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External Sector


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Budget 1998-99
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External Sector

To strengthen our external payments situation, we need to revitalise our exports and encourage more non-debt inflows in the form of foreign investment. The following steps will be taken:
The existing scheme of export credit in foreign currency is being revamped to make available pre-shipment and post-shipment credit at internationally competitive rates and bring about major simplification of procedures. The RBI will separately announce the details.
Studies show that our exporters are handicapped by high transaction costs related to foreign trade licensing, tax procedures and the banking system. I am establishing a high powered committee under the Revenue Secretary to go into this problem and make concrete recommendations for reduction in such transaction costs within three months.
In order to make inflows of foreign direct investment hassle free, the Government has decided to expand the list of automatic approvals covering important industrial and services sectors. The expanded list will be announced separately by the Minister of Industry. Wherever FIPB clearance is required, henceforth FIPB will give the decision within 30 days.
There have been complaints about slow implementation of foreign direct investment (FDI) approvals. To ensure that such approvals are quickly translated into actual investment inflows and projects, Government has decided to create a Foreign Investment Implementation Authority (FIIA) within the Ministry of Industry, which may also include representatives of State Governments.
Households and various charitable and religious institutions hold a huge amount of gold in the country. These are idle assets earning no income for the holders, who often incur costs to ensure security. This is a somewhat anomalous situation considering that the country spends thousands of crore worth of foreign exchange each year to meet fresh demand for gold holding. To mobilise this idle gold, I propose a new Gold Deposit Scheme. Selected banks will be permitted to accept gold deposits and issue interest bearing certificates or bonds which, on maturity, can be reclaimed in gold. This would free depositors from the problems of storage, movement and security for the gold in their possession, while providing them with a regular source of income. For the country, by recycling idle gold, we should be able to reduce our dependence on imported gold. To encourage this process, I propose to exempt the interest on the gold deposit bonds/certificates from Income Tax and the value of assets deposited in the gold deposit scheme from Wealth Tax. Furthermore, any capital gains made on these gold bonds/certificates through trading or at redemption will be exempt from capital gains tax. I would also urge all State Governments to consider exempting movement of gold covered under the scheme from octroi, sales tax, stamp duty and similar levies. I must point out that the scheme will not enjoy amnesty. The Reserve Bank will take necessary steps to implement the scheme.
In my last Budget, I had proposed a set of initiatives to strengthen the participation of Non-Resident Indians (NRIs) in the development of our country. Encouraged by their response, I now propose a few more initiatives:
We shall extend the facility of automatic approval for investment up to 100% by NRIs/OCBs for all items, except those which attract notified FDI equity caps, or compulsory licensing or public sector reservation under the Industrial Policy or are reserved for the small scale sector. 
Our major stock exchanges have screen-based automated trading in securities. It is now technically possible for them to open trading terminals abroad, which would facilitate the participation of NRIs in our capital markets. I have asked the Securities and Exchange Board of India (SEBI) to work out the modalities for this purpose.
The existing RBI approval mechanism for NRI investment in Indian mutual funds will be simplified to a post-facto reporting mechanism.

 

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