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5 Reforms to look forward to in 2015
After a landslide election victory, stock markets are scaling new peaks in anticipation of big bang economic reforms from Narendra Modi-led government. India's stock market has produced a return that is second only to China among major countries in the world.
Here are five important reforms that stock markets expect in 2015:
The government holds majority stake in many public-sector companies. It has to reduce its shareholding in listed ones to meet guidelines set by the market regulator Securities and Exchange Board of India (SEBI). At a time when it needs to reduce its fiscal deficit - the amount by which it spends more than it earns, divestment is essential. The government has already started the divestment process with a 5% stake sale in the Steel Authority of India (SAIL), which garnered Rs 1,700 crore. Reports suggest that the government will sell a 10% stake in Coal India and 5% of its shareholding in ONGC in January. The budget in February 2015 could give an idea of the target set for 2015-16.
Many of India's tax laws are old. The government wants to change the complicated structure of indirect taxes - the amount companies pay on production and sale of goods and services. The current multi-tax system will be replaced by the Goods and Services Tax (GST). This will be a single tax levied by the central and state governments. After clearing issues with the state governments, the centre has tabled the Bill in Parliament. It is expected to be discussed and passed in the Lok Sabha in the Budget session in February.
Investments by companies and the government in new projects is very important for economic growth. Otherwise, growth stalls. In the last few years, many issues plagued companies, which wanted to invest in new projects. This led to a slowdown as they chose to stop expansion. The new government has started clearing proposals of various projects. Eight foreign investment proposals worth Rs 35 crore and electronic manufacturing projects worth Rs 6,000 crore were cleared in the last six months. However, more needs to be done. This includes, easing the process of getting environmental clearance, changing rules to make land acquisition easy for projects, and even setting up of a one-step clearance procedure to reduce time required in getting approvals. All these help making the investment process easier, thus encouraging more companies to invest. The government can also give awards for different projects to encourage companies further. Rules to raise money from financial institutions can also be eased as loans from banks are not profitable because of high interest rates.
Power sector reforms:
Power is very essential for economic growth; neither individuals nor companies can perform otherwise. However, the state of the power sector is poor. A key reason for this is the lack of availability of coal. Reports suggest that coal scarcity has led to a shortage of power production by up to 15,000 megawatts. To make matters worse, the Supreme Court in September 2014 cancelled 214 coal blocks allocated to private sector companies between 1993 and 2010. The court deemed that these blocks were not allocated in a transparent manner, leading to losses to the government. To give back the coal blocks, the government is conducting a new round of auction. It earlier faced hurdles because of inter-party politics. The government had to pass an ordinance in December to finally implement its plans for the coal auctions. It is now expected to be conducted in February or March this year.
PSU banks restructuring:
Nearly 77% of India's money is managed by banks owned by the government, according to RBI data. For an economy to grow, banks have to be financially stable. This is not the case with PSU banks. Public-owned banks are not competitive and succumb to government control. As a result, such banks are laden with bad loans. An increase in bad loans affects banks' profitability. The government has to reduce control on public-sector banks. This can be done by selling of stake in banks, giving more power to bank managements and reducing the interference of politicians and bureaucrats in the workings of the banks. The RBI has also, time and again, emphasized on the need for restructuring of PSU banks and reduction of government stake.
Rs. 58,425 Crore
The government, in its financial budget for FY14-15, mentioned that it expects to raise Rs. 58,425 crore from divestment of stake in the public-sector companies. The key contenders for the stake sales are Coal India, ONGC and NHPC. However, the government may not meet this target. It expects to earn Rs. 11,477 crore from stake sale in ONGC, Rs. 15,740 crore from Coal India and Rs. 1,976 crore from NHPC, according to a written reply by the Minister of State for Finance Jayant Sinha in the Rajya Sabha. This amounts to a total of Rs. 29,193 crore.