareholders of banks and DFIs should be permitted to explore and enter into gainful mergers.